Socially|Mundane

Lillie Yiyuan over at SecondSex (Yes, interesting blog title, but not the main subject there) has written a very good, insightful article about the Second Life economy and how the real life word-wide economy pains are sneaking there way into the in-world economy.

And I concur completely.

I've written about the SL economy and how the real life economy relates to it. The fact of the matter is the SL economy relies on the RL economy because as Linden Dollars (L$) fly around in circles in-world, a lot of it is lost through sinks and fees.

A sink is simply where you spend L$ for many "services" where the "tokens" (according to Linden lab) are not given to another resident, but rather to the Grid system - back to Linden Lab. That money (tokens) is removed from the Second Life economy. This happens in micro-micro payments every time you upload a snapshot or sound, place a classified ad, or allow your groups to be searchable. Little fees here and there.

Also via land tier. Many will pay their tiers with a credit card or through a PayPal account with real legal tender. Others, especially sim-owners will look to raise enough Linden Dollars in-world to convert into a credit on their account. Linden Lab will take any moneys owed first from any credits owed, before they turn to whatever payment information is on file.

Thus, by earning L$ in-world and converting into a credit - Second Life supports itself. It's roughly L$80,000 to pay the tier on a full sim. Anything over and above that is profit and could be "cashed-out".

The point is: there is a lot of Linden Dollars leaving the in-world economy. Thus, it is the Linden Dollars purchased directly that feeds the economy. If the real-world economy starts to tank and people start feeling the pinch and decide to start tightening the belt on "discretionary" spending, well... is Second Life really a 'need' to most residents? Especially those who purchase their Linden Dollars directly?

I propose Second Life will be on that short-list of belt-tightening with regard to spending real money in most real life budgets.

Thus, land prices crash. In-world business is down. People are spending less and now that a larger portion of the population actually understand the Linden Dollar and it's conversion rate - they are better able to understand how much real money L$1000 really is - and they are scrutinizing their purchases more and waiting longer - shopping more carefully - ensuring that when they do buy something, it is of good quality and worth the price.

So, as the real world reels, it's economy will effect the Second Life economy - but on a considerably delayed time-scale.

But you knew that already.

The Second Life Economy: "People in second life have to realize something that you can learn from studying history: periods of economic downturn are not necessarily bad for creativity, in fact, they often unleash it. Some of the greatest works of art and music occured during wars, periods of financial and economic instability. Letters from great artists are sprinkled with references to how hard it was for them to make ends meet."

My reply to Lillie's post at her blog:

Excellent insight.

On top of the usual slow Summer periods, this is going to be an unusually slower-than-normal Winter season as well, in my estimation.

The real-world economy does affect the in-worl one. It does so because it costs real world money to really enjoy Second Life. Even though there are builders and scripters and all manner of 'business' in SL where people can use Second Life Linden Dollars to actuallt pay for all their Second Life expenses, there are still a lot of people who buy Linden Dollars directly, rather than "earning" in-world.

If the real life budget starts needing a tighter 'pinching' - then discretionary spending is cut back.

The business-owner to business-owner exconomy will continue. However, all the "sinks" to Linden Lab - where the Linden Dollar leaves the world in tiers, upload fees, group maintenance fees and so on - more L$ will have to be purchased directly in order to keep the number of L$ circulating in-world.

Those who have business will recycle some of it through in-world purchases, but tier fees suck it back out again.

Thus, the economy really does rely (from my simple perspective) on those to actually purchase linden Dollars.

And when they decide the descretionary part of the budget needs tightening and they start hacking and whacking away at just what they spend those funds on... I am pretty sure Second Life Linden Dollars are on that list.

Thank you for a very insightful article.

courtesy of 2nd Sex