There’s a new market of 3.4 million people just aching to spend money on goods and services. It’s growing over 50% a year, is easily accessible, has a world class infrastructure, and provides immediate quantifiable marketing feedback. Some new oil-rich kingdom in the Middle East? An African country sitting on top of a monstrous diamond mine?
Nope, it’s online. Virtual. It’s Second Life.
I first heard about this virtual community over a year ago and chalked it up as a fancy video game for adults that never quite grew up and had way too much time on their hands. Then I heard about companies, real physical companies, creating a virtual presence in Second Life and I made a mental note to take a closer look, but never got around to it.
Then I read about the first millionaire created within the virtual Second Life world. A real millionaire in real U.S. dollars, after two years of virtual wheeling and dealing from a $9.95 investment. Not a bad return. But how is that possible?
When you sign up, and a very basic membership is free, you create a virtual presence using an avatar… an image you select to represent yourself. A surprisingly realistic three dimensional world is created right on your screen where you can interact with buildings, vehicles, and other members. Objects are created from seven basic shapes, and the member owns the rights to that design and object, and virtual land is also available. Voila! A market has been created. Members can buy and sell each other’s objects and land using virtual money, but since the member truly owns the IP of their designs, there is a direct real value. Therefore currency exchanges have sprung up, with a floating exchange rate, where the virtual money can be directly converted into real U.S. dollars.
Members are becoming real live millionaires by creating virtual value that represents real value to other members. The Second Life home page has the current stats: 3.4 million current "residents" with over 20,000 logged on and interacting at any one time. And here’s the kicker: $1.3 million real U.S. dollars were spent in the last 24 hours.
Some of us have had problems with bankers and brokers that reap huge rewards by simply playing a middleman. Do they really create value? I supposed by facilitating a market they do in some sense. But what about these virtual dudes? What real societal value has been created? Yet people, like you and me… not the owners of Second Life… are making millions of real dollars by exchanging virtual products that don’t exist in the real world. Go figure. I keep on repeating that because it seems so astounding to me. Or perhaps it’s more of a "damn, why didn’t I think of that?"
But with $1.3 million real dollars changing hands in a virtual world every day, real companies have been quick to jump in and create a virtual presence. IBM now has 300 employees conducting virtual business in Second Life, and the image on the right is IBM CEO Sam Palmisano’s virtual self doing business in a virtual China. They are investing $100 million, real dollars, in it. And there are even press releases announcing real companies providing virtual voice and data services to the virtual world.
And this virtual world also includes major automakers. Toyota was first to enter early last year, promoting it’s Scion brand. Just this week it took the additional step of announcing new models simultaneously in the virtual and real world. GM’s Pontiac division followed suit late last year by buying 96 virtual acres and building an elaborate Solstice dealership.
Cars in the virtual world are a neat trick. Keep in mind they have to be built with just seven common shapes, and standard models also have to compete with cars built by individuals. Take a look at some of them here. But the most important aspect is simplicity: complex designs with large numbers of parts require more processor time to display and move on the computer screen, therefore a fast car is also a simple car. Competitions are held for the fastest car, and there are instances where the car can move faster than the world around it… like a car going across a bridge before the computer can completely display a complex bridge. Brings a whole new angle to "excellence through simplicity."
Ok, so we have car companies joining the thousands of other real life companies creating a presence in the virtual world. How about a manufacturing factory. Yep, there are several. Dell has created a very serious virtual presence with an entire "Dell Island." It includes a rather elaborate factory complete with virtual assembly lines. Those PC’s are then sold to the virtual residents.
Before you start laughing, remember that real people are becoming real millionaires by playing virtual capitalist. Can you afford to ignore this new world? Sort of gives a new meaning to the "haves" and "have nots"… is having something virtual really having something, or not?
Perhaps this is how GM is going to tackle their quality reputation. A car with no real moving parts and only seven fundamental components should be pretty reliable. At least virtually.
Andy Smythe says
That is the wildest thing I’ve heard of in years. Millionaires? IBM with 300 employees investing multiple millions? All for virtual products? That is crazy like an alternate universe. I better go figure this out before I miss an opportunity. Thanks for the heads up.
Value? The customer defines value, so if someone is willing to pay for it that means value has been created. Value need not be universal (selling ice to Eskimos, for example) for it to be real.
That being said, I still think it falls closer to PT Barnum’s perception of customers.
As the virtual reality technology gets more and more detailed this will be a huge market for just about everything. There can be huge societal benefits to it. Imagine in your real or “first” life you are an accident victim who has lost both legs and an arm. But in your virtual “second” life you are still whole and healthy and you can create, buy, and use a multitude of items you can not in your “first” life. Not only is this virtual reality a benefit for you, it makes you a consumer of products you normally would not use, thus expanding the market. This could go on infinitely. We could all have so many “lives” that we would only be limited by time. The market possibilities are endless.
Joshua Newman says
There is a Philip K Dick short story very similar to this, and for the life of me, I can’t recall the name or find it on the web. It’s set in a post-nuclear eastside San Francisco Bay Area, where the adults deal with their sorrow of a lost world, by playing a game of “life” with immensely complex doll houses. Happily, the adults are contrasted with the children who play outside and are more confident in dealing with the roaming coyotes and snakes then their parents.
The success of “Second Life” tells me that people in rich industrialized countries have too much time on their hands and not enough visibility for the problems that face our country and world. It’s interesting an interesting phenomena, but in a sad and horrifying way.
Barry "aka the Hillbilly" says
Thanks for the interesting story Kevin.
I have heard several things in the last couple of years about the internet that made me really think.
In the last year I heard a story on npr about virtual sweatshops in China. I thought they had to be kidding, but they weren’t. I’m not a serious gamer, so I may not get this completely right. But basically these people in China were playing video games all the time to build up enough points to create the special super duper magical sword. That sword was then sold through some electronic market mechanism to game players who didn’t want to spend the time playing that it would take to get the sword. I was in awe. I got to thinking, I wonder if it’s better working in a sweatshop in china making virtual things ? It’s probably better than working in the sweatshop that makes underwear all day.
Then in the last several weeks there was another story on npr concerning the video game industry. I believe they said that the total revenue from this industry was twice as big as the NFL, MLB and the NBA combined. I may not have heard that right, but anyway, it’s pretty big. They then went on to talk about a professional video game player (virtual athlete) who lived in Colorado I believe. Apparently the kid was making some big bucks.
The second life thing is interesting and Mike brings up a good point about value.
I just wonder if the IRS has set up a Virtual Office yet !!! I wonder if you have to file a tax return in Virtual World ????
The whole thing is interesting and thought provoking. I just wonder how they will keep the less desirable parts of society from showing up in the virtual world. The pedophiles, mafia, oldest profession, etc.,
You gotta wonder how long it will take for the Injury Attorneys to have billboards over there.