Virtual Worlds: Second Life

July 2006

Filling the cover of the May 1 issue of Business Week was the image of an attractive computer-generated woman in a stylish print dress. The headline read: “She’s fictional, lives inside an online game, but earns thousands of actual dollars there. And she’s not alone.”

So what does Anshe Chung do to earn her thousands of dollars? She has a virtual land development business. The net worth of her virtual holdings and game currency is now $250,000 real dollars.

Welcome to Second Life, an online “game” whose economic activity is dramatically blurring the distinction between virtual worlds and the real world.

Online games are universes unto themselves, and are incredibly popular. World of Warcraft is the most popular, with some 6 million subscribers. These “massively multiplayer online games” involve thousands of people navigating 3D environments.

In all of these games you assume an identity, called on “avatar.” You actually appear in the game as a little person or droid or whatever. You interact with the environment and with other players. The type of interaction depends on the game. As you might expect, World of Warcraft entails a conflict: the Horde's forces versus the marines of the Theramore Isles. The universe of this game comprises many different roles and many different locations. From the description, it almost feels like a player is cast in a movie. And, as in life, you can build your status and reputation — and power.

This game has a history, an ongoing narrative, and, apparently, an eventual outcome. Game over. And then a new scenario, and a new iteration, emerges from the ashes of the old.

Second Life is different. Unlike World of Warcraft, in which the gamemakers create the universe and people participate, in Second Life the players create the universe. Linden Labs, the developer of Second Life, has made available a powerful set of tools so that individuals can make clothes, build housing developments, start businesses, and anything else that takes place in an economy.

So what sort of action happens in this “game”? Essentially whatever you’re interested in. You can visit virtual casinos, go shopping for clothing for your avatar in virtual malls, go dancing at nightclubs, drop in on special events. You can chat with other players, attend meetings, play games, and on and on.

Everything that’s there is built by players. And typically, things cost money. You pay with Linden Dollars, which are currently exchanging for U.S. currency at about 300 to $1. You can buy a home furnish it with things you buy or create. Business Week reported that earlier this year, there were some 4.2 million transactions worth nearly $5 million in a one-month period.

In the game Entropia Universe a player paid $100,000 in real money for a space station, hoping to eventually make a profit by charging other players rent and taxes. Participants in this game can now receive an A.T.M. card to withdraw the money they make in this fictional world.

And where there’s money being exchanged, there are also disputes. According to the Second Life Herald, which I picked up at a kiosk in Second Life, last month a resident filed a lawsuit against Linden Labs as a result of land deals that didn’t work out. Imagine how the courts will deal with this one: a civil suit being fought over virtual assets.

And the IRS is eventually going to have to decide whether virtual assets are taxable.

It’s not just the intersection of the virtual and real economies that’s interesting. It’s also the manner in which these games are becoming microcosms of economic activity — which, according to some experts, are fascinating testing grounds for unregulated models of economic organization.

In addition, Second Life is being used by corporations for a variety of purposes: creating simulations for employee training, holding virtual meetings, extending their brand into virtual space.

One marketing firm uses it to quickly mock up and show designs for ads and posters, etc., in a 3D setting to clients around the world, and is saving an estimated $170,000 a year.

To use these online games you typically need to download software and have a fairly powerful computer as well as a broadband connection. Second Life is free, but it costs $10 and up a month for upgraded service, which lets you own land, build a home, and more.

So if you don’t have a life, try Second Life.

© 2006 by Jim Karpen, Ph.D

E-mail Jim Karpen