Tuesday, January 30, 2007

Great VideoGames We Will Never See

A few friends of mine and I have been coming up with a list of the great cross licensed game titles that will never get made. Here's a sampling, presented David Letterman style:

(5) Anne Summers' Mario Party

(4) The Sims: ALIENS

(3)
Quakedogs

(2) Alien vs. Pokemon

And the number one cross license.....

(1) WWF Disney Princess Smack-Down

Wednesday, January 24, 2007

Another interesting note

Reading over their website I note that you cannot pay any of your player fees (account fees, land fees, etc) in $L. Its all $US. Take a look.

So a $L isn't even backed by the operators and the inherent services of the game.

They want their pay in cash.

Improved Slides

Fixed some minor glitches. Available now here

A quick post with some slides

A friend and I white boarded the flow of money in Second Life and came to some I think interesting conclusions.

I've attached a slide-set that basically captures what we white boarded here.

Second Life, Second time: Ponzi, Pyramid or Profit?

So, I've been doing some more research on Second Life, both reading up on other people's writings and talking to people who I trust to give me honest information on their experiences.

The most interesting thing I've read so far is this: http://kunikos.blogspot.com/2006/12/is-second-life-elaborate-pyramid-scheme.html

So is Second Life a pyramid or ponzi scheme? To try to answer that question its good to start with definitions.

A pyramid scheme is one where people are ordered in a hierarchical pyramid fashion. The owner of the pyramid is the top and then there are N people under her and N people under each of them, and so on. It costs a fee to join the pyramid and that fee is paid to the people above you, who in turn pay a portion of the fee to the people above them, and so on. So called "multi-level marketing' schemes are basically pyramids with just enough control and real value to keep them on the right side of the law, at least in theory. (This is why Amway for instance has a great big bold lettered rule saying you must sell most of the product you buy, not consume it yourself. However every Amway meeting I've ever been at the people organizing tell you to ignore that rule. If you do, you've just become a pyramid participant.)

Its easy to show mathematically in such a scheme the majority of the money flows to the people at the very top and the majority of the people, the base of the pyramid, lose money. Most crooked investment schemes bleed the last people in. This is the so called "last-sucker" principle.

A Ponzi scheme is also a "last-sucker" scheme, but in a Ponzi scheme its even more dishonest. In a Ponzi scheme investors are typically promised some hard rate of return for invested money over some period of time. Initially, the Ponzi operator pays this. He does so by using the cash of brand nw investors to pay the old. However since the money isnt actually invested, hes really using the investors principle to pay mock interest. As long as enough new people keep joining he can keep this up. The principle he doesn't use for interest, he puts in hgis own pocket. At some point he is "broke" and stops paying everyone. Noone gets their principle back (its gone) and in general what they've been paid in "interest" is less then they put in. Everyone gets burned, but the newest guys in get burned the most.

So, how does Second Life compare to these schemes? The cost of a Second Life "business person's" initial Linden Bucks is their "investment" in the scheme of Second Life. They are putting their real-world value into the economy of Second Life. Like both Ponzi and Pyramid schemes, "investors" buying Linden bucks are buying nothing of actual value. There is no place outside of the scheme (in this case, Second Life) that they have any value. Their only real world value, as I showed in my first Blog, is in getting new investors to buy them by investing their real money in the Second Life economy.

This has all the earmarks of a Ponzi scheme. The last "investors" when noone wants Linden Bucks (or when Second Life shuts down) will lose the entire value of anything they have invested. The original "investors" will lose anything they still have in Linden Bucks. Some second lifers believe that Linden Lab will rescue them in the event of a Linden Buck crash by buying on the market, but they do not have any obligation to. Nor do they have a clearly earmarked and documented fund by which you can gauge how much of a crash they can absorb.
This is the reason for FDIC insured accounts. They were created after the depression to put a cushion agaiunst crash in the banking syste. However even our government cannot stop a full scale crash. When Chemical Bank was threatening bankruptcy 30 odd years ago, the government created all sorts of incentive for them to be bought hy another bank because, if they failed, the FDIC couldnt cover all their obligations.

Second Life though has none of these real world concerns. If the market crashes, they can just close the game and walk away with the money. Even if they honestly tried to support the market it is unknown how much they could absorb without going bankrupt and having the same effect.

So, like a Ponzi scheme, your return on your Second Life investment of both money and time is dependant solely on new blood coming into the game. Also like a Ponzi scheme, Second Life skims their cut off of the new money coming in (again see my previous blog.)

So, what do you think? I know my conclusion.

In my next blog I'll talk about someone I've found who actually is making some significant money in Second Life-- and all the reasons no same investor would ever invest in his "business."

Friday, January 19, 2007

Second Life: Snow Crash or Snow Job?

A friend of mine and well known game industry veteran had this to say about Linden Labs: "Those guys are good at one thing-- generating PR."

Well, they are certainly good at that, but lets look closer and see what's behind the curtain, shall we? I recently had a mild debate with another friend who is a second life believer. Lets see what he had to say and what the facts really are...

Statement: "Second Life is unlike WOW (or any other MMO) because Blizzard won't buy your gold for real money!"

Reality: Neither will Linden Labs. Its hidden pretty well, but if you go to the "Fees" and look down near the bottom, under the heading "Process for Requesting US$ Transfer" you will find a link for details. If you click on it and go to that page you will find the following fine print on their money withdrawal policy:

Net proceeds from your sales of Linden Dollars remain as credit on your Second Life account, and this credit is automatically applied to your account fees as described here. If you do not wish to apply your Linden Dollar sales proceeds to your fees, you may process this portion of your account credit to a payment to you.
So what does this really mean? It means that Linden Dollars (L$) you earn within the game are worth nothing until someone else agrees to buy them for real world money. Then, if you want, you can keep that money in the game in L$ or take it as real money. No other money can be withdrawn from the game and Linden Labs makes no promise to buy anything on the L$ exchange. Furthermore, Linden Labs takes a cut of what you got for that money in the form of a transaction fee of 30 cents plus 3.5% of the actual dollars spent plus a $1.00 withdrawl fee.

It is true they reserve the right to play their own market, but since they control the economy, this is only a good thing if your best interests happen to align with theirs. If not, your playing against the house and thats always a sucker bet.

In the end, its no different then trying to sell WOW gold on ebay, except that ebay isn't playing and controlling the market for their own unclear ends.

Statement: "In second life you can have a real business and make real money!"

Sure you can, assuming you can actually sell your L$ that you made to someone else. Again, this is no different ultimately then gold or item farming in an MMO, which some people are indeed turning into big business. There's a reason why its mostly taken root in countries with cheap available labor. Its very labor intensive and the real world return per hour is generally lower then minimum wage in the US.

In the end though, just as in any other MMO, what you have is a virtual item or items that must be sold to someone willing to pay real-world cash for it. What its worth very much depends on what someone is willing to pay at the moment. And the last guy left holding the hot potato when potatoes go out of fashion is just stuck with a worthless item.

Not that Linden Lab cares. Its already made its money in real world dollars not L$, every time the commodity changed hands.

Statement: "You can start your own virtual business!"

This is directly from their web page and links to a page listing all sorts of wonderful business opportunities "YOU can do from your home!" Is your late night infomercial bell going off? Mine sure did. Just like those infomercials that offer you the information to start your own business, Linden Lab lists off 30 or so example and states, "Thousands of residents are making part or all of their real life income from their Second Life Businesses."

Note the wording, "part or all of their real life income". Who would qualify as one of their thousands? By that wording anyone who ever managed to sell a single Linden Buck to someone else. $1.00 made this year would be "part of my real world income." The government would want taxes on it... after the taxes I pay Linden Lab to even get it out of the game and into my pay pal account.

As in any offer to sell you a chacne to make your million, your first question should be "if the opportunity is so good, why don't you quit your job and do this one??" The real answer is always the same, because the real money is in selling "opportunities" to suckers hoping to get rich without having to work for it.

Statement: "Real users are making real money!"

Likely this is true. The first ones in on a pyramid or ponzi scheme make some real money too-- it doesn't mean it isn't a con. How much those people made in real world dollars-- how many real world dollars they've withdrawn from the game-- is notably absent from Linden Lab's fancy statistics page.

So too is how much Linden Lab have collected in fees or any information that would allow you to calculate that such as how much real world money has been spent in the currency exchange, how many L$ have been bought directly from them or how many transactions there have been, or how many paying users there are. All in all Shakespeare described this page the best "much sound and fury, signifying nothing."

Statement: Big Companies are investing in Second Life virtual real estate.

I work for one of those big companies Linden Lab likes to mention and let me tell you who is paying those fees-- its our PR department. And why? Remember the first thing I said above, if Linden Lab is great at one thing it is publicity and promotion. They managed to make themselves into a bit of a flash in the media pan.

They were then smart enough to fan the flames. The flash got them one big account. Making a LOT of noise ABOUT that account got them more media attention and more accounts. And so, like sharks in blood, the PR flacks feed on each other until the day, not long from now, when they realize the media has stopped caring . Then they will abandon ship faster then rats on the titanic.

Conclusion:

I applaud second life's PR and marketing folks. I have never seen a snowball ridden so skillfully and successfully down a slope in my life. But at some point, however big that snowball gets, it will hit the bottom of the hill and stop growing. And then, just like in a Ponzi or Pyramid scheme, the thaw will come and anyone left holding the bag will see all value they thought they had in the world of Second Life melt away just as fast.