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Making Money in the Metaverse [Change)Waves newsletter]

By Hope Katz Gibbs
Change)Waves newsletter
Summer 2008

When Daniel Terdiman set out to write a book about Linden Lab’s virtual world Second Life (SL), the award-winning CNET News.com reporter was hoping to answer
one basic question: Can you really make money in the metaverse?

The answer is yes, and Terdiman proves how in his 309-page glossy trade book published last October by Wiley. In 11 chapters, he offers a multitude of ideas about what it takes to become a successful cyberpreneur. He also covers the history and economics behind Linden Labs, and even offers case studies and business plans.

But Terdiman doesn’t sugar coat the reality of making money in the land of avatars and sims. “Despite some breathless press reports that suggest that making money in Second Life is as easy as shooting fish in a barrel, that really isn’t true,” he insists. “The reality is that conceiving and running a Second Life business is, in many ways, very much like doing so with any kind of business. Those who do well are the ones who come up with a plan, commit to it, put in the time required, and are willing to be flexible as conditions demand.”

How exactly does all this work and what is the future of Second Life? Change)Waves managing editor Hope Katz Gibbs recently interviewed Terdiman about that and other aspects of his book.

Change)Waves: For people new to the concept of Second Life, how do you describe this unique virtual world?

Daniel Terdiman: I tell them it’s like nothing they see in the real world. You don’t have to obey the laws of physics or economics. If you are making a new product, the only real cost is to make the first one—and that’s not something that happens anywhere else.

C)W: What are some of the more unusual personalities and personas you’ve seen people take on?

DT: The options are as vast as someone’s imagination. People become robots and superheroes and avatars based on Greek or Japanese myths. The point is that you can be whatever you want to be. One of my avatar personas, for instance, is a cat.

And if you aren’t too sexy or attractive in the real world, you can still look fantastic in SL. With a little money, you can buy hip clothes, drive great cars, build and live in the house of your dreams. The impossible is suddenly possible, and people can end up spending a lot of time there—Second Life can be very addictive. The trick is to find the right balance.

C)W: So once you have an avatar, buy a little property and get the lay of the land, you can start making money?

DT: Yes. And of course money is made by creating virtual goods and services—by buying land and creating objects and services that are traded with other users for Linden dollars.

The currency is pegged to the US dollar and traded on a virtual currency exchange called the LindeX. The exchange rate fluctuates but for about a year has remained stable at L$ 266 to one US dollar. Linden Labs stays in business itself by selling land to users, charging land maintenance fees, and membership fees ($9.99/month).

C)W: How much do you have to spend to launch a business in SL?

DT: It really doesn’t cost that much to get going—maybe US $100. But as your venture evolves, and you get sucked into the possibilities, the fees can add up. Most people buy a plot of land, and depending on what business you launch you may want to buy a store. And you’ll need marketing money. Over time, you are likely to invest quite a bit. For instance, for some ventures you’ll need professional software like the design program Adobe Photoshop—which can run $1,000—and/ or 3D modeling software, but with a little research and planning you can keep it affordable.

C)W: How long does it usually take to ramp up?

DT: It depends on the entrepreneur’s skill level. In my book, for instance, I talk about Foolish Frost and Kim Anubis, two builders who have made quite a bit of money in SL. It took Foolish about two months before he began charging for his services in the building industry. He started off making his own house and figuring out what he liked, and after figuring out the nuances, he started offering his building services to others. Note, though, that he had good 3D graphics skills going into the venture.

Kim Anibus was an early adopter and has been making money in SL nearly longer than anyone else. She has some very sound ideas about being successful, such as spending time learning your way around Second Life before making any business decisions. She also suggests not taking on a business venture unless you are willing to do it for free—because there are no guarantees.

C)W: Sprinkled throughout the book, in fact, are references to people who have been financially successful in Second Life. You provide quite a bit of advice from these folks. But are they the exception to the rule?

DT: You need to define what it means to be financially successful in Second Life. Many people are making some money, but it runs the gamut from those who have literally made millions to others who have made enough to outfit their avatars in fine clothes and have flying cars.

Ultimately, success depends on what you put into the venture—and what you expect to get out of it. Architects, for instance, are having a great time working in Second Life. Starwood Hotels, in fact, had its architects create a virtual hotel where company leaders—and the public—could have their avatars “walk through” a new hotel to check it out. It wasn’t a real financial success for them, they admit, but it was a cultural success and set the standard for what is possible in terms of making the virtual real.

C)W: You estimate that about 30% of the economic activity in Second Life is related to sex or adult content, although that’s a little high according to other estimates. Nonetheless, it seems to be something that captures the imagination of a lot of people.

DT: Just like here on planet Earth, the sexual stuff is usually what gets the attention. There are lots of sex-related goods for sale in Second Life, too, and these tend to overlap with other industries—such as fashion, where clothing and skins tend to be gorgeous and lacy.

So the average avatar might not wear a French maid’s costume, but then again, she might. So when it comes to adult-only areas, it’s sort of tough to draw a line. But for sure, adult themes are pretty popular in Second Life.

C)W: Does anyone ever behave badly in the metaverse?

DT: Sure. But there are community standards and terms of service that define what can be done, and what can’t. Like anywhere, there are some bad characters that launch “grief attacks.” In fact, when I was interviewing virtual real estate magnate Anshe Chung, one of the first millionaires in Second Life, we got “griefed.”

C)W: Griefed?

DT: It’s basically online vandalism. Chung is a bit of a controversial figure and our Second Life interview in 2006 was interrupted for about 15 minutes by a swarm of flying phallic symbols that flew into the cyber auditorium where we were talking. We moved to another auditorium, but it happened again.

Since then, there have been other very public griefing incidents. In May 2007 ABC Island, a virtual-reality island owned by the Australian Broadcasting Company, was hit by a “cyber bomb.” It obliterated most everything, but was repaired within several hours.

C)W: Despite this, Second Life lives on. What do you think the future holds for this virtual world?

DT: It does live on and it continues to prosper, but Linden Labs has taken a hit due to the fact that Second Life can be hard for non-techies to use. And like I said earlier, launching a successful business requires quite a bit of design acumen, but more than that, it takes a lot of patience.

There have been many technological glitches, and the company’s statistics show that nine out of 10 people who sign up for Second Life never come back. So while the company was first touting that it had about 10 million residents, it now is clear that only about 500,000 to 1 million people are active users.

C)W: But, as a journalist and author, you remain optimistic?

DT: Let me say first that my wife actually works for Linden Labs in the marketing department, so I’m hoping the company will have a healthy future. But quite honestly, I’d have to say that it depends on its ability to overcome technical problems.

But this year they brought in a new CEO on May 15 named Mark Kingdon, who had been the CEO of Organic Inc., an interactive marketing company. He succeeds Linden Labs founder Philip Rosedale, who is now the Chairman of the Board. So things are changing, and hopefully all for the better.

C)W: I wanted to get back to something you mentioned a minute ago, about the island that ABC owns. It’s true that several large companies, such as Sony, IBM, and Reuters also bought islands. They aren’t alone when it comes to large companies buying into Second Life, right?

DT: That’s correct. In fact, many Fortune 500 companies have bought property and launched cyber versions of their businesses in Second Life. There are also many small businesses operating there, such as consulting firms and real estate agencies. There are nonprofit organizations, large and small, including NASA, the Lower Eastside Girls Club of New York, and Global Kids.

And, of course, Second Life avatars and businesses represent the gamut of professions, including lawyers and doctors, developers and builders, teachers and academics. Even my publisher, Wiley, sells books in Second Life. This is really the land of unending opportunity. I hope that after reading my book people will log on and make the most of Second Life’s financial opportunities.

For more information on Terdiman’s book, visit www.danielterdiman.blogspot.com.

About Daniel Terdiman
Daniel Terdiman is an award-winning CNET News.com reporter, and has spearheaded efforts to make CNET the first mainstream news organization with a permanent in-world presence. He has been covering Second Life since 2003 and is widely recognized as a SL expert, writing on the topic for media outlets ranging from the New York Times to Wired and Time magazine.

About Hope Katz Gibbs
Hope Katz Gibbs is the managing editor of Change)Waves and leader of corporate communications at Social Technologies.

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"I get by with a little help from my friends," says Hope, who gives special thanks to:

• MICHAEL GIBBS, website illustration and design: www.michaelgibbs.com
• MAX KUKOY, website development: www.maxwebworks.com
• STEVE BARRETT, portrait of Hope on Bio page: www.stevebarrettphotography.com

Contact HOPE KATZ GIBBS by phone [703-346-6975] or email.

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