Coldwell Banker becomes first Realtor of “Virtual Real Estate”

COLDWELL BANKER® ENTRANCE INTO SECOND LIFE® MAKES VIRTUAL HOMEOWNERSHIP EASIER FOR MILLIONS OF RESIDENTS

Company Leads Real Estate Industry Into Virtual Future

(press release)

File this in the "this is a joke, right?" category.

No, it isn't a joke.  Bear in mind that

• You don't own anything in Second Life, including your "virtual real estate" or even your "virtual money".  The company owns it all.  All you have claim to is your conceptual intellectual property.
• The currency you use to buy and sell real estate with in Second Life is bogus.
• There's already a real estate bubble in the real world, or as we say, "meat-space".  We don't need another pretend real estate bubble.

Regardless, I started a discussion about this on our real real estate bubble blog, Patrick.net.  I'm kind of hoping that a more mainstream crowd takes the time to chime in on this ever exploding Second Life chicanery phenomenon.  There's also a navel gazing exercise at Terra Nova, where I don't dare to weigh in on Second Life much anymore for fear of being blamed by academics for ushering in some kind of Virtual World Armageddon.  It's especially interesting to see they're already congratulating Coldwell Banker for their prescience in embracing virtual worlds as brand-building  and customer lead incubator.  For my money I somehow don't see that people who sit around all day playing a computer game -- even the ones who pretend they're making a living at it -- are a strong source of future home buyers. 

Let's see:  real house prices are hyper inflated.  They are very hard for anyone to afford, let alone people who diddle around all day and night decorating their "virtual playhouse".  Subprime loans are gone.  You have to actually be able to make payments to get loans.  Banks don't accept pretend Linden dollars for mortgage payments.  Unless you're one of the holy chosen of Second Life or so incredibly lucky that you'd be better off playing the lottery, you also aren't going to get enough L$ back out to pay your mortgage either.  (I know, Phil Rosedale says "play Second Life, pay your rent" or something to that effect, but every time anyone makes an economic argument about the game they are jumped on by Cult Second Life for suggesting that people are attracted to it for profit motives).

But hey, let the Virtual Real Estate Bubble get started in earnest.  You think cartoon land is overvalued in Second Life now, just wait until Realogy really gets started with their promotions.  What the hell, you're priced out of housing in the real world, so why not get in on a virtual world house before it's too late.  Buy now, or be priced out forever!!!

Comments

[randolfe_]

The benevolence runneth over. And here for all this time I was just a cynic.

“Rather than having to negotiate for top dollar with Second Life ‘land barons,’ users can visit our virtual office and interact with our virtual sales associate to buy homes from Coldwell Banker at reasonable rates,” Young continued. “Ironically, Colbert Coldwell, and later Benjamin Banker, founded our company after seeing similar practices in 1906 San Francisco. Coldwell Banker was founded just 18 weeks after the earthquake largely because our founders saw the need for ethics and integrity in assisting victims of the devastation who were being preyed upon by unsavory businesspeople. We want to do the same thing in Second Life: give residents the opportunity to participate in fair and reasonable real estate transactions.”

*Real* real estate transactions are fair, reasonably and not at all unsavory? Would that be the fairness of the MLS cartel, the misalignment of incentives, or the lack of fiduciary responsibility by brokers or agents part?

[Tichy]

Isn't it logical? People can't afford houses in the real world anymore, so they want to at least pretend to own a house in Second Life. That is what Second Life is all about. You can be a club owner, run a casino, be a stripper, all sorts of things that would be hard to do in the "First Life".

[RF]

A statement in haiku form:

If your so-called "land"
is data on a machine
it's not "real" estate

That pretty much sums up my thoughts on the Second Life fake estate market.

[always_black]

Ach, you could argue "real" estate is essentially just a bunch of lines on a map.

At a level, anything that is worth anything is virtual, just a desire or idea.

[Randolfe]

Ach, you could argue "real" estate is essentially just a bunch of lines on a map.

Interesting argument. Totally wrong, but interesting.

"Real Estate", as it were, is a clearly defined asset class. It represents a form of ownership which carries specific rights under the US system of laws. It is directly represented in the US Constitution. Finally, there exists a non-abstract material manifestation, which one can experience as materialistically tangible.

I'm sure that at a postmodern philosophical level "everything is virtual", and abstraction equals material. When real estate agencies start brokering postmodern philosophy for 6% commissions, then I'll be interested in entertaining arguments to that effect.

[Birdman]

I think I’m missing something here. If you buy land, it’s real. You can touch it, mow it, plant flowers in it, or use it as a landfill. If it’s costal and the ocean level rises you own land with water over it. If there’s a nuclear war you have radiated land. No matter what, it’s still there in one form or another.

Virtual land can be hacked, deleted, retired, reclaimed, or reused. If Linden Labs went bankrupt tomorrow, you can’t sell your land. It’s just gone as if it never existed to begin with (and did it ever truly exist?)

Real property is limited. There is only so much of land in the world. If you want semi-tropical beachfront property your choices are limited (you won’t be buying land in Greenland for example). But with virtual land, nothing is limited. If you want beachfront property, just load it on up. Who’s going to limit it, Linden Labs? If they do someone else will make it available.

I’m sorry but I just don’t get this virtual land thingy. If it had to do with copyrightable inventions, developments, code, or anything of that sort I would get it. But then again, that’s all real stuff … and these aren’t very realistic people.

- Birdman

[Randolfe]

Birdman,

I do think there is a "there" there with so called "virtual land". I just think that land is an unfortunate metaphor, and the whole virtual real estate thing is just short lived mistake.

Virtual real estate is in fact no different economically than web server addresses with all the related platform implications.

* Virtual reality addresses (virtual real estate) will eventually be worth only its marginal cost to provide plus a premium or discount for its ease of find-ability.

* This is no different from web server addresses.

* The value of content will be a separate function from the address itself -- again the same as current web destinations.

If everything that is Amazon.com moved to AmazonBooks.com, the value would only change by the difference in the search costs associated with the difference in those web addresses.

Similarly, virtual real estate has no real unique value aside from its search costs. There are no barriers preventing link-ability, content potential, or reach-ability.

[always_black]

Well, I don't know about post-modernism or philosophy, but I see nothing inherent about virtual property that prevents it from also being "a clearly defined asset class" or carrying "specific rights" under law (US or otherwise).

"Non-abstract material manifestation", is an interesting turn of phrase, as is "materialistically tangible". I assume they both roughly translate as "you can poke it with a stick", an attribute that is overrated for many applications.

Real estate only exists as long as the rules say it does, and even then only so long as those rules can be enforced, hence its intangibility. It has precious little to do with the actual bit of planet underneath. Go and ask the Israelis and the Palestinians.

Regarding the similarity of virtual land and web addresses, I think you are quite correct. One thing I think you're missing though: value by virtue of context.

Like "real" estate, virtual land can be worth more by virtue of location.

[Randolfe]

Real estate only exists as long as the rules say it does, and even then only so long as those rules can be enforced, hence its intangibility.

I'd be very interested to see your idea of the production functions for each type of real estate, comparatively. A large factor of sensitivity in the price mechanism for real real estate is scarcity, which increases as per demand over time. "Virtual real estate" is the opposite.

Regarding the similarity of virtual land and web addresses, I think you are quite correct. One thing I think you're missing though: value by virtue of context.

Like "real" estate, virtual land can be worth more by virtue of location

What barriers exist other than arbitrary agreements which serve to limit "virtual proximity"?

Real real estate is constrained by physical dimensions. London cannot be proximate to New York City. But in virtual reality everywhere can be theoretically proximate to everywhere else.

Virtual reality addresses function like web portals with teleporters. Until some future point when such devices exist in meatspace, the economics governing you-can-touch-and-poke-it real estate will continue to be categorically different from virtual reality addresses.

[always_black]

"I'd be very interested to see your idea of the production functions for each type of real estate, comparatively. A large factor of sensitivity in the price mechanism for real real estate is scarcity, which increases as per demand over time. "Virtual real estate" is the opposite."

Ah, I'm afraid if you're going to ask me questions you'll have to come down to my level because I'm no economics analyst any more than I'm a philosophy student. Are you saying that the incredulity expressed here over the use of the term 'virtual real estate' is down to questions of supply and demand? Because from the comments it looks far more fundamental and not so mundane.

"Real" estate is more real because it's limited, is that the argument? How about virtual estate is limited by the processing power it takes to simulate it, will that do for comparison?

Additionally, I would suspect that a large part of the value of real estate is not scarcity, its the fitness for purpose (after all there is plentiful land that no-one wants). Equal areas of lines on a map are worth more or less depending on what the guy with the chequebook wants to do with it. Little to do with the physicality of the land itself, one man's vacant lot is another man's goldmine.

"What barriers exist other than arbitrary agreements which serve to limit "virtual proximity"?"

I think you're looking at the metaphor back to front. When something has proximity to everything else, then it has no proximity to anywhere, proximity is a relative term. That's why I used the word context. Not barriers, the opposite of barriers, (er, conduits?) that don't limit proximity, but enable it. On its own this blog is a singleton, no more or less than what it provides by itself. If it were part of a larger website, perhaps one with a recognisable brand name or pedigree, it's not a great stretch to imagine it might increase in value by virtue of association.

Likewise, if there was some advantageous purpose to represent it three-dimensionally, it could exist on virtual real estate. And if it did that, would its worth be increased or decreased by proximity to stripclubs or another less lascivious location?

[randolfe_]

No incredulity intended. My "interesting, wrong but interesting" opening is a reference to an old Chicago witty saying, albeit probably far too inside of a reference.

Without diving into the details, the differences between the macro and microeconomic factors affecting *real* real estate are vastly different from those affecting *virtual* anything. Even the well known professor oft referenced on this subject with whom I often disagree agrees on this point. It really isn't so much of a controversial position.

When you say How about virtual estate is limited by the processing power it takes to simulate it, that's a statement that reduces to "valued at marginal cost". In other words it is a commodity and will decline in value over time.

You can find quite complex formulae and conceptual discussions related to how *real* real estate holds and increases in value over time. And bear in mind, I am a fairly outspoken critic of the tendency for people to overvalue *real* real estate.

I wasn't purporting that a web 3.d address be simultaneously connected to everywhere at once. I am saying anywhere can be connected to anywhere else. So, there is no reason I have to accept being proximate to a virtual brothel or casino.

There will be granularity, but even that is bound by a commodity curve and will refine over time as costs come down. That means that I can easily drop my virtual "location" next to any other virtual "location" I wish, even if the other side doesn't "see me", my side can "see them".

This is the underlying fundamental flaw I see in those who insist upon analyzing web 3.d in purely physical metaphors. What prevents me from creating a personalization device that makes my virtual place appear to be proximate to anywhere else, arbitrarily determined by a particular user's preferences? Do I care if "people over there" see me here or not? Not if they have to come into my grid to meaningfully interact with me I don't.

Or will Linden Lab's leave their world so large grained as to force everyone "proximate" to their world to only see fragmented, edge-world, oft empty and half completed islands? Of course not, they'll allow multiple proximate entry points.

They could choose to limit access to those "conduits", I suppose. But that will defeat the network effect. Think of web sites that only other "approved web sites" can connect to. If that were an enforceable and common practice, there would be no web 1.0 or 2.0.

The only mechanical difference here besides the obvious client representation of 3-d objects and physics is the publication of externally observable structure.

I'll go so far as to say there will initially be little to no external observability at all. When you move from one hosted grain to another hosted grain you probably will warp/teleport/link/poof over there, not walk seamlessly through. Like MMOG zones, things beyond the barrier will be just a static backdrop, probably no more than JPGs of varying quality at first.

"Look, walk down that street and you'll be in always_black's world. What? always_black has sold his address to an online gold coins peddler? Well look, now that street leads to eBay".

[always_black]

"No incredulity intended."

Ah, well my lines-on-a-map comment was aimed at Mr. Haiku, so maybe we're at cross-purposes. There are lots of things wrong with Linden's implementation of a physical space metaphor, but I think intangibility is the least thing to get worked up about. After all, nobody thinks a 20 quid note is valuable because it makes a handy piece of paper to wipe your nose on.

I would never dream to contend with you on matters of economics, you'd spend more time explaining to me what you just said than you would saying it. I do think that 'virtual real estate' is a /useful/ metaphor, however, for lots of reasons.

To take you on some of your points: (and actually, if you'd prefer to have this conversation via email, rather than clutter up your comments then feel free)

"In other words it is a commodity and will decline in value over time."

Guh, really? So, in an imaginary future, let's say we all own our own virtual worlds, (like we all own our own webservers), I'm head of a massive and fantastically popular site. I'm going to charge less for 'subletting' space next to my sprocket-fondling factory (which will be very big in the future, trust me) as I use up the capacity of my server? I can see the server hardware getting cheaper as time goes by, but the value of my brand and frankly your overwhelming, irresistable desire to be my neighbour isn't affected by that, is it?

I guess the way I'm looking at it, is that land on Sunset Strip is going to go for the price of being on Sunset Strip, not by how much I can get for the underlying sand.

For just a moment, can you not see how powerful real world metaphors can be for people? People with spending money. It's not a question of whenther or not its 'real', it's a question of how hard they believe in it.

And I'm not just talking about virtual worlds, I'm talking about substandard sneakers, adorned in China with just the right kind of badge, I'm talking about brand new battered, burned and broken guitars that command ridiculous prices because they've been busted up in an identical fashion to one Eddie Van Halen used to abuse. And I'm talking about the stupid price you pay for a grimy, damp-ridden, one-bed flat that just happens to be in the right part of town.

The world runs on people spending money (effort) on nothing more substantial than what they believe to be true.

"I am saying anywhere /can/ be connected to anywhere else."

But that's not the important factor, the important thing is whether or not a visitor *believes* that it is. Webpages these days are technically connected to all sorts of junk, databases, ad servers, media repositories, bleh. Webpages that aren't strictly speaking connected at all are connected in the mind of the visitor (particularly if your credit card details might be involved).

You're not overly specifying your vision of the future of virtual worlds, but at first glance it seems to be portal based, a door you walk through to go someplace else like links in a sidebar. To my mind, having seen both styles done, a contiguous landscape is far superior in generating the illusions of association. Linden have had to make some technical choices in their development and they just happened to have tied processing capacity to simulated land area. Maybe not a great choice, but it does have some interesting side effects and one of those is that people treat the 'land' as they would actual land. More so, in fact.

"Or will Linden Lab's leave their world so large grained as to force everyone "proximate" to their world to only see fragmented, edge-world, oft empty and half completed islands? Of course not, they'll allow multiple proximate entry points."

You say 'of course' but I suspect they had to have their arms twisted to introduce direct teleports. You were around in the telehub days, weren't you?

It's pretty hard to guess what will happen with technology of this kind in the future, but one thing that's hard to deny is that it's insinuating itself into the public consciousness more and more, after /years/ of being largely ignored.

It might be better if we start thinking of how virtual estate is /similar/ to real estate rather than how it's not. After all, you can pretty much guarantee that's how future virtual estate customers are going to be thinking of it.

[randolfe_]

No need to move the conversation to email, unless you'd prefer. I'd hope some might find the debate useful.

I completely accept the brand and consumer metaphor arguments. I am not a brand marketer nor a consumer behavior export, although I have studied some fairly advanced consumer behavioral economics.

But people will probably want to perceive and even experience much for the virtual world in familiar terms.

Also, I did not state that the total value of a virtual place would be the marginal cost of its platform. I intentionally separated virtual land from virtual "stuff built atop that land". Not to harp on the differences, but the primary value function in real real estate is the land; the opposite is true (or will become over time true) in virtual real estate.

Brand is a powerful example of that. The best parallel I can think of in Web 1/2 is movie marketing websites. Insofar as the movie represents a brand it matters not where the platform is located, or even so much what the address is. BigBlockBuster.com works as well as BigBlockBusterMovie.com. The value is the movie, not the virtual place.

To harp a second longer, aside from the mainland in Second Life, there is no real proximity at all. Linden could randomly relocate all independent island groups every evening without any affect to the user experience. This is because the "ocean" in Second Life effectively does not exist, cannot be traversed, and must be teleported over.

I strongly predict this is how web 3.d will develop. A seamless or simulated-seamless virtual world would obviously be preferable to many. But it is hard to do. And it will be unstable, not just technically, but organizationally. A portal system or portal-with-fascades system will be much more practical even if leaving so much of the potential untapped.

We also based a decade of web development on HTTP protocols long after CORBA was mature, for largely the same sorts of reasons.

Building on the consumers thinking in real estate terms and your Sunset Strip comment, what prevents the following:

The edges of my "cube" adjoin yours on Sunset Strip because I make them appear to do so. So my folks walk right across (zoning) into your cube just as if I was really next door. But to you, I'm not next door, people are appearing out of The Fish Market, which you show as being next door. But wait, the Fish Market isn't even showing you as their neighbor anymore either, being they just got paid to be next door to McDonalds. In fact, there are about 2,200 of us sitting to the left of your cube, where you tell your folks The Fish Market sits. And, to your users, the Fish Market is there, because when they zone across, that's where they go.

The world would quickly devolve into a case where simply zoning across a boundary, turning 180 degrees, then zoning back, could lead one on an infinite journey through the net.

I can guarantee this will happen short of more mundane portal-addressing mechanisms. In fact, people like me will help guarantee it will happen because it represents an irresistible set of business opportunities -- making portals, making proximity simulators/capturers, making search engines, etc.

Ironically, what sucks the worst about Second Life (aside from furry ageplayers) is the difficulty FINDING anything. The economic search costs as they are called in econobabble are teh primary barrier to anything commercial. But as environments open, those are very rapidly solved. (In fact, the underlying economics behind brands are economic search costs. Brands lower search costs for consumers, thereby commanding a premium.)

[always_black]

"Not to harp on the differences, but the primary value function in real real estate is the land; the opposite is true (or will become over time true) in virtual real estate."

OK, I don't see that happening in the way you do but to prevent further harping let me just ask you this: Why is that difference important?

As far as a consumer is concerned, if a company like Coldwell Banker chooses to "develop" virtual real estate, or if you prefer, diversify into digital content provison (even as a cheap publicity stunt), why does that move warrant scorn? Or if that's too harsh an interpretation of your original post, at least worthy of none-too-supportive comment?

Many companies have created message-board based communities on their websites, quite aside from their main concern of business and often as a public relations exercise. What's the danger here that you seem so eager to warn people about? That their virtual land is suddenly going to be worth less than they paid for it? That's a bit like warning them that their magazine subscription might be cheaper in six months.

"To harp a second longer, aside from the mainland in Second Life, there is no real proximity at all."

Um, I beg to differ, when I got tired of noisy neighbours I bought an island to create such proximity (with money I made selling the bogus currency I made selling in-game content), now I rent the rest of it out to friends to offset half the maintenance costs. Not unlike sharing the cost of a webserver, strangely. Come and see it, if you like.

"Building on the consumers thinking in real estate terms and your Sunset Strip comment, what prevents the following: "

Nothing prevents it, apart from it being shocking interface design. Your method sounds a lot like those ads that try and land under your cursor while you're clicking on something else. If people are looking for a familiar analogue, reasonably static geography strikes me as pretty important. I might be wrong about that, but if you're trying to create an illusion it's often important to keep it consistent.

"Ironically, what sucks the worst about Second Life (aside from furry ageplayers) is the difficulty FINDING anything."

I disagree, I think. What sucks worst for me is finding a use for the technology beyond casual socialising, someone just show me ONE thing that doesn't work better in a different medium. Maybe the reason no-one has nailed the search engine problem is that there isn't much worth finding.

Then again, that makes me sound like the old duffers I struggled with ten years ago when I thought having a company website was a good idea.

[randolfe_]

(working backwards)

Having a company website was not always a good idea. Most money spent developing GMOOT web sites in the early phases was lost productivity. I think that's pretty well established at this point. It wasn't a failure of technology, architecture, or technique. It was a failure of organization learning and retention of organizational knowledge. Companies were, and still are, very bad at capitalizing on loosely defined R&D. That's why those that do are a big deal.

I may open another topic on this subject (I haven't decided yet), but there are exactly 327 total entities who earned a positive net revenue from Second Life in February out of apparently 25,366 who were endeavoring to do so. The rest of those "PMLF" folks netted losses when adding in the minimum conceivable transaction fees, costs, expenses and low-bar opportunity costs.

So I hear your claims, and I have no specific reason to dispute them. But understand I've heard from almost every one of those 327 people apparently twice over in the past two months, so something's clearly amiss.

Back to Realogy/Coldwell. If you browse the rest of my blog -- not that I'm suggesting you should or that you will find it interesting or informative -- you'll see that I have spent some time, years in fact, analyzing, researching and criticizing various aspects of the real estate industry. My complaint about Coldwell is that it is tragically ironic that even while they pass their stake in fiduciary responsibility for an in-progress bubble implosion in real real estate, they cynically move in to exploit fake-estate. I use that harsh term because, having dealt with a number of Realogy management folks, I cannot imagine in any alternate universe that they take Second Life seriously except for any GMOOT exploitation value.

[always_black]

"...I have no specific reason to dispute them."

Heh, that's good, because I have no specific reason to lie to you.

"...there are exactly 327 total entities who earned a positive net revenue from Second Life in February out of apparently 25,366 who were endeavoring to do so."

My antenna are twitching and I've got that horrible feeling I'm about to blunder into a trap, but I can't help myself. Curiosity and cats and all that.

I'll bite, what makes you think 327 of 25,366? I eventually managed to arrive at that number from the data I could find, but only after the application of a couple of modifiers that I can't see a practical reason for, those you are calling "minimum conceivable transaction fees, costs, expenses and low-bar opportunity costs." Whuh?

And that leads neatly to the reason I've been lurking here recently, what happened to the challenge you issued to analyse a volunteer SL business? I was looking forward to the results of that.

Regarding Realogy/Coldwell, hmm, maybe I'm being myopic then. If the "wtf?" ejaculation is aimed at the behaviour of one particular company, then that's one thing, does that mean you have no objection to the /principle/ of virtual real estate development as a metaphor for um, something akin to website development? Does that mean you'd disagree with points of view similar to those express by RF and Birdman?

[DinOR]

Randy,

Don't know if you'd heard but apparently Second Life is going to start charging for avatar names. The article I read was on Verizon's "home page" and evidently the charge will be a $100 one time fee with a $50 "renewal fee". Their equivelant of "vanity plates". Uh... in Oregon we don't pay that much for real license plates.

[randolfe_]

Thanks DinOR. I hadn't heard that. It's not a bad idea from Linden's perspective, as long as they can sell enough to overcome whatever cost to implement and administer.

It does raise an interesting question. Who "owns" the avatar name? I suspect LL does, as per their license agreement. But in the recent past there's been a whole row about players claiming copyright on their avatar's look and identity. I'd think under this line of reasoning the name would be copyrightable also. But I'm not sure you can copyright someone else's property.

[randolfe_]

always black

(breaking my responses into multiple comments due to time constraints)

I have no objection to companies making a buck so long as it's legal and compliant with their own self-imposed (or industry self regulated) code of ethics. In the US the real estate industry rarely meets that standard, virtual real estate aside. But I did say above that I have no theoretical objection to the more general ideas of virtual worlds commercial development.

[DinOR]

You know, come to think of it, send me the 100 bucks and you can use my REAL name and OR Lic. plate number in your "virtual world". See if I give a rip if you do a "drive by"!

Btw, as the "Fleet Maint. Manager" I have SEVERAL names available!

[randolfe_]

I eventually managed to arrive at that number from the data I could find, but only after the application of a couple of modifiers that I can't see a practical reason for, those you are calling "minimum conceivable transaction fees, costs, expenses and low-bar opportunity costs." Whuh?

Firstly, I am planning on running a fourth (and likely final) thread specifically on that data. I'll address the "practical reasons" briefly here. These reasons are not only practical, but imperative:

1. Taxes. In the US, one must pay taxes on anything earned and cashed out of Second Life. My numbers above assume these are incorporated businesses paying business tax rates and offsetting allowable costs of business.

I actually suspect taxes are even higher (for US participants) because many will be not incorporated, claiming the income as self-employment income, and thus assessed the "self-employment tax", which is the amount which would be paid by an employer were they otherwise regularly "making a living" the old fashioned way. Further, many costs which _might_ be offset-able as a corp. probably are not offset-able as a self employed. For example, you will not be able to (legally) claim your computer, electricity, or office space in most cases (reference US tax code restrictions on home office expenses).

2. A minimum perceivable direct cost of business in terms of either land fees or rental costs. I took a hyper conservative number here, for example, assuming that even Anshe only pays $195 monthly in real dollar direct costs, scaled down accordingly per volume.

3. Minimum account fees. You can't redeem $ unless you pay $6/mo.

4. Minimum transaction fees. You have to pay 3.5% to transact on the Lindex.

5. Minimum opportunity cost of labor. I'm comparing to all the "making a living" claims. Therefore I apply a low-bar opportunity cost, specifically, a US average hourly non-management Wal-Mart employee with no benefits or insurance. These workers earn very low monthly real income, however, they also benefit from not paying self-employment taxes and potentially from EITC at federal and state levels.

These costs all add up to a very very very low-bar comparison. They are only the mandatory legal compliance costs, transaction costs, and brain-dead alternative worker opportunity costs. They count no risk premium. ie. Linden could go under any day and all unredeemed $ would be worthless, as could Linden decide to just kick you off without payment. In the US employers must always pay your earned income, and in bankruptcies employee payables are the first claimant on liquidation.

If you take this stylized, low-bar approach it knocks out all but the top 327 earners. Everyone else is losing real dollars.

Perhaps in the UK, from where I continually receive email insisting I'm woefully mistaken: Wal-Mart equivalent workers make pence per hour, Second Life income is not taxes, Linden doesn't charge any fees, and the government subsidizes your costs of business. I'm not an expert in the UK business environment, so I can't say that's not the case.

[randolfe_]

Why I canceled the business valuation offer. I haven't publicly talked much about the reasons yet, and I still don't feel comfortable discussing in detail.

The easy, happy explanation is that most of my volunteers were foreign and I would have rather stayed within my zone of comfort analyzing a US based operation. But I did get a couple of promising US candidates, so that wasn't it entirely.

There were also potential legal issues. Remember these operators aren't necessarily businesses and Second Life is not necessarily a "market" or "economy" by current US legal definition. At present, it is still a game, although that may change in the near future.

But those reasons would not have been sufficient to prevent my at least doing some type of valuation.

The real reason can be summed up in one line I received in an email in response to my offer, and apparently someone who thought I should not proceed with this line of reasoning.

Expletives removed: I know where your children go to school.

[randolfe_]

That explains my repulsive indignation to Mister Castronova's casting all this as "Virtual Mayberry", and the subsequently adoring ("Adam") Reuters and all media thereafter parroting the analogy as obvious fact.

Perhaps I should send my email to Adam and Castronova so they can have a talk with Sheriff Andy Taylor. Seems maybe virtual Novosibirsk would have been more fitting?

[always_black]

OK, let me split my replies too, seeing as one thing is one thing and the other is quite something else.

Firstly, regarding "minimum conceivable transaction fees, costs, expenses and low-bar opportunity costs."...

Oh Randolfe, I was expecting something with a bit more latitude from you. After all, you seem to express so much chagrin when the likes of Linden spin their numbers, it seems a shame to find you doing practically the same thing. You have to be squeaky clean if you're going to retain moral high ground.

Upthread you said "exactly 327 total entities who earned a positive net revenue from Second Life in February" and this off the back of my claim to be paying my sim rent from the proceeds of my SL transactions. Nothing at all about 'making a living'. Even /I/ know that $1 more than I put in each month is a positive net revenue and I make no claims at all to accountancy.

1. Taxes. Sure, in the UK we pay on the profits on income tax (something like 25%, worked out on the back of a cig packet). Someone asked someone in the uk .gov the last time it was newsworthy (when congress started it's look-see) and he said 'well, d'uh'. I paraphrase.

2. Minimum perceivable direct cost of business. I think your guesses in this area are far from convincing. You worked it out how? Anshe pays $195 a month? Since when? She's paying $195 a month /per sim/, at least. Then how are you scaling it? Are you privy to her income, from myriad rentals, 'sales' and subscriptions? There are those running businesses that don't require any land at all, all the way up to those who own far more land than they actually need to make money. That's going to screw up your guesses all on its own.

3. Minimum account fee. Yep, s'true, $6 a month or thereabouts, depending on account type.

4. Minimum transaction fees. Also true.

5. Minimum opportunity cost of labour. Pfft, what about all those represented in those figures that don't 'employ' anyone at all. The vast majority of prefab businesses are solo efforts or else partnerships of solo efforts.

So by my admittedly simplistic reckoning:

Someone makes L$5320 in a 4-week month (let's say they sell 20 hats at L$266 each, which is not beyond the pale. If they are nice hats. Besides it makes working it out easier).

They pay out L$400 a week for a fancy hat vendor - leaves L$3720.

Sells up on Lindex @ 266 to the dollar, which is where it has been suspiciously stable for months now. After commission that's $13.49

1. Taxman gets $3.37. The robbing bastard. That's assuming its someone with a day job that uses up their allowance. That leaves $10.12

2. Direct cost of business (see above).

3. Minimum account fee- Less $6 is $4.12

4. Minimum transaction fee (see above).

5. Minimum opportunity cost of labour - How many people does it take to make a hat?

As long as I haven't pressed the wrong buttons on my calculator (distinctly possible) that leaves $4.12 of positive net income, along with 13,490 other schmucks in February you pretty casually dismissed there.

What did I miss?

[always_black]

Regarding hatemail -

Ah, I had guessed that was it. I thought I saw reference to something like that in the comments, but it disappeared or else I couldn't find it again.

Having been on the receiving end of one or two of those myself, I have a pretty good idea about the distress they can cause. In my opinion, you should pursue that as energetically as possible.

That said, you're obviously much smarter than someone who would tar an entire group of software users with the same brush on the strength of a single (I assume anonymous) moron who thinks temporary anonymity absolves him from responsibility.

The world is full of idiots, no community can claim sole rights to that.

[randolfe_]

2. Minimum perceivable direct cost of business. I think your guesses in this area are far from convincing. You worked it out how? Anshe pays $195 a month? Since when? She's paying $195 a month /per sim/, at least.

You misread me. I mean that the MAXIMUM I allocated for cost of business was a TOTAL of $195 for the big-barons. More like $2 for little guys. I think this is off by a factor of 10 at least, but it probably doesn't scale linearly, and I don't want to have to defend against the inevitable appearance of "Hey, I make bajillions of Lindens and don't pay squat for land fees" responses. I do know you have to at least rent a vendor somewhere, at the bare minimum.

[randolfe_]

5. Minimum opportunity cost of labour. Pfft, what about all those represented in those figures that don't 'employ' anyone at all. The vast majority of prefab businesses are solo efforts or else partnerships of solo efforts.

When assessing the VALUE of anything, including NET PROFIT, you have to include OPPORTUNITY COSTS.

Time spent in Second Life "making a living" could be spent, well, making a living.

I am specifically reacting to the "making a living" claims. I apologize if I unfairly lump you in there. Clearly you aren't trying to make a living at it.

But, I would still argue there is an opportunity cost. Time spent in SL could be spent earning another degree, moonlighting, building new on the job skills, getting a certification to get out of Wal-Mart's hourly circuit, etc.

Of course, if you're just in SL for ENTERTAINMENT, then that's something different. Like watching TV. But when Rosedale says "play Second Life, pay your rent", he's not talking about entertainment. He's implying you can have fun AND make a living (at least of sorts).

I say that is pure bunk, and he either does or should know it.

[randolfe_]

I just tried removing ALL opportunity costs. This is a categorically false analysis, because engaging in commerce always carries some opportunity cost, somewhere. Even if it means putting those $50 per month into a Bund and collecting interest.

Even so, you still only get: 1,106 NMDI (net monthly dollar income) participants. The curve does flatten out a bit in the middle, meaning that there is a more even pyramid of wealth up to the top 116.

[always_black]

"You misread me."

Ah, so I did, my apologies. Even so, you're going to struggle to find a 'typical' cost, I think. For one thing, a great many people who use SL to play at business are going to have much larger overheads than they actually need, too. The initial risk can be made to be very, very small (I originally and tentatively bought £10 worth of Lindens for example, and steadfastly refused to get sucked in for any more than that. I can afford to lose £10.

For that reason I suspect there is a lack of the kind of natural selection you might find in the real business world. The prospect of losing thousands of real dollars in start-up costs will discourage a great many potential business owners from even trying, I suspect. That means it's quite possible that a goodly number of SL businesspeople are doing it wrong, by virtue of the fact that their fingers aren't getting that burnt.

"When assessing the VALUE of anything, including NET PROFIT, you have to include OPPORTUNITY COSTS."

Ohhh, I see! Right, I learned something there. You're evaluating how much more money I could have made doing something else with the time? But still, that also sounds inordinately tricky to figure out to me. How are you calculating the amount of time I'm spending 'working' in SL? How are you calculating the potential value of that time?

For example, speaking personally, if I wasn't noodling around in SL, I'd probably be watching TV or trimming my toenails or something. And how about all those hours when I'm not in SL and that hat vendor is still chugging away selling hats? Checking my overnight account balance over the first cup of coffee in the morning is one of my current favourite things to do.

As for paying the rent, well I dunno... if I sell ten times the number of ten types of hat...

"Even so, you still only get: 1,106 NMDI (net monthly dollar income) participants."

You're going to have to explain why my single hat didn't make the cut again, though. I mean, it only took me a few hours total to make a hat and rent a vendor (for example). That same hat will probably make me another four bucks next month and the month after and the month after. Commercial popularity willing, of course. It's not like I have to worry about supply, shelf-life or material costs.

The problem is Randolfe, that your analyses don't bear any resemblance to people's actual perceived experience. People that don't understand the nuances of your techniques.

Of course, there's no reason why you should tailor it to fit, or even go out of your way to teach the required understanding of economic theory, I'm not saying that. It's just when you make a statement and that statement pops to the top of someone's news feed... well...

If you say 'no-one is making any money in Second Life' - what are all of those people who are watching their dollar balances grow month on month going to think (by however little)?

If you say 'no-one is going to pay their rent from a Second Life income', what are the people who are making dents in their rent with the odd hundred or so going to think?

If you say 'you could make more money using the time to do something else...' well, you're knocking on a whole lot of people who are half-dreaming, building model shops, styling themselves as nightclub owners, artisans, landlords. How are you going to convince them they would be 'better off' working nights mopping floors in a shitty corner store? People don't live by the numbers.

Those are the people you are going to get apoplectic emails from, claiming you've got it all wrong.

I can totally see why your work would qualify as an antedote to some of the frankly ludicrous hyping that has been put about recently. No big company is going to swan into SL and start creating significant amounts of cash out of thin air, anyone who has spent any amount of time in SL knows that and they don't need a graph to have it proven to them. I do think you could be more selective with your targets, though, or at least scale your rhetoric on the odd occasion, so that the 13,490 nickel and dimers can see the context you are working in.

If nothing else, which is going to go easier on the old inbox? Pissing off the 327 or the rest of the table. :D

Thanks for this, by the way, you've been very patient with an ignoramus and it's an interesting conversation I realise you didn't have to engage.

[always_black]

Oh, I thought of something else to do with your scaling of business costs.

Does it account for the fact I can just as easily sell a high value item from a tiny vendor as a cheap one?

[randolfe_]

always_black

Nothing to thank me for; it is comments and arguments from reasonable people like yourself that make blogging worth while, for me at least.

I entirely understand and recognize your points about my analyses versus the experiences of many "net positive earnings" players. I'll be the first to admit that the "rational actor" in economic terms is a myth. People account for things mentally in a way that isn't bound by math, logic, finance or economics. I have a link on the left ("Mental Accounting Matters") to the original work in mental accounting, in fact. It is a tremendous read, if you have time. It actually changed my life vis-a-vis my thinking about things economic.

My targets were never really meant to be the mass media. I was more surprised than anyone when I woke up one day to see 25,000 hits to my blog. How that happens is an interesting study in itself. Rather, my targets were the serious financial media and some of the more visible academics who, in my personal opinion, should and probably do know better.

After all, it was they who enticed me to get into all this in the first place. I'd played SL for some time in 05, through early 06 then faded away. I was enticed back when I started reading in the FT, Economist and on Terra Nova how Second Life was the new emerging market, complete with a GDP and currency market. I assumed that such coordinated and persistent PR was intended to attract folks like me to do things like I did -- try to bring financial investing and capital market liquidity functions into the game. I even had a small-time hedge fund manager convinced that if he listened to me he could be the first to stake out the Second Life economy, and perhaps take the first piece of the capital markets in an economy which (in Linden Lab's paraphrased words) was growing at many time that of the US economy.

To all those in that audience, I intended my sharp, no-sugar, sometimes irreverent analyses. It has pained me that so many engaged in other entirely unrelated factors of Second Life/virtual worlds in general -- things like social networking, pedagogical development, entertainment, evolution of communications, etc. -- counter attacked me as if I had attacked the merits of their work and passions.

And in my mind the vicious counter response was itself indicative of weakness, feared or real, among many in the Second Life community. I'm just one guy with a blog, so I don't see how I could threaten to bring down the entire virtual-world market, as Castronova claimed. But I am a capitalist, and so if my criticisms do tip over the world, then it wasn't long for standing in the first place.

A last point, considering your comment about there being "idiots everywhere". I certainly agree, but just as Second Life $5/mo earners will smell something wrong with my claims so do I with claims that Second Life's user community is just like any other. To the contrary. I've been engaged in much much larger debates, amongst literally millions of folks in the quite contentious real-real-estate industry for some years now. In all that time, despite lots of shouting matches and colorful expletives, I never received anything even close to a threat. On a statistical basis alone that means that Second Life harbors orders of magnitude higher "idiot" rate than, say, the US Real Estate Industry, which isn't generally known for its good graces. By the way, I like most others who've criticized Second Life publicly, have received more than a single off-hand threat. You can easily find the others by googling. And those are just the ones who will talk about it. So not to harp, but this is why I find "Virtual Mayberry" references cynically disingenuous. All the James Wagner Au blog stalking apologies in the world won't make it any more like Mayberry for anyone who's suffered the darker element which everyone knows inhabits SL.

[always_black]

I can fully empathise with your position in suddenly finding out your innocuous post suddenly has an unexpectedly massive audience. I think you're in a very interesting position at the moment and I'm fascinated to see what you will do with it.

It's pretty safe to say that whatever you write next on Second Life will garner significant amount of Second Life playing readers, I wonder if you will write for them or for your originally intended financiers and academics?

The thing is, I think SL needs a perspective like yours to restore some balance to its coverage. And I don't mean negative coverage, I mean rational, measured, realistic analyses in context. Some might use words like "objective" or "truthful".

I think you've suffered in previous posts by using language that is unfortunately interpreted as subjective and the real points you've made have been lost by those that have jumped to the conclusion that you're just ragging on the home team. I'm sure that happens in politics and probably even real estate too.

A quick glance over your previous posts on the matter reveals metaphors of con tricks, accusations of deception, warnings of future prosecutions for ilegal gambling, illegal pornography and spectacularly, suggestions of funding terrorism. Stop me if I'm wrong Randolfe, but that's a WHOLE lot of noise to shout over if you've got something serious to say. No-one is going to see the real point while they are choking on the mental image of Philip Rosedale facilitating the funding of Al Quaeda.

Bear in mind that Linden Labs and their customers are not a single entity. Second Life businesses do actually want the kind of information you can provide.

Looking back over my hat example, there are many points at which your average joe is going to read off a bottom line. Before he converts his linden dollars to USD he might claim he's making $20 a month, not $4 and genuinely won't understand the difference. That doesn't mean he doesn't want to know.

Likewise, the concept of opportunity costs is a little obscure to the uninitiated. As I said before, if you're telling me to go work in the Kwik-E-Mart instead I'm going to dismiss the idea out of hand. On the other hand, if you were to frame the concept in the context of the SL business, say 'you'd make more money just making and selling textures, rather than making textures, applying them to objects and then selling the objects' (I think that's right, I'm still getting my head around it), I think you'll find lightbulbs going on behind a great many more pairs of eyes.

Essentially what I'm saying is this. Don't ask 'Is a Second Life business worth anything?', ask 'What is a Second Life business worth?'. The difference is subtle but crucial, the first is a challenge the second is an invitation to think.

Of course, you might dismiss all of this out of hand and who could blame you? You've no particular reason to provide free business advice to the players of a game and some pretty good reasons to steer clear of the whole thing.

I do think there's a great opportunity ahead to get through to lots of people, particularly if you're going to dissect an actual SL business and it would be a crying shame to see that opportunity drowned out in cat-calling.

Anyway, I'll look forward to your post, thanks again for the conversation and good luck with it.

[always_black]

P.S. Re - Mayberry

I don't even know what the Mayberry reference is, so I'm assuming it's an American thing (I know, JFGI), and I don't really want to press you on the issue of the 'character' of Second Life, either. It's emotive, impossible to verify and not all that useful.

However, I will just posit an alternative viewpoint, simply as food for thought, take it or leave it as you see fit.

The so-called 'blogosphere' has a great many unsavoury elements in it too. It wouldn't be too hard to dig up blogs devoted to deviance or antisocial behaviour, nor is it without its threats, as amply illustrated by Kathy Sierra just recently.

I certainly wouldn't consider that to be the fault of all blogs, bloggers or blogging software however and I seriously doubt you would either.

The relative proportions of Good vs Evil aren't easily quantified, in any group of people.

[randolfe_]

always_black

You've given me some perspective to think about I hadn't really considered before. I simply assumed the rank and file Second Life community had little to no use for folks like me. I do take your points about communicating my ideas in familiar terms versus the more technical discussions I've had up till now. If anything I've been caught between opponents of my originally intended audience, namely academics, charging me with not being detailed or technical enough and a desire to make my messages a bit clearer.

A good example of that is with the Terrorism thread. I was responding to a specific question from an earlier thread, which I assume itself was prompted from recent discussions on other blogs vis-a-vis virtual worlds. If you read the entire article you'll see I was very careful to not charge Linden with any intent or specific incidents. I was instead describing how Second Life and other MMOG/VWs represented an attractive platform for moving money subversively. Others I linked in the article have discussed the wider notion of using Second Life for terrorist organization and training -- those ideas are not my own nor do I claim to be any kind of expert in this regard. I was trying to solidify the financial/money component of this topic.

However that article on the surface looks pejorative and anti Second Life. It doesn't help that those who actually started the whole blog discussions on terrorism & SL dismiss anything I try to add without even bothering to read it.

And that comes around to the core of the question you've raised for me. Do I even have a place commenting about any of this? I find this entire subject fascinating. I have a deep passion for the evolution of the Web into something more virtually immersive (I know, not really a word). And I've been a gamer since I was probably 8. But I have to consider the possibility that I'm caught between audiences because there really is no audience, just a handful of similarly interested spectators.

[always_black]

Heh, I guess being a virtual publisher isn't any easier than being a virtual nightclub owner.

I think you absolutely have a place in SL commentary, I just think you've had an unfortunate experience recently due to a combination of factors.

Someone with your obvious education and insight for complex financial systems AND a passion for the possibilities is bound to have all sorts of things to say about what's going on in Second Life. And, I'll venture, its inevitable successors.

OK, so far you've been pretty convincing about the reasons why big businesses aren't going to get bigger off of SL. But what about all these little sole traders that are powering a micro-simulation of business (with its own unique idiosyncrasies)?

A couple of thousand bucks in a year isn't going to get them into Fortune magazine, but it might redecorate a bedroom and that can be pretty important in a household, let me tell you. :D

I don't believe I've ever seen a better business guide in SL. I have heard lot of questions about taxes, costs and a myriad of other things that suddenly seem important when you're playing shopkeeper. Questions I couldn't find any answers for.

Who knows, you might even be able to sell something like that :D

And in the meantime, you'd get a front seat at a pretty weird but still quite interesting flea circus.

[W^L+]

Question: when a licensed real estate broker starts dealing in "pretend" real estate, won't state laws hold them liable for any "market imperfections" that they don't warn buyers about? This just makes no sense at all.