The departure of Rezzable had me re-thinking what it takes to build a business in Second Life, or maybe it was more the comments on my post, most of which seemed to express one of two thoughts: “yeah, it was never clear what Rezzable was trying to do” or “the whole thing’s a pyramid scheme anyways and Linden Lab is on top.”
Now, I’ve long held a few beliefs about this, things I can’t seem to shake, and one of those beliefs, I suppose, is along the pyramid scheme lines, but it’s not because Linden Lab is a giant Amway distributor or something, but rather because they set up a world in which there are no sinks other than attrition - virtual goods don’t die, they don’t wear out, and they don’t combine with other virtual goods to become potions or armor sets or whatever. In Second Life, virtual goods live forever, or at least at the bottom of your inventory, which for me anyways is a sink of a whole different nature.
So my first belief is that the virtual goods economy, if under-pinned by a static technology or user base, is unsustainable. The question therefore becomes whether the technology will remain static or the user base will grow. Either way, it’s a “semi pyramid scheme” only so long as Linden Lab doesn’t take action on either: they either need to continue to improve the technology, or increase the user base, and preferably, obviously, both.
See, there’s a challenge in virtual goods: in a game, you intentionally create wear and tear. Your armor wears out. You need to combine herbs to make a potion which you then consume. This demand, supply and removal cycle creates an economy of goods. But in Second Life, the economy of goods doesn’t have scarcity. Scarcity was instead built into the concept of land and the prim limits within that land. I can own a million couches, but if I don’t own a million sims on which to rez them, they sit silently in my inventory never to be seen again. And, realizing that, I’m not so likely to buy too many couches.
This is also, to my mind, why the fashion and skin business is so successful - because you aren’t limited to land, all you need to do is scrounge a few Lindens together and you can look like a model, there’s no prim limit on your attachments (other than the bouncer at some event who complains about your ARC).
Now, scarcity of land, where there’s a natural restriction on how many prims can be rezzed in the world based on how many people want to shell out the real world dollars to own some virtual real estate places a cap of sorts on how large the demand curve for virtual goods can be. You only need a few couches, or one house, although sure, you swap it out now and then, move from a beach house to a castle or whatever.
And scarcity of land, and LOCATION of land, used to be the counter force to the cap on demand. Because if you SUPPLIED virtual goods, the best way to fulfill the not-limitless demand was, well, location, location, location.
This started to change when out-of-world commerce kicked in, and has become institutionalized with the purchase of XStreetSL by Linden Lab. Sure, it’s still location - you can get a better location through better keywords, and certainly through advertising, but regardless, this decouples the counter pressure of land ownership for the suppliers of goods from those who demand them.
This reshuffling of what land means, with virtual goods being institutionalized Web-side, doesn’t kill the market for malls (people love to shop in world, and I think they’ll always love to do that), but it does change the pressure points in the land market which leads to its uses by things other than living and selling stuff.
It puts, instead, increased pressure on the use of land for the actualization of experiences, which leads, perhaps, to the zoning of those experiences.
The Hierarchy of Needs
I remember reading about the idea of Maslow’s Hierarchy of needs in Hamlet’s book, which he initially posted on his blog. And intriguingly, this idea got picked up again by ArminasX.
ArminasX has it something like this:
Now, I have my own issues with Maslow’s Hierarchy, but I thought there was something interesting in exploring this because of my belief that the in-world business models must, by the very nature of the virtual economy, evolve to ever higher forms of engagement to be successful.
I’ll call this the “Hierarchy of Business Models” maybe, and it looks something like this:
At the base are virtual goods and land. The stuff that gets you going when you first arrive in SL, or, really, in SL at the beginning (or at least at the point that they embedded IP and commerce and land).
Above that are the systems that support either making stuff, or distributing it. Those are the tools for building and then the systems for managing it - inventory systems, texture managers, in-world vendors, and rental box systems.
Belonging is marked by environments and performance. You build a castle, and then you build the village around the castle. Or, you build a night club, a performance space or a theatre.
At the next level is branding. The ability to package up all the stuff below and create a brand around it that brings value to all the rest of it.
And then I put cross-platform integration, which shouldn’t be confused with interoperability. By that I mean the ability to carry a brand into other channels, or to bring brands and experiences from other channels into Second Life.
The Limitations and Enablers
Now, as I said above, the success of Second Life, or at least the idea of business IN Second Life (you can always kill the economy entirely, I suppose, and just sell Nebraska or sims to schools or whatever, so I’ll limit this to the idea that the in-world economy and land market is meant to stay) is that it relies on two things: an increase in users, or changes to the technology, and preferably both.
And I’d propose that these are, and will be, highly influenced by enabling and constraining factors (click for larger image):
Now, I’ve left unstated the constraining and enabling factors related to the very two things I think are most important: new users, and technology. Frankly, the list of factors for either one of these would be as long as this already lengthy post.
So what’s interesting about this, I suppose, is that it’s NOT static. Changes to the restraining and enabling factors can influence existing businesses and open up new opportunities.
You change policy, and the pyramid shifts - the virtual goods section becomes smaller, maybe, and the ‘tools’ business more prominent. Or you add mesh import, or clothing layers maybe, and the base of the pyramid goes through upheaval.
What’s safest, generally, is to be closer to the top of the pyramid…or to build businesses that include those layers.
One final thought, I suppose - which is that as you move from virtual goods into higher levels of conceptualization, the real winner seems to me, in-world at least, to be the one who creates a pyramid scheme of your own - helping others to realize their own visions for their in-world businesses through the services that support the people providing services.
And in my next post on this subject, I’ll cover this biggest gray market of all - the business that doesn’t even really happen IN world, where virtual worlds are extensions of existing business models rather than born of prims and land and a lot of dreams of climbing to the top of the heap.
Very interesting and insightful post.
Great post, I generally agree with your conclusions. Will be interesting to see how SL business and cross platform business perform over time, what solutions there will be created. I hold my beliefs very firmly - that lots of change is coming to this field, and some of the most effective business models in Virtual worlds are not yet to surface…
Another great post Dusan. I think you’re spot on and can’t wait to see your take on the “gray market”.
Lots of insights and interesting considerations in this post.
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I always laugh when I see people getting all agog over rewarmed 1970s secular humanist dreck like Maslow. Many people, whatever their obvious organic and mental self-interests, in fact putting something higher on their pyramid of needs — a sense of something higher (like God) or a feeling tht they belong to some higher purpose (a social or political cause) or belong to a group (geeks). While you could try to pretend any of those things are about “self-actualization,” if you are intellectually honest, you won’t play that game. They aren’t. They are about in fact restraining, or lessening the self for something that ultimately provides some greater sense of worth.
The “Belonging” part doesn’t really belong as a middle goal with “self” at the top for many people. Belong is more important than self in many, many cases, especially for people in situations like — being a teenager, being a partner in a relationship, being a worker in a company, etc. etc. which they encounter throughout life or daily.
This very incomplete “hierarchy of needs” just does not explain everything there is to explain about human beings, nor does it even explain the priorities of every secular humanist who might find some justification for invoking it. As such, it dumbs down thought by trying to get people to shoe-horn themselves into some really inadequate template.
Hamlet nee Linden Au is fascinated with this template because for him, it’s comforting and he likes it as a theory. It passes for deep intellectual thought for him, and he thinks it’s thrilling that a nightclub owner (Jenna Fairplay) could invoke it in a virtual world. He returns to this big “journalistic find” again and again as he thinks it’s a fabulous insight. But it’s just…tedious. Hamlet’s thinking never seems to have gotten much past a few books he has read in college, if that.
As for everything else you’re writing about the virtual economy, you’re making the classic mistake that every tekkie seems to make in looking at this too literally, and in obsessing too much about the fact that prims replicate easily and freely.
And that is: attention.
Attention is the greatest scarcity there is in a virtual world and online in general. In real life, attention to organic needs are more basic and there are more duties calling — indeed these are all the things that pull you “AFK” away from the online world.
But online, attention is scarce. I might have a limitless ability to keep putting on new outfits, but nobody but me might see them. There are only so many friends with so many attention spans who can see them. Same for cars or houses or any accessories — and the same for trying to advertise them, or trying to do anything, profit or non-profit or educational or entertaining in SL — attention.
People sift through a huge amount of stuff and make conscious or random or accidental choices and the economy lives or dies on this.
Comment cross posted:
“Prok -
I’m slightly confused as to where we disagree, other than perhaps your interpretation that I subscribe to Maslow. I quite clearly said in my post that I have issues with Maslow’s hierarchy.
But never mind that. Because basically much of your assessment is in line with my own. In my post I propose that successful business models in SL evolve, often from a grounding in an object economy, and then moving into the domains of management systems (vendors, land rental systems), environments (themed sims and events), branding (”Caledon” as a brand), and finally the extrapolation of content into other media (blogs, youTube machinima, etc).
What you describe reinforces my belief that it’s not sufficient to be in the “Victorian Chair” business - you need to evolve past that into environments, community, branding etc.
I also fairly clearly made the point that land is a key driver of the SL economy because it provides a counterpoint to the lack of scarcity for virtual goods - because land is not infinite, and yet virtual goods CAN be infinite, you end up with a dynamic coupling of one thing which is scarce, and one thing which is less so.
I also make the point that even if virtual objects are NOT scarce, you still benefit through the use of distribution and management tools, environments, and branding.
So, I’m not sure I see the disagreement, other than I used that damned pyramid when I could have used concentric circles or something.
Where I strongly disagree, however, is in the comment you made on my blog about “attention”. There’s a lot of mindless clap trap out there by the pseudo-marketers about “attention” and I hate to advance their cause. They’re trying to disguise business models that don’t have any foundation and using the “attention” argument inadvertently supports what I believe Rezzable was after, or was the main basis of their “business model”.
You commented:
“Attention is the greatest scarcity there is in a virtual world and online in general. In real life, attention to organic needs are more basic and there are more duties calling — indeed these are all the things that pull you “AFK” away from the online world.”
You also said that I made the mistake of tekkie literalists.
Give me a break. There’s nothing tekkie literalist about it - I’m an ad man, if you will, and like any ad man, I’d look at a world with more blue jeans than we know what to do with and I’d propose that you either put them in a nicer store, create a brand around them that’s worth more than the literal product, or find distribution channels that no one else is tapping. What’s so tekkie about that exactly?
In any case, the error in talking about “attention” as a driving factor in how we think about business models is that it subscribes to the drivel out there about an “attention economy”. Frankly, it’s a load of crap. It’s the same thing as “aggregating eyeballs” just with different window dressing.
I mean really - what’s advertising? Or selling products? You can’t just MAKE the thing, you need to get someone to buy it. And sales and marketing is fairly simple and it goes like this:
Look at me!
Aren’t I pretty!
Buy me!
Now, I subscribe to getting people’s attention, but only within the “Dusan’s Master Paradigm for Success” - yes, you need to get people attention, but it needs to then communicate a positive value, and it needs to end in a transaction.
All this noise about an attention economy is focused on the fact that it’s harder and harder to get people to look at you. And so entire businesses are being built around the erroneous idea that what you REALLY need to solve is the “look at me” conundrum and somehow the “aren’t I pretty/buy me” stuff will take care of itself.
And isn’t that really what Rezzable tried to do? They tried to get your attention. They tried to look real pretty once they had it. But they forgot about the “buy me” thing, except in a half-hearted way…somehow, they had this idea if they could crack the first two parts, the ‘buy me’ part would follow.
Sounds a lot like Twitter. Or youTube. Or Facebook.
They all figure they can continue to generate lots of attention in this attention economy you’re talking about. And yeah, maybe they’ll be able to tack a business model on to the back end of it, but none of them were built with an actual, well, PLAN for how that would happen, and so the success in the “buy me” part of the equation isn’t guaranteed.
Maybe Rezzable had a plan. Something like “look at me, aren’t I pretty, now someone ELSE buy me (or fund me) and figure out how we could have made money at this.”
So bottom line, I just don’t subscribe to this “attention economy” meme - I subscribe to the idea of getting people’s attention towards the goal of eliciting a transaction of some kind, and in my old school world, that’s called advertising.
Everything else is just an excuse for people to spend lots of money trying to get your attention, with the faint hope that once they have it they’ll be able to convert that into something more meaningful than your time.
Now, I believe I built this idea of attention into the constraining and enabling factors for SL business. Without better social tools, with audience limitations (sim limits), and with lack of access to channels (other than a select few, such as MOTD), there is a constraint on your ability to reach people and to get their attention.
The rest of the attention is built into the model itself - the tools for managing stuff, the environments for keeping people somewhere, and the brands for making sure your message is louder than the next guy. But again, none of it works unless you have some land to sell or some things to sell at the end of that long process, otherwise you’re Black Swan with a tip jar.
Having said all that, I think this is an interesting discussion, because it strikes me that you propose something that’s very much at the heart of SL - it takes careful craft….it’s an artisan economy, and yet we’re seeing a subtle shift towards mass market tools, and I wonder what that will mean in the long run, and how far the Lab plans to take us as they march in that direction.
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