Is SL Ready for Investment?

Obviously, SL was ready for my investment or your investment, whether you put time, talent, or treasure into the mix. But is it ready for "the real people" as they are often called?

Cubey Terra had this concern to voice



And then there is the reply by Robin Linden discussed at Digital Cultures yesterday (does someone have the link) in which basically she says that LL will not be selling or making ad space available to RL businesses like Coke, as say, owners of a sports arena might make available at hockey games; instead, they will just make available land, and those businesses can do what they like on that land, presumably within the TOS.

We noted that in transitional countries or third-world countries getting large World Bank loans or significant foreign aid, when the "big players" step in, they often hire the best local talent, but then undercut and drain away whatever civil society and local economy was established before them. Not to mention their own high-priced talent they fly in which overwhelms local talent.

These displacement problems are of concern, but I wonder about the overall business climate when I think of how RL investors and the work culture they may bring with them, as well as non-profits with their "cause" culture, confronting what is still largely a MMORPG culture.

MMORPG culture contains all kinds of "givens" that people who play them take for granted but that outsiders question -- the "levelling up" and "questing" and "killing of monsters" which can take a metaphorical if not literal turn, i.e. to become a "master" or "wizard" in the "game of Second Life" you make content and impress Lindens then get to become a Linden yourself someday, first a liaison or telecommuter, then hopefully a top-level, high-skill points "office" Linden. Bug quests and griefer quests and all kinds of quests are there for the offing, and if there isn't an existing "forum monster" with contrarian views, make up one and shun him. Then there is the fanboyz culture of sycophants and loyalists, the game swag that becomes valuable like Linden bears -- well, you all get the idea. The game features that range from reputational ratings to dwell to stipends.

I try to imagine two companies coming in here -- not even a Coke or a Citibank but smaller companies or non-profits that might be ahead of their time. Let's picture LL Bean, which figures out they could script some device that enables people to try on their clothes and see how they look before they mail-order them by making an av or dress-maker's dummy that has all their RL proportions. Then let's picture the American Red Cross figuring out that not only could they do international conferencing and training but they might be able to do multi-sectoral emergency planning and response and community modeling using the tools and space of SL.

Currently, the LL posture on such projects is evidently to have them keep a very low profile in the game, even literally invisible, i.e. sell them islands where they can't be seen or interact with the rest of the "game".

But both LL Bean and the ARC are the type of entities that thrive on interaction with the public, with customers and clients. Part of what they'll want to do in SL will depend on them being accessible and interactive.

What will happen when the first LL Bean executive gets AR'd by someone who just doesn't like them for whatever reason when they swear in PG, and lose 3 days of business?

What will happen to the first American Red Cross executive who has airplane event-griefers swoop down on his community-response model on the grid? (If he's creative, he can factor that in the mix of his emergency-response model LOL).

What will happen when both LL Bean and ARC, just to pick examples from the air, can't get their snapshots uploaded or the cellphone conversations or their real estate secured from outside interference because all these areas might be dominated by monopolies?

Will they just go along to get along? Will they realize that the smart folk get in with the FIC, or will they just step around the FIC as if it were invisible? Will they discover that there are certain "go-to" people in SL that they better "get in" with and follow that groove or will they ignore it?

What if these companies want to advertise? They'll discover, as Robin has informed them, they are limited just to the parcels they rent or buy. They can try to use the other limited space for advertising you'll find on the forums or the new classifieds posting system (*very* scrappy) but they'll get stymied, as they all do.

Will LL come and penalize or ban these companies' representatives when they attempt to hold events that are deemed "infomercials"?

What if LL Bean wants to have a sale and show people how to "try before you buy" -- are they going to discover that not only is a Linden going to swoop down and tell them their event is "illegal," scores of irritated fanboyz will AR them because they will view the RL LL Bean as cutting horribly into what *used to be* their market share for avatar clothing. They clothed avatars. LL Bean is in the business of using avatar mock-ups to cloth real people. Guess who might win this battle.

Now ponder this: suppose LL Bean or ARC or any business or non-profit that comes here to use SL as a tool rather than to play SL as a game tries to complain about these policies, these griefers, these people misusing the AR system to harass them because they view them as competitors (I haven't even gotten to the techniques that will be used on them by a small but vocal core that hate business of any kind, except possibly their own, but who prefer to give things away for free.)

What if they push too hard in the forums, and then are told they will be banned from the forums, and possibly even Second Life itself -- and they lose their land because Governor Linden will seize it and sell it on the auction and not give them the total proceeds?

I could write 2,000 words more on this subject but you can see where I'm going. It is my premise that the tekkie-wiki and MMORPG culture in general, plus the lack of a truly free press and judicial infrastructure (with even a rudimentary disputes resolution capacity still to be made) all create a climate that will not be conducive to RL businesses and nonprofits, unless some adaptations will be made.

Perhaps the plan is simply to reward the sharashka (the scientists kept in a golden cage to produce more, but still -- it's a cage) and punish dissent and try to hold it all together until they can get the software enough free of bugs either to open-source some or all of it or else take it to big-time widespread commercial, non-profit, and government use.

I just dont see where the benefit/profit will come from 'testing the waters' in SL vs traditional RL testing. Companies will release test products at certain locations IRL and get real world feedback on a real product. Take clothing for example. You can only get so much feedback on a product in SL. But IRL there's a lot more to clothing than what you see in SL. There's comfort, fit, durability, production issues, etc. You just wont know the answers to those questions by using SL as a test bed. And to find the answers you'll need to produce the product IRL anyways so why not just go the traditional route?

There may be some RL markets that could do well in SL. Maybe low end games? But why learn LSL when you can just develop it in a language you already know and upload it to some of the many free download sites and get immediate feedback from a larger and wider audience.

Even using SL as a basic means of marketing a product (non-SL product) seems a waste of time for most companies.

I just dont see it happening. But thats my opinion and Im not saying anyone is wrong. And Im sure there are some niche (spelling?) markets that might benefit from SL, I just dont know of any yet.

Prokofy,

While I did not agree with any of your prior posts, you are actually making relavant and interesting (hypothetical) points here, lets hope it doesnt degrade like the others and we can have some meaningful discussion on this.

Relevant to discussion, I like to introduce the term "Prosumer", first coined by Alvin Toffler in his seminal book Future Shock back in 1970s. Basically, at the time Toffler predicted a producer consumer, which later became to denote "professional consumer", who are not really professionals/hackers but at a higher level of understanding the products they are interested in then average Joe. Prosumers demand more control over the things they want to consume or purchase, in many cases they like to participate in customization and actually contribute to the brand by producing their content.

The massive advance in digital technologies and Internet has dramatically increased the number of prosumers. Please don't label them elitist, they are not, but push the envelope on what they want. I see SL into turning into a symbiotic relationship between professional producer and professional consumer (Prosumer). This would be the right direction to go, it wont be everything for everyone. If you want to create an online world for everyone, for that you have world of warcraft, (1.5 million subscribers and counting).

Nevertheless, some of the points you made about big companies joining clearly will cause considerable pain, I dont have answers to those but worth thinking ahead.

(Although this post may be slightly off topic, I had trouble finding an appropriate place to post it in the forums without being called a troll.)

I am very new to SL, but I have spent most of a week's vacation buying land and building on it within SL. I have one large parcel that contains a bar/pub and the other which acts as home for my avatar and his newly found girlfriend.

If this were as far as the game went, I might be happy to be ignorant of the impending economic and social changes that I forsee in the SL world.

First, a quick glance at the leaderboard shows very clearly that IGE (ige.com) is a major L$ holder within the game. With nearly L$1.6M (approx US$63K at the time of this writing with 1L$ = US$3.99) of net worth, they have a sizable chunk of the SL pie. More than any other player in the game. What does this mean? It means that a HUGE portion of the SL economy is being left in the hands of third-parties who have a vested interest in taking money out of SL and moving it into the real world. GOM (gamingopenmarket.com) tracks this movement of funds and allows players to "cash out" their SL holdings for money.

Here's the problem that I have with this system: LL can do very little to control the impact that these US$ motivated corporations will have on the SL economy. Although L$1.6M is a kings ransom in SL, US$63K is small potatos to a major corporation looking to capture the demographic represented here in SL. And just think... for that amount of money, they can fundamentally alter the gameplay for thousands of users and literally change the face of SL overnight.

Second: What if a company, with major holdings in SL, were to go out of business and their SL holdings were liquidated by the courts? This could force an overnight surge in L$ availability, effectively causing a "crash" in the SL economy. There are no safeguards in place to prevent this that I know of, short of LL shutting the game down.

I wonder how many players will stick around, become premium, pay tier, and start a business if they need 2x, 3x or more times the L$ to make it happen? Are the Lindens poised to tackle this situation with increased allowances? Will the assets of those corporations be frozen within SL? Now that the link to RL economic has been made, it will be very difficult to break. I feel as though the economic safeguards that are needed to prevent a RL business from causing SL economic recession (or possibly depression) are practically non-existent.

Third: Now that US$ can be traded for L$ and vice versa, doesn't this mean that US and international law MUST apply to the SL world? This means that all the Tringo, blackjack, slot machines, etc. in SL fall into that legal grey area called Internet Gaming. Granted, these games are played for very small amounts in terms of US$, but does that really matter? Might not this SL industry grow as more player learn about the availability of online gaming in SL?

Although IANAL (or an economist for that matter), it is easy for me to see how the increase in corporate influence could significantly impact those players who seek only to have a good time and a 512 of their own.

I may be blowing this out of proportion at this stage, but what will the situation be 1, 2 or 3 years from now?

I welcome your responses.

Good point about the corporation pulling out.

I could see Anshe getting fed up with how SL is doing things, or even just Anshe needing the money for more personal reasons and pulling out of SL.

For example - threats to the telehub economy.

However, I suspect if they withdrew all at once an enterprising individual with a significant amount of capital may consider purchasing their entire stake and then slowly doling it out, thus mitigating the crash.

It would seem to be the wise thing to do.

I think the issue of investment is different. Is the VP of Development at SL someone you'd trust to develop a world that you want to invest in? What if the VC runs out of patience because SL can't become cash flow positive?

These are more my concerns.

I hope you don't mind me responding to these somewhat out of order, but my response will make more sense that way.

Well, perhaps, but how do you mean? A company using its clout to artificially inflate the L$? It seems like it'd be difficult at this stage. Even buying up everything GOM and IGE have to offer, it doesn't seem like there'd be much they could actually do, at least, not that would actually benefit them. In my experience, companies that spend thousands of dollars in an attempt to devalue virtual currencies don't do well.

Linden Lab makes no claims that the Linden dollar has actual value. Legally, it's play money. If you lose it, you legally have not lost anything. If the Lindens decide to take your account away, they can do that, with no obligation to any kind of "reimbursement".

So even if you can find someone to buy it elsewhere, it still isn't legally worth anything. It can't be taxed or otherwise regulated because it's not money. Transactions within SL have no real-world value.

Were a company retaining an SL account to go out of business, the account would remain owned by the user that registered the account. Accounts cannot be transferred.

In the event of a bankruptcy, an SL account would have to be percieved as an expense, not an asset. Because the L$ is legally play money, there are very few jurisdications (none that I'm aware of) that would treat it otherwise.

Were the account cancelled, "ownership" of that account would default to Linden Lab. But of course, it wouldn't actually go anywhere, it would just disappear. The L$ held by the account would be eliminated from the system, not dumped back into SL.

Have you been to secondlife.com lately? Check that little transaction number in the bottom left of the map. Not to mention the references to the USD value of the currency littered all over the secondlife.com website.

You can say all you want in TOS, but when your market speak says:



Then you're going to be accountable for that.

You're talking about false advertising here? Maybe. Even were a case filed, I'm pretty skeptical that it would actually go anywhere. The TOS is pretty clear. The Lindens can both promote what other users do with SL and maintain a denial of liability in their EULA. It's not Linden Lab's exchange. The Lindens can say, "you can make money in SL" and have it be absolutely true, and in no way an endorsement on their part of any value of the Linden dollar.

From: TOS

6.4 Second Life Currency.

You acknowledge that the Second Life service presently includes a component of in-world fictional currency. You agree that Linden has the absolute right to manage, regulate, control, modify and/or eliminate such currency as it sees fit in its sole discretion, and that Linden will have no liability to you based on its exercise of such right.

Well, I think they can get away with saying they're not responsible for its value. But they are responsible for the fact it *does* have value.

So, Patriot act (money laundering), gambling laws, etc probably should come into play.

Well, okay... but if that's true, how does something like Chuck E. Cheese manage to operate without lawsuit after lawsuit and visits from the feds? It's basically a carnival-style redemption system, right? I don't think anyone can deny that Chuck E. Cheese constitutes gambling, yet they're evidently still legally able to operate.

The difference between SL and a carnival is pretty vast: in a carnival, money is exchanged for tokens, tokens are gambled, and a prize won, or more usually, not. Compare this to SL where, both the agency that exchanges money for tokens and the agency that allows people to gamble with those tokens are clients of Linden Lab. Their relationship with Linden Lab is no different than that of a client of Paypal, for example. Paypal is certainly not held liable for the actions of its customers.

(Actually, I believe in certain parts of the US, carnivals avoid more draconian state or possibly local gambling laws by registering and treating the token exchange and games as seperate legal entities, exactly the same way the Lindens do. Unfortunately, I don't have a source for this, and a cursory Google search didn't produce anything. Can anyone else point to a more reliable reference?)

Yes, but don't the tokens say something like "For Amusement Only" on every single token?

That's a bit different then the approach LL is taking, where there whole business model is arguably around the fact that L$ has USD equivalence.

But isn't that what the TOS says?

From: TOS

6.4 Second Life Currency.

You acknowledge that the Second Life service presently includes a component of in-world fictional currency. You agree that Linden has the absolute right to manage, regulate, control, modify and/or eliminate such currency as it sees fit in its sole discretion, and that Linden will have no liability to you based on its exercise of such right.Chuck E. Cheese can advertise the opportunity to win prizes while still operating. What makes Linden Lab any different?

Right.. I'm not a lawyer, but I'd be willing to bet big L$ that a court will say your marketing material supercedes your deeply buried TOS language.

But how is that actually different than the Chuck E. Cheese example? I assume that by necessity, there's a sign somewhere in Chuck E. Cheese that says it's intended for amusement purposes only, and that the sole waiver of liability is not imprinted upon its tokens.

See ProCD, Inc. v. Zeidenberg, which established that EULAs were valid contracts so long as the user accepts them. (Reading is not a prerequisite to clicking the "Accept" button.) The Lindens are very clear that they aren't responsible for the value of anything.

So to sum up:
The Lindens don't exchange money for L$.
They aren't running gambling.
They are an ISP.
They do promote what other users have done as an example of what could be done in SL.
The EULA is legally binding.

Given this, what is left for the government to have a problem with under the current legal code? How is saying "you can use this to make money" and "you agree not to hold us liable for your play money" not both truthful and straightforward?

You could be right. I'm not a lawyer.

I find it weird that your EULA can contradict your marketing language, though.

Hey, it's not mine.

I don't know, this seems pretty straightforward to me. They clearly state that currency exchange is done on third-party sites, and even (by implication) indicate it's not a "real" currency. I don't see anything in this statement as being particularly misleading or inaccurate, "ATM machines" aside.

I suppose the argument could be made that one could have an incomplete idea of how it works, much as the building page could concievably lead you to presume that the lighting and physics is much better than it actually is, but honestly, they haven't said anything that isn't true on either page.

Check E Cheese is completely different. It says that tokens have no monetary value and all games are for amusemnt. This is allowed under the law in most states. It covers carnival rides etc too. However, this is different.

From the Florida (where I live) gambling laws:

Chapter 849: Gambling

849.01 Keeping gambling houses, etc.--Whoever by herself or himself, her or his servant, clerk or agent, or in any other manner has, keeps, exercises or maintains a gaming table or room, or gaming implements or apparatus, or house, booth, tent, shelter or other place for the purpose of gaming or gambling or in any place of which she or he may directly or indirectly have charge, control or management, either exclusively or with others, procures, suffers or permits any person to play for money or other valuable thing at any game whatever, whether heretofore prohibited or not, shall be guilty of a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.

Obviously there needs to be precedent for online gambling... but I guarantee they are working on it.

SL is advertised as having a real economy, where your L$ are worth real money. You trade monthly fees and possible US$ at GOM or IGE, and get L$. This is acknowledged and sanctioned by LL.

L$ equate more accurately to chips at a casino. You leave and theres no real value. But you can cash them out and get real money. Ok, so maybe LL doesnt sanction the casino games. But do you think the feds care? If I buy a house, and let 5 friends run casinos in the five berooms, charge them rent, and allow them to use my bank account to launder the money, the feds are gonna take me to jail too.

As to the business going under and taking its L$ with it, this is unlikely for a company like IGE. Although US$63K isnt a huge amount, it is certainly an asset, not an expense. I have a feeling ravenous creditors might not see US$63K as something they'd give up lightly in say a bankruptcy hearing.

This is my concern.

Although I agree that there might be some value to buying out a major player, one would have to ask... Why is this person leaving the game if it is so profitable? I am more concerned about a situation where a corporation has SL holdings and files for bankruptcy or makes a strategic decision to cease in-world business activities. (This would most likely be caused by a change in policy by the Lindens) There are a few things that can happen. 1) If a bankruptcy, they restructure and maintain their presence. No problem here. Yet. 2) They can sell their SL holdings (Uname and PW) to some third party. I see no prohibition in the TOS against this. Of course LL can cancel the account if they find out, and don't even have to give a reason, which means the likely course of action is 3) The account is terminated and the L$ revert back to LL or 4) The company sells its L$ to a third-party, said third-party being in the business of exchanging L$ to US$.

Options 2, 3 and 4 all have disturbing implications.

I am most concerned about options 3 and 4.

In the case of option 3, a large amount of Linden dollars disappear from the pool of available funds. Effectively the currency is less available, and therefore worth more. This means an inflation of prices to correct for the shortage of money. This would correct itself over time, as newBs enter, dump their free money on lightsabers and particle effects etc. It could also prompt a mass "cashing out" where players see that their virtual property has gone up in value and they decide to exchange their L$ for US$. This could provide some serious fluctuations in the value of the currency and its availability. In a strange twist, where enough people are ready to "cash out" their equity and the flow of newBs slows or stops, the SL world could be at risk of collapse. A corporate pullout could initiate this turn of events with the right amount of press and the L$ becoming scarce.

In the case of 4, the second corporation would gain an even larger stake in the SL world. Decisions that they make about currency drive the value of property and goods.

Answer honestly: Do you think about the RL value of virtual properties or goods when you play SL?

I think the answer for many players with significant land holdings is a resounding "Yes".

This is a game. In this game, the object is to have the most money, land and respect. To win, you strive to gain control of enough property to begin cashing out money to the real world. This is a theme repeated over and over throughout the game, and it is echoed in the SL marketing. Everyone is trying to figure out how to get enough Lindens to afford that next property, with the dream of being the next Anshe Chung.

Is this the game that LL set out to create? The marketing certainly would lead you to believe so. Does the game have to be played in this way? No, it doesn't but then how many players can say they already have enough L$ and they don't need any more? Very few I suspect.

Er, they are? I really don't know that many people trying to be land barons. And the Second Life website makes more noise about business in general than land trade in specific. I hear much more about how your intellectual property created in Second Life belongs you than I hear about "YOU CAN SPECULATE ON THE VALUE OF LAND NEAR TELEHUBS OMG!" I think one sells a bit better than the other.

Making profit off of land in Second Life requires much more initial investment and risk than content development. The latter I would posit is what most people are trying to do -- at least more than are trying to do the land scramble, otherwise there'd be many more high profile names than just Anshe.

Point taken. I may have been a bit overzealous when I said "Everyone".

There are an infinite number of ways to play the game, each with its own merit and reward. My point, rather poorly made (proably due to the late hour of that last post), is that LL touts having higher net worth as one of the main criteria in determining the "Leaders" who appear on the Leaderboard.

So, although not everyone is playing the game to be the next great land baron, many have dreams of owning a business that brings in enough L$ to finance a little high living in SL. My concern is for them (me?), as fluctuations in the value of the L$ can impact those dreams too.

During a chat I had in-world, a new friend said "I think the Lindens are counting on Adam Smith to take care of this problem." While I agree that laissez-faire is certainly the rule governing the economics of SL, even Adam Smith *might* have had some concerns about foreign trade in SL. In this case, I suggest that foreign trade could be seen as that between the SL world and the real one.

Too much instability both technical as well as business-wise to invest real money into SL.

I doubt companies like Coke/FORD will come to Second Life. There's too much adult content. Large companies would want a sanitized environment.

I doubt established game companies would come to Second Life. They want control.

My vote for the first "big player" is the porn industry

well i will dodge the FIC theories and say yup, if a RL business come to sl they will have to obey to the same rules as us this mean they can be banned for 3 days (and loose 3 days of business) they can also get theyr account closed of course.

By the way if an employed leave the company he take with him his SL account and all thats is in it (since accounts are tied to only one person and arent transferable.

And yes they will have to deal with all the "kiddies" (already established players that can ruin em if they wish) they will have to deal with reverse engineering, with copycats and many more stuffs.
I think SL would be a harsh world for them mainly because SL place the simple scripter or builder at the same level as them.

In SL we dont need to be a big firm to be able to have success
and that's good