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 No other money can be withdrawn from the game and Linden Labs makes no promise to buy anything on the L$ exchange.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.