Second Life Businesses Can Rake In Some Surprising Profits and Participants

(This is the second installment in a several part series about Second Life, a fantasy web site that is attracting much attention from role players and in the media. Click here to read part one of this series on virtual real estate.)

Second Life is an interesting concept if viewed solely as entertainment. Losing one's Avatar's ears and clothing is amusing; flying headlong into a Gothic column is painless and pretty funny, and reading the blogs and coming to grips with some Second Life residents' total commitment to their secondary reality is, well it is massively creepy. But Second Life is also a living, breathing economic system and, for that reason, it is fascinating.

Some of the figures coming out of that economy are startling and the numbers are increasing quickly. In November, 2006 13,788 Second Life business owners earned one dollar or more. These were U.S. dollars (USD) not the Second Life Linden Dollar (L$). Last month that number had grown to 34,474. Granted most had a Positive Monthly Linden Dollar Flow (PMLF) of less than $10 USD but 810 business owners had a PMLF of over $1,000 and 129 made more than $5,000.

Most transactions in Second Life are small. Of the 302,665 residents spending money "in-world" in April, almost half spent less than 500 L$. But there were some big spenders who dropped between 10,000 and 50,000 L$ (42,000), 100,000 to 500,000 L$ (7,660) and close to 2,000 who spent over 500,000 L$. Remember, Linden Dollars can be converted to coin of this realm at a number of on-line sites and the conversion rate runs around 268 L$ per $1 USD.

All economic information provided by Second Life is based solely on transactions in Linden Dollars and does not include money paid to the many businesses that accept PayPal or other payment methods. Nor does it include money spent to purchase real estate. And real estate is a major focus of the Second Life Economy.

It doesn't take much to set up a business in Second Life and site administrators exert little if any control. You must have a location on which to build your store (although it is possible that stuff may be sold even more virtually, through a classified ad or some such, we are not quite sure) and a product or service to sell.

We visited a few of the stores where we found a multitude of products to customize our avator and make his world functional. One huge showroom carried everything needed to furnish the avatar home; appliances including a refrigerator full of food (500 L$), kitchen and bathroom cabinets, lamps, furniture, rugs (30 L$), and art. Other sites offer to design and assemble homes as well as boats and vehicles. There are nightclubs, concert venues; if it is available in the real world it is probably available here.

The desire to start a business drives many residents to acquire real estate and the market is not limited to people who are playing a game. While we did not come across any in our own travels we understand that many businesses that operate in the real on-line world or even from bricks and mortar locations use Second Life stores to reach new customers.

One example is H&R Block. According to WebCPA, the tax preparation people have acquired an island in Second Life - we use the term acquired because it seems one can either buy an island or create one from scratch - and have opened a branch office. The company said it is part of an ongoing effort to connect with clients in a setting they know and in which they are comfortable. Real-life tax professionals in avatar form were available to answer questions for free during tax preparation season and Block was offering Second Life residents an opportunity to buy Tango its new tax software for $100 Linden Dollars. Off line it sells for $70.

Cisco is another real world believer. Mitch Wagner, writing in Information Week says that the many network engineers that live part-time in Second Life are a prime target of Cisco's sales strategy. Online Cisco holds events that combine people in the real world with avatars, gets feedback from customers and does sales presentations. Cisco has gone so far as to acquire a location and set up a store for their employees to dress their avatars in appropriate business attire, a commodity that is scarce in the dozens of Second Life stores that sell avatar apparel.

But a big part of the Second Life economy is virtual real estate and besides entrepreneurship many factors motivate residents to purchase property. People want privacy in their second life, they want a place to bring their friends or gather with people of similar interests, and they want a place to use Second Life's creative tools to build homes, castles, and fantastical structures. All of this is driving an active and pricey real estate market. And some surprising players in the real world of real estate are taking notice.

Like entering Second Life and learning about its terrain and economy, the concept of buying and owning real estate there requires a certain suspension of the need for reality. We will explore the islands and other available property in a later article but we promise not to buy.