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Show Me the Money

I’m suffering from a bad case of hoverboard envy. Just a short time ago I materialized in There, and I’m already itching to upgrade my hoverboard. In these emerging virtual economies, you have to buy such upgrades and other stuff with virtual cash. There issues every member 10,000 “Therebucks” when he or she joins; you can earn more through in-game jobs and transactions. It doesn’t take me long to blow several thousand Therebucks on clothes and shoes, like my new Nike sneakers (which Nike made available through an advertising deal). And then there are the big-ticket items: a hoverbike costs around 17,000 Therebucks, a buggy 10,000 to 20,000.

Whoever is operating Lexxa widens the avatar’s eyes when she sees my new duds. Virtual apparel imparts real status. And since many of the people coming here want to meet others, and want to be liked, they’re inclined to get more cool stuff that will encourage people to like them (just as in real life). In There, subscribers purchase or create in-game accessories, from hoverboards to self-designed clothes. “I am in There to marvel at the world and the wonderful creativity that talented people are expressing,” notes a There veteran named Daemona. In Second Life, the more techie of the two offerings, members can use Linden Lab’s scripting tools to build more complicated things-though it takes a certain level of will and design chops to construct, say, your own Tiki hut from scratch.

For virtual worlds to truly evolve into a mass-market communication medium, they need to make money. Whether that will happen remains in doubt. The business model of the moment is subscriptions: inhabiting Second Life costs $10 per month, while residence in There will set you back $5 per month, plus a one-time sign-up fee of $20. Both companies are also making some money through advertising, such as the Nike deal, but ad revenues are tiny. “Advertising adds nothing to our world,” says There founder Harvey. Other sources of revenue have begun to appear, though: There, for instance, accepted $3.5 million to develop team-building simulations for the U.S. Army.

More substantial revenues could flow from the player-driven economy. If you run out of Therebucks and don’t feel like providing some service in the virtual world, you can simply buy more using your real-world money. There has also built an in-game auction system, similar to eBay, which allows players to exchange goods. In return for this service, sellers must pay There a real transaction fee-in dollars, not Therebucks-that is a percentage of the price of the item being purchased. Linden Lab imposes taxes on its residents; the larger your lot, the more you pay.

Second Life even experienced its very own tax revolt; some of the virtual world’s more ambitious builders went so far as to don colonial garb to protest the high rates. Linden Lab ended up modifying its economic model to address the diehards’ concerns.

With a solid technological infrastructure and an emerging virtual economy, these brave new worlds want to go mainstream.  But that may take some time. The companies won’t say how many subscribers are online at the moment, but tours of There and Second Life reveal that they’re modestly populated. In January, There was hit with layoffs that, though explained as a reorganization, have nonetheless raised doubts about its future. According to Schelley Olhava, an analyst with IDC, “The biggest challenge is educating the market. People have to see how much more compelling this is than chat.”

And sometimes text-based chat is more than compelling enough. There will always be people who prefer the ease of a quick e-mail or instant message to manipulating an avatar. Often you don’t want to hang out; you just want to tell someone to meet you for lunch at noon. “It may be that too few people are interested in this kind of creative expression to build a sustainable business,” says Joe Laszlo, senior analyst for the technology research firm Jupiter Research. Also, as IDC’s Olhava suggests, There and Second Life have the added challenge of building new brands from scratch. “They don’t have the help of an established franchise,” she says.

After saying farewell to Lexxa, I seek out an online friend who’s been hanging out in There. We find each other by the buggy track and head off for a race. That’s the thing about a virtual environment. While conventional chat is basically a bunch of small talk, the “talk” in this world is almost secondary to the experience itself. Who has time to gab when there’s rubber to burn?

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