A whitepaper is making the rounds claiming that the Second Life economy is a ponzi scheme. I wasn't sure whether to blog this at all; the SL economy is so obviously not a mere scheme that it's hardly worth opposing the notion. But what's interesting here is not that the SL economy is not as liquid as, say, the economy of the United States. It's that serious consultants such as Randolph Harrison would go into SL expecting the economy to be as liquid as that of the United States. What a silly expectation. Wonder where they got that idea?
Second Life has about 10,000 - 20,000 concurrent residents right now, explosive growth from the under-5,000 levels experienced much of last year. Nonetheless, that's a small village. Imagine Mayberry, in isolation, with the occasional Don Knotts figure setting up a bank. Ha: The consultants walk in and expect to find perfect price arbitrage. Ha Ha: When they exploit the arbitrage opportunities to winnings that exceed the local GDP, they expect to cash it all out. Fark: When the markets won't support that, they think they've discovered a con game.
It's not a con game. It's a village-sized market. In fact it's a tourist attraction-type village: the big numbers of the people you see are one-time visitors. Newcomers are arriving in droves. Land speculation is rampant. But it's not thick; it's tiny. Not a ponzi scheme: a little mini gold rush.
If there's a con in any gold rush situation, it's not in the local economy; it's not in the value of gold. Gold is real and valuable. The con comes in when people are told there's lots of gold when there isn't. I am not sure who is most responsible for the hype now surrounding Second Life. Nonetheless, the flood of articles and reports have not been very responsible in terms of putting SL's size in perspective. The fact is, a small thin economy can produce surprisingly large sales figures as the dollars whiz around from the dry cleaners to the auto body shop to the greasy spoon diner. If Mayberry posted its numbers, they'd also be in the hundreds of thousands of dollars per week. However, big economies are in the hundreds of trillions. Reporters don't have a feel for what those numbers should be; and apparently they got the impression that SL's economic numbers made it a candidate for the G-7.
I certainly have tried to put things right, telling every reporter that whatever the economic stats seem to imply, the concurrent user numbers for SL are still small, dwarfed by two orders of magnitude by the fantasy games. I tell them that fantasy game economies are based on far more mundane and reliable production processes of enchanting, harvesting, and armor-crafting: good, solid crafting of useful items and services rather than wild speculation about future dwell. For this, I have suffered, criticized for not giving SL its due. But I was trying to help, actually. I don't think SL is going to enjoy the backlash that's now coming, led by Mr. Harrison's piece and Clay Shirky's. Hype is such a dangerous marketing tool. A two-edged blade with rebound.
All in all, it's disappointing. 2007 may become known as the virtual world crash. That was the year when all the serious people decided that everything they heard about virtual economies was crap, just because SL turned out to be more like Mayberry than Manhattan.
On the other hand, who cares. While the serious people decided it was all hype, the game masters continued to crank out virtual worlds and thereby sucked more and more real energy out of the mainstream economy. By 2012, macroeconomic effects became evident.
Whatever is said about SL, the portal to fantasy continues to widen, and that's what will determine the future of this space.