Week 4: Economy

Second Life has one of the most interesting online economies I've ever seen. It has many facets in common with real-world free market economies. Virtual goods are created, sold, and bought by the users with Linden dollars, the unit of currency in the game. Linden dollars can be bought from the game maintainer Linden Labs, and even sold back to Linden for the real money equivalent, at a dynamic exchange rate that is affected by how much of the currency exists in the game. As Wired.com reports, there are few to no tariffs placed on these monetary transactions, resulting in great opportunities to make an actual living off of virtual marketing. "Second Life is an entrepreneur’s dream: no taxes, minimal regulation, no marginal cost of production, subsidies to encourage innovation" (Wired, 2006). This makes the virtual currency and economy as a whole transitive with real-world instances. In fact, many people have been able to make enough money from selling their Linden dollars back for real money to support themselves in reality. One woman in Michigan was able to make more money designing in-game clothes than she was making in the real world as a furniture dispatcher, ultimately allowing her to quit her real job (Craig, 2006).

At the end of Q3 2011, $29.3 mil were in use

So, we have seen that the virtual and actual economies may work together, but are there any statistics to show that they share similar metrics of operation? As a matter of fact, there are multiple studies concerned with real economics that use the Second Life alternative as an accurate laboratory substitute. Linden Labs themselves publish many different statistics about monetary transfers, both virtual and actual. Taking a look at the graph above, which was taken from the SL Q3 2011 economy report, we can see that $29.3 million USD were represented in-game by Linden dollars at the end of last year. This is just one statistic available from the company's evaluations.

The actual distribution of goods in Second Life is similar to realistic distribution as well. Buildings with showroom floors or kiosks lining the walls show off their wares. A user looking to purchase the item on sale simply interacts with the item's showcase. The price is then deducted from their in-game wallet and the item is added to their inventory. Goods can also be purchased from the Marketplace website, allowing users to find what they're looking for without scouring the virtual world in search of the store that sells the item.

The SL Marketplace website is a convenient substitute to in-world shops

Not only is the Second Life economy realistic, the ability to convert the in-game currency to actual dollars has lead to many people relying more on virtual supply-and-demand to make a living than real-world economics. To understand the complexities of this robust digital business model would be to also understand the workings of brick-and-mortar distributors of physical goods or services.