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Summary:

It’s a bit like Alan Greenspan walking into an Econ 101 class at San Francisco State University, picking up a guy’s term paper, and saying, “Dude, WTF?” There’s been a lot of blogosphere back-and-forth on the question, “Is Second Life’s internal economy a pyramid/Ponzi scheme?”— launched […]

Everquest II
It’s a bit like Alan Greenspan walking into an Econ 101 class at San Francisco State University, picking up a guy’s term paper, and saying, “Dude, WTF?” There’s been a lot of blogosphere back-and-forth on the question, “Is Second Life’s internal economy a pyramid/Ponzi scheme?”— launched by analyst Randolph Harrison here, Slashdotted here, with my take here— and finally, Indiana University professor Edward Castronova has weighed in on Terra Nova, here.

To say Castronova is an expert on virtual world economies would be an understatement— he practically invented the field with a groundbreaking academic paper which analyzed the gold-and-precious item economy of Evequest in terms of gross national product. (That was back in 2001, when EQ was by far the largest online roleplaying game in the US, with several hundred thousand subscribers. Dang, do times change.) Greatly aided by the momentum of that paper, the academic field for studying virtual worlds has grown from a tiny niche to a multi-disciplinary field evident in the many professors and intellectuals who contribute to Terra Nova, and in the yearly State of Play conference hosted by Harvard’s Berkman school and other big guns. (Full disclosure: I’m a regular SoP speaker, and regularly intimidated by the giant minds who show up there.)

So Castronova’s take on the SL economy is decidedly different:

Imagine Mayberry, in isolation, with the occasional Don Knotts figure setting up a bank… It’s not a con game. It’s 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. Newcomers are arriving in droves. Land speculation is rampant. But it’s not thick; it’s tiny. Not a ponzi scheme: a little mini gold rush.

Read it all here. Harrison himself has, and in the post’s comments, weighs in. Right now, the conflict really seems to be one of expectations and actualities, with excessive media hype depicting Second Life as if it were a vast metropolis of unlimited opportunties for incredible wealth, while in reality, as Ed suggests, it’s still a large town with a small-but-energetic market.

  1. Actually, you know what, fucker? Here’s a point of Harrison’s for you since you such a fair and balanced reporter on the subject:

    “How about a practical argument, which tends to really rub the people on this forum wrong: if my analyses are so clearly and laughably flawed, then why all the fretting? Now I’m hearing about leading an industry wide crash?

    Pardon my incredulity. Even the economy of Mayberry (which will learn about the importance of sovereignty very promptly were they to begin printing and circulating their own currency) is resilient enough to withstand some pointed questions and researched criticisms.”

    Well golly willikers, Castronova IS implying that actually criticising the SL economy is enough to cause damage to it. And yet you felt that he was newsworthy. I’m assuming this is because SL really is a house of cards, and SL denizens honestly believe that PR, one way or the other, is the major deciding factor of everything.

    Enough. Enough of this whitewashing, enough of this blatant circle-jerking. Enough of this back-and-forth bullshit where everyone in support of SL is like “Oh, it’s this and this!”, which, when someone says “No, it isn’t”, is invariably answered with “Well, it wasn’t SUPPOSED to be that! DUH!”.

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  2. Dude, care to rephrase without the rampant vituperation?

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  3. Meanwhile, IBM is walkin around with 10 million. US dollars.

    Source: Latest Inc Magazine with Philip Rosedale on the cover.

    Virtual? Heh.

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  4. I think SL is, first and foremost, a game, not a way to make a living.

    And if you want to make a living out of it, it boils down to the same stuff as in real life: luck, hard work, luck and hard work. Oh, and having money to invest does not hurt either.

    But I think for most of the people it still is a game.

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  5. If only I could share some of the lovely email threats I received; some were really quite creepy. It’s bad enough that academics like Castronova destroy their own credibility by decrying the sky is falling on these oh so delicate virtual economies simply because I dared to question their virtuosity. But apparently the supposedly legitimate Mayberry community feels it’s appropriate to outright threaten anyone who dare to utter an alternative viewpoint.

    If I wasn’t convinced it was a house of cards before, I certainly am now. It’s not really a “circle jerk”, but more of a scary little cult with some great PR and a decidedly mean streak.

    And by the way, myself and others fully debunked Castronova’s analogies to Mayberry, emerging nations, or developing world economies. In actuality, there’s fundamentally nothing unique about the financial/economic mechanics of Web 3.d or whatever you wish to call SL that isn’t already well established in the world of wireless carrier micropayments. And I’m pretty sure Castronova didn’t invent the mobile network carrier payment systems.

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  6. [...] interesting statistic, the two most “surprising innovations of the past year as the ‘rush to Second Life virtual community space‘ and ‘the rise of YouTube,’ the video sharing Web [...]

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