Virtual Economies and E-Currencies
I begin this post by recalling the concept of the imaginary number. An imaginary number in mathematics is defined as a number that if squared will result in a negative real number. If you remember learning about this i in your algebra class, you also probably remember thinking — what the heck!? (wiki: imaginary number) As it reads in the Wikipedia page, despite their name, imaginary numbers are as “real” as real numbers.
Something similar is being seen in the currency markets — and by similar I am referring to the abstraction of it all, not the complexity. The phenomena of e-currency and virtual economics seems just as abstract. SecondLife, an interactive virtual world developed by Linden Lab, has been claiming that transactions exceeding $1.5M USD have been spent within 24 hour periods within this Internet game. This is not $1.5M FUSD (fake US dollars); this is real money they are talking about. Linden Lab has built a new virtual economy that exists only within their game.
The Geek Factor
I recently watched a video of a convention that was held for SecondLife fans, and from what I saw SecondLife has a very Star-Trek-like following. Let me just simplify this with no offense intended — it seems very geeky. That said, Web 2.0 seems geeky too. Twitter has gained the latest buzz notoriety in the Web 2.0 world and what it provides is a simple way for you to record and share what you are doing at the moment, accumulating historical data and allowing your friends to see that 3 days and 16 minutes ago, you were sitting in the living room with your aunt at your grandparent’s house listening to the family babble about the weather. Now that’s geeky! Is it possible that the mainstream is becoming geeky, and that there may be a new era of uber-geeks (the SecondLifers)?
Virtual Commercialism
That said, why is Wells Fargo setting up a bank in SecondLife? Why has Coldwell Bankers entered SecondLife to become the real estate brokers that will broker the buying and selling of virtual land? Why has IBM created a data center? Other companies getting in include Toyota, Mercedes, CircuitCity, and Dell. Siemens even has an innovation center focused on virtualization technologies. SecondLife is not yet proven, and there is real world marketing buzz value around entering SecondLife, but these companies have clearly accepted that SecondLife may become a legitimate business channel for their businesses. Or, they may be participating purely for the buzz effect. The same reason why Bud Light sponsors the local sports games, Wells Fargo can gain nitch presence, which may be all they achieve. And, for the US-only brands, the largest share of SecondLife residents are from Europe.
E-Currencies
So this begs a very serious question — is this the right time to jump in? Should I trade US Dollars for LindeX in hopes that the exchange rate would benefit me? Should I partner with a couple of uber-geek 3-D guys and build a business? Can I make profits as a business without taxation? Australia’s government has decided that virtual income is taxable — incredible! I was recently made aware of the e-currency that is proliferating the Chinese markets. Young adults are exchanging real money for Q coins, POPO coins, U coins; all e-currencies that are used to purchase goods and services within games, and that are sponsored or backed by large portal companies. If you want better headlights for your race car in that game — get ready to cough up $20 Q coins.
And as this article discusses, these e-currencies were never meant to be exchanged back into real currency, but services are starting to provide those services. Why not? If someone has Q coins that they have received from selling their sword in some RPG, why can’t he/she exchange e-currency with a person who wants to buy in? Who will manage the exchange rates? Is there opportunities for investors? This may be an incredible market if the e-currency concept is extended to e-services and even goods.
All this closely resembles the early days of dot-com registries where companies such as Oversee and Marchex have amassed multi-millions of domain names to hold the real estate until someone is willing to pay big bucks for the name or traffic (e.g., bank.com, mortgages.com). Maybe it’s the right time to go and amass a lot of SecondLife real-estate that will appreciate and can be resold. Because real estate is partially valued by scarcity, how can I be assured that new virtual land won’t be created out of thin air? I assume somewhere in the FAQs of SecondLife is the exact surface area of the planet and what is habitable.
I’m still digesting this whole idea, but there may be some interesting business opportunities in there.
August 18th, 2007 at 11:42 am
[...] It should seem clear. Facebook launched its F8 platform upon which others can build commerce. It provides the infrastructure, resources, and guidelines. It participates directly in commerce with its marketplace and advertising. When it launched its open platform it worked directly with major companies to launch applications and I wonder if they have negotiated revenue sharing models with them (e.g., Amazon, Lending Club, etc). Just as The World islands has attracted major real estate investors and developers includng Trump, venture capitalists have chosen to invest in Facebook application developers. Even more interesting are the companies that provide marketing, distribution, and additional infrastructure, such as Social Media, a company co-founded by Seth Goldstein. This reminds me of my post on SecondLife. [...]