CHICAGO, Aug. 27, 2007 -- Making money by starting a business in the virtual world known as "Second Life" has been touted as an economic wave of the future.
But for the moment at least, pulling it off isn't exactly a reality.
"Second Life" entrepreneurs looking to strike it rich or just make a few extra dollars face a daunting combination of both the traditional problems faced by any small business owner in the "first" world plus new challenges unique to the youthful, Internet-based economy of "Second Life."
These entrepreneurs sell everything from virtual clothes and virtual art to virtual house furniture and virtual tattoos. But stories like that of Anshe Chung -- "Second Life's" first real-life millionaire, who made her money selling land -- are rarities.
Only 145 people made more than $5,000 as "Second Life" entrepreneurs in July; 865 people made at least $1,000. With about 450,000 users logging on each month, such numbers mean that for all the press hype, only a very small fraction of the population is making any significant amount of money within the Second Life world.
Speaking candidly in interviews and discussion sessions at the "Second Life" Community Convention here this weekend, entrepreneurs said they must consistently deal not only with traditional issues of brand recognition and quality control, but also technical difficulties that impede access to clients. They also must compete against Fortune 500 companies who give goods and services away for free in "Second Life" in the hopes of turning a profit in the "first" world.
A New Kind of Business, the Same Old Problems
Veronica Brown is a successful clothing designer and vendor operating on "Second Life." Her clothing sells widely in the virtual world, allowing here to lend a hand to younger, less well-known designers by giving them free display space in her stores.
But, she said, it is almost impossible to find reliable employees to work in her shops. Most "Second Life" players do not take their virtual jobs seriously, and business-minded characters want to work for themselves, not for somebody else.
"The players are going to do exactly that: They're going to play," Brown said.
To many, a virtual environment implies freedom from traditional business protocol, but "Second Life" entrepreneurs said that such challenges, including advertising and generating buzz for their products, continue to be some of their most daunting concerns.
Because "Second Life" supports a younger economy it has yet to resolve many market weaknesses, and so its businesses can suffer more than they would in the real world.
Sheffie Cochran is a banker with over $20,000 in her "Second Life" vault. She has never worked on Wall Street, much less as a bank teller, but as the virtual character (known as an avatar) Lindsay Druart in "Second Life," she runs the L & L banking trust, providing loans and savings accounts for 400 people.
"I've never worked at a bank in my life! I had to pull out Business Week and all kinds of books to learn what to do," said Cochran. She said she earns $500 a month on "Second Life," enough to pay her rent in Augusta, Ga.
Even though the Linden dollars Cochran trades in can be redeemed for real U.S. dollars, her business is conducted with virtually no contract enforcement. She does not even have full contact information for many of the people she lends to.
As a result, she said that ultimately her business comes down to one thing: "It's all about trust," she said.
Yet if the "Second Life" economy is to grow, trust alone won't be enough. As more businesses and consumers crowd the virtual marketplace, services like credit reports and a Better Business Bureau will need to be introduced in order to establish legitimacy.
"There are so many people out there that are trying to scam you," said Peter Lokke, the lead organizer of the business discussions at this weekend's conference. "The honest people out there have to deal with that."
Working Out the Bugs
Compounding these real world problems are a set wholly unique to "Second Life": glitches and bugs. These technical issues can make "Second Life" a particularly tough market to crack since resolving them is largely out of the hands of business owners.
Brown used to sell many of her products at virtual malls, or strips of stores that gave entrepreneurs access to consumers. But, she said, as "Second Life" has grown the technology has not kept up, rendering malls useless and no longer profitable.
"There are a lot of bugs in 'Second Life,'" said Brown, who now vends out of boutique shops. When shopping at the malls currently available, consumers may have to wait 15 minutes for all the stores' products to load on their computer, she said.
Rather than sit around and wait, players often shop elsewhere.
"People go into 'Second Life' because they would be bored otherwise. They want something to do," explained Guni Graef, the husband of "Second Life" celebrity millionaire Anshe Chung and co-founder of their mammoth Anshe Chung Studios.
Additionally, entrepreneurs said they are often forced to spend large amounts of time each week working through dozens of customer service complaints from customers who ordered a product but did not receive it.
Brown said many of her customers complain when a glitch in the game causes clothing to be only partially delivered, or not transferred at all. This drains her time, and limits profitability.
Crowded Out by the Big Guys
Another major hurdle for "Second Life" entrepreneurs are huge real-world corporations armed with enormous budgets looking to carve a piece of the "Second Life" pie for themselves.
Demanding higher profit margins, such companies eschew completely the smaller entrepreneurs' approach of selling things in "Second Life" for money. Instead, they simply give away items and experiences to create brand awareness in the first world.
"If [major corporations] go in there with a retail approach, you're not going to be successful. They have to come in with the goal of marketing," said Dave Young, a vice president at Purple Stripe Productions, which helps large corporations establish a presence in "Second Life."
A member of Young's company sat on the advisory board that helped Coca-Cola engineer its entrance into "Second Life." The cola company launched contests and set up land in the virtual world where avatars can hang out while interfacing with Coke products. "They're there to ensure brand identity, to keep Coca-Cola present in the hearts and minds of people," Young explained. Ben and Jerry's, the NBA, and publisher Random House, among others, also have a strong presence in "Second Life."
Giff Constable of the Electric Sheep Company, another real-life business that helps major companies establish themselves in "Second Life," said small entrepreneurs do enjoy one important advantage over their enormous competitors: They can move faster and adapt their strategies at the speed of technology, not bureaucracy.
"Big companies can't move as fast. They're not as flexible," said Constable, whose "Second Life" name is Forseti Svarog.