Linden Lab and Transactions in Second Life

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Kyle Ackerman

As a creator of worlds, Richard Garriott has a kingly air – he is the sovereign of his fantasy worlds, just as Lord British reigns over the worlds in the Ultima series. By contrast, Philip Rosedale, the CEO of Linden Lab, comes across as the burgeoning Adam Smith of Second Life, a man more interested in shifting away from the monarchy of game design and creating an information and content-based economy.

Rosedale served as the Chief Technical Officer for RealNetworks for a few years in the late 1990s before starting on the path that led to Second Life. Some might dub Second Life a massively multiplayer online game, but it is one of the few such online spaces that doesn't come with a predetermined narrative and play style, like Star Wars Galaxies: An Empire Divided or City of Heroes do. At the same time, Second Life is a lot more than a glorified chat room and social space. When describing his creation, Rosedale sounds more like a student of the old West, the American frontier. As that might suggest, the conversation inevitably moves to the online land grab in Second Life.

Selling The Endless Frontier

Second Life is designed so that the game's residents provide the content, interactions and games that make the experience interesting. More importantly, Second Life supports an economic system that rewards residents for creating content, from objects that can be sold to whole islands with games. Of course, to run a nightclub or demolition derby, you'll need land. Fortunately, Second Life isn't bound by oceans that signify the end of available land. Each server maintains around sixteen acres of in-game real-estate, and servers can be tiled so that the world continues on in every direction. Should Linden Lab decide to open new servers in places such as Japan or South Korea, this setup could even create situations in which travelers cross cultural borders onto servers dominated by other languages and social groups.

For now, Linden Lab substantially derives its income from the sales of land, and around 3,300 parcels of land have sold so far, ranging from tiny plots to private, virtual islands that take up an entire server. To join Second Life requires a one-time fee just under $10, but to be a land holder requires just under $10 per month. Parcels of land are auctioned off for a one time fee (in Linden Dollars or US Dollars), and then require a monthly maintenance fee (of around $25 per month per acre, minus the $10 land-holding fee, with discounts for volume). That actually makes a lot of sense if you think of Linden Lab as a hosting provider – they are, essentially, providing bandwidth and renting out servers installed with the Second Life software.

That software is what allows Second Life residents not only to take their avatars around the world, but to build activities and objects that can be sold. Anyone in the game world can build objects out of structured primitive shapes. With only a modicum of artistic skill, you can create textures to lend a more sophisticated appearance to such objects. If you also have some programming skills, you can use a C-style language to attach behaviors to objects, changing a simple object into a slot machine or airplane. In this way Second Life residents can build games or activities out of the building blocks of the world. Of course, for such constructs to be permanent, you'll need to be a land holder. Otherwise, you can craft objects in impermanent sandbox areas.

Turning A Real-World Profit

The ability to construct activities, social spaces and games serves as the basis for the world economy. By owning land, participants can perform plays, coordinate sports, provide services or sell objects, all for Linden Dollars (L$). Objects can be created that are self-vending, so that other residents can approach an object on your property and purchase copies, allowing residents to go into business selling fashions or play objects. What makes this interesting is that sites such as facilitate the exchange of Linden Dollars into US Dollars.

While Linden Lab doesn't exchange currencies itself, it does support transactions at third-party sites which are typically prohibited in the End User License Agreements of massively multiplayer online games. When asked, Rosedale denied that Linden Lab was staying out of the market due to legal concerns. Rather, he invoked history, arguing that it is a bad idea for states and civilizations in early stages to intervene in banking. He hopes that a freer economy will grow faster and become more robust. Precisely because other companies actively resist these transactions, some sites that change game currency into real-world currency are only dealing in Linden Dollars. At the time this was written, the going exchange rate was around L$179/$1.

That exchange rate has allowed some Second Life residents to claim that they have left their jobs in the real world and are working solely in Second Life. Linden Lab isn't giving out updated numbers on its player base, simply saying that Second Life residents number more than 10,000 and are growing at a higher than 25% rate, compounded monthly. What is interesting is that around $100 dollars pass through the hands of each user, on average, in player-to-player transactions that total around $600,000 per month. That doesn't mean more than half a million dollars are paid into Second Life each month, but it does mean that residents are actively circulating currency in around one million player-to-player transactions each month.

Rosedale also pointed out that while in February and July of this year, most residents had the same number of Linden Dollars in their accounts, they engaged in roughly twice as many transactions, and when you take into account new users, there has been considerable overall growth in the Second Life economy.

Not only are Second Life residents transacting, they are spending a lot of time in Second Life. While more than 60% of Second Life's residents are male, women spent more time online. Of those who continued to pay after the free trial, 19% were on more than 40 hours per week and 9% stayed on more than 60 hours per week. On average, residents spent around 19 hours per week in Second Life.

Opportunities For Game Developers?

Given the availability of currency exchanges and the amount of time users spend in Second Life, Rosedale is hoping that more game developers will see Second Life as a viable platform for building games, be they small games from independent developers or sophisticated prototypes with which to secure a commercial development deal. Earlier this year, Linden Lab granted virtual land to several groups of developers allowing them to create games (ranging from board games in pleasant surroundings to the aforementioned demolition derby) that proved popular with residents. Second Life provides a 3D world, a programming language and a system for billing players. Would-be developers would have to pay for avatars and land, but those costs are minor if the Second Life infrastructure is robust enough to replace middleware and other development costs for some projects.

Undoubtedly, even developers who like the system will look to the size of the Second Life community before making decisions. As robust as the world may be, unless it is used for prototyping, potential customers are limited to Second Life residents. So, Linden Lab is in a position to encourage developers to explore its virtual frontier. Not only can it provide land grants, as it did for the game development contest, but Linden Lab uses a complicated ranking algorithm it calls "Dwell" to measure the success and popularity of certain areas, and can provide incentives to residents that provide top-notch entertainment.

Rosedale describes Second Life using terms that best befit a budding nation, and casts Linden Lab's decisions as choices designed to encourage and enhance a budding economy. Second Life is a growing community, with a seemingly endless frontier, so it will be fascinating to see if it truly becomes a robust state.

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This page contains a single entry by Editor published on August 24, 2004 5:52 PM.

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