For those unaware, “Second Life” is a virtual world which has attracted massive interest on the Internet where “residents” live their lives online and are able to trade, socialise, develope businesses and acquire assets as you would in everyday life. Launched on 23 June 2003 this bizarre virtual world has captured the imagination of millions of players and created millionaires in the process!
However, aside from the creators of the virtual world the “world” itself has its own currency and has seen a number of millionaires appear from literally nowhere, able to convert their Linden dollars into real currencies as you would in everyday life. So how exactly does this work?
The basics of Second Life
The world itself is only open to those aged over 18, although there is a Teen Second Life world available to 13 to 18-year-olds, and allows “residents” to choose their own avatars, personality, clothing and home to name just a few small elements of the game. In reality it is very much like a normal world where you can buy and sell any items, the good side of society is visible, the bad side of society is also visible and life in this virtual world is as varied and bizarre as you could ever imagine.
While Second Life has received massive press coverage around the world, much of it attracted because it is unique to say the least, there has been a spate of negative press coverage as various negative aspects of real-life start to appear in Second Life. Crime, fighting, prostitution, etc have all appeared over the last few months adding a “dark side” to the Second Life phenomenon.
Property in Second Life
As bizarre as it may sound, November 2006 saw the first of a wave of Second Life millionaires who created their wealth via virtual property transactions. This is no joke, with Anshe Chung (the Second Life avatar of Ailin Graef) being the first “resident” to build up a virtual property portfolio which is now valued at over US$1 million. This came from an initial investment (subscription fee to Second Life) of just $9.95!
It appears that Ailin Graef was one of the first to spot the real-life potential for making substantial amounts of money in Second Life and built up a substantial property portfolio, as well as exposure to land, virtual shopping malls, store chains and virtual stock market investments in various Second Life businesses. As in the real world, the value of these investments does not remain constant and can be volatile as you would expect with more traditional investments.
It is worth pointing out that as well as buying and selling property, developing property, “residents” are also able to rent land, property and buildings as you would in the real world. In essence, whatever you can do in the real world can in theory be repeated in the virtual world of Second Life.
The Linden dollar exchange rate
At the moment there are around L$261 to the traditional dollar and while this rate has remained fairly steady (give or take a few Linden dollars) for the last few months it did fall to around $320 to the US dollar a couple of years ago, showing that it is susceptible to market conditions. There has been a massive increase in the value of exchange-rate transactions with a peak trading day in January showing that over L$100 million were traded.
It can actually be very difficult to get your head around the fact that the virtual currency has now taken a place in the real world where they can be exchanged for “hard-currency” and spent like any other currency in the world. There have been massive spin-offs on the Internet with more and more businesses targeting the Second Life world and the Second Life “residents” who are demanding more and more services as they try to map out their personal and business lives online.
Will the recession affect the Second Life property market?
While you may expect the recession to affect the Second Life and its “residents” this has actually happened in a rather non-traditional way and caught many by surprise. In effect what happened is, so-called “OpenSpaces” which are areas of land in Second Life which are sold as to “residents”, at a price which initially started at $75 a month, have proven exceptionally popular. The acquisition of these land plots, like any other investment in the real world, is an investment for the future in the hope that interest will grow and those trading in the virtual world would be able to perhaps raise capital to develop these plots.
It would appear that the administrators of Second Life have been caught out by the massive increase in interest in these “OpenSpaces” and due to bandwidth and processing power increases the cost of these areas of land has risen to $125 a month. This is a substantial increase and is sure to impact upon the popularity and investment potential for these virtual plots.
Is Second Life susceptible to a credit crunch?
At this moment in time it would appear there is little evidence of a traditional credit crunch in the Second Life world although the ongoing recession around the world is sure to impact on customers and their ability to both invest their own money and cover subscription fees on a long-term basis. The very fact that Linden (the administrators of Second Life) were forced to increase the cost of “OpenSpaces” by 66% indicates that maybe Linden rather than Second Life may be suffering from a “virtual credit crunch”.
While many people see Second Life as a “game”, to many people it has actually become a way of life and a place to transact business. The vast majority of major businesses around the world have an exposure in one way or another to Second Life as the potential for “cheap” advertising and links to more traditional online websites is absolutely enormous.
As for the property market, the ability to test your skills in a virtual world and potentially transfer these to the real world and property investments has the potential to be very attractive to many people. Those who take Second Life as a game may one day regret this because this virtual world offers the potential to create substantial wealth as well as gain experience which could in some circumstances be transferred to the real world.