Re-examining Second Life (again): not a scam?

Terra Nova has published a rebuttal to claims that Second Life is a pyramid ponzi scheme (an allegation that I mostly agreed with). To be absolutely clear, nobody was accusing Linden Labs of operating a ponzi scheme, but rather, the fingers wwere pointed at the top moguls in Second Life, the people running the largest businesses and the private exchanges. Linden Labs is, however, guilty of hyping their game with inaccurate statements about the robustness of the virtual economy of their game.

Terra Nova’s rebuttal is simple: it isn’t a scam so much as it is that Second Life is actually a rather small economy by any normal standards, and that these investors were foolish to try to come in and try to trade large amounts of money that overwhelm economy of the game. They lay the blame at the people over-hyping Second Life, trying to make the game out to be a huge virtual economy when in fact it is really not. However, any way you look at it, whether Second Life is being run as a scheme or it’s just been over-hyped, the result is the same: its virtual economy isn’t worth bothering with. It’s simply not attractive to serious investors or venture capitalists. Until this simple fact changes, it will remain a marginalized game economy and not a real virtual economy. Yes, one person has (allegedly) managed to become a real-life millionaire, but that’s the very top of the in-game pyramid (used in an economy sense, not a ponzi sense). It’s very, very unlikely that many others can make it so big.

The conclusion is, don’t buy into the hype. Also, don’t be so quick to see evil around every corner either. But definitely don’t buy into the hype. Second Life is “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.” Its market isn’t worth taking seriously for any real investing purposes. Play it for the fun of it (if you do find it fun), but don’t go there looking to make a large amount of money off a virtual market. It ain’t gonna happen.

3 Responses to “Re-examining Second Life (again): not a scam?”

  1. randolfe_ Says:

    The question I have regarding whether Second Life is a scheme, scam, pyramid, ponzi, or something else centers around what Linden will do come crunch time.

    Thus far, they’ve been printing and selling L$. I won’t hazard a guess as to whether that’s ultimately profitable for them or not, but they are apparently collecting million of real dollars. And those “businesses” inside the game are happy because they can sell the L$ they earn for a stable rate of about 275-300 per.

    But what happens when people quit demanding L$, for whatever reason. A new game comes out, a recession slows down spending in the real world, a scandal shakes confidence, the government intervenes to regulate, an earthquake takes out half the grid? Will Linden be so quick to step in and pay real money to buy L$ on the market, or will they just let the rate float up?

    And if they do, it will feel like it was a big ponzi to those trapped in the system then, I assure you.

  2. Cyde Weys Says:

    You raise a good point – if the shit does hit the fan, then everyone trapped into the game is going to be unable to load their Lindens, and they will feel like it was a ponzi scheme. But that’s sort of a future hypothetical – as of now, it’s not necessarily a ponzi scheme.

    As for the official Lindex exchange, it is very strange that Linden Labs themselves “print” and sell large quantities of virtual money for USD on the exchange. It’s unfair competition and it serves to keep the value of in-game currency repressed, also making it hard to get any large money out of the game.

  3. Demen Says:

    I know this is an older article, but due to recent events, I feel like I need to comment on this. In reality the biggest scam, or scheme in SL is run by none other than the Lindens them selves. Find it hard to believe, think about this…

    1: You pay real money to purchase Lindens, to buy in world goods, which in effect gives them real monetary value.
    2: The Lindens grid, suddenly has a “problem”, and that which You purchsed is suddenly gone.
    3: You contact them about it and all You get is, “Sorry for the trouble, but We can’t help You”
    4: Now You either just eat the loss, or You go and buy more Lindens to re-buy the items You lost, Hence making the Lindens More money. (Which I am sure is what they are hoping You Do)

    Now take this and multiply it by as many people as this happens to on a regular basis, Heck I heard of some one loosing everything on their island, crashed and was rolled back to right before they started building….. Hmmmm

    Just how much in real money will it take to replace all that?

    Does seem kinda fishy doesn’t it?