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Who Wants to Be a Virtual World Millionaire?

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So, it’s semi-official: the Second Life avatar known as Anshe Chung, featured in a recent BusinessWeek profile of SL, is now worth over $1 million dollars. The news has already stormed through the blogosphere (as here, here, and first scooped here), but judging by most of the commentary, it’s provoking more confusion than understanding.

Did she become a millionaire through hacking, a pyramid scheme, or virtual gold farming (as most Internet commentators seem to think)? And does she really have more than a million dollars in Second Life-based assets (as Ailin and Guntram Graef, the German couple who own the Anshe character, claim)?

No, no, no, and finally, yes and no.

After the break, some clarification that hopefully cuts through both the hysteria and the hype.

How the Virtual World Works

To understand how the Graefs can make the claim, you have to understand both the revenue model of Linden Lab, the company that owns SL, and the revenue model of Anshe Chung, virtual real estate developer. Briefly:

Unlike other online worlds, Second Life has no monthly subscriptions– instead, if you want to own virtual land for a home, a business, or other project, you pay Linden a monthly land use fee, based on the amount of acreage in your account (from $5/month up). For the most ambitious subscribers, Linden also sells private islands of 16 acres each, which they can buy outright from the company for about $1600, while paying a monthly land use “maintenence” fee of several hundred dollars. (Each island is actually a single server; in fact, think of Second Life land as analogous to renting out server space for a website or file storage or whatever– it’s just that in SL, the data is represented in 3D.)

Over the last few years, Anshe Chung and her growing staff have been buying up Second Life land, acquiring private islands, and after rezoning and beautifying it, subletting it out to other SL players. (Often this involves sharp elbows, imposing strict building codes, or sudden evictions of long-standing communities* [see Update below], which is why Anshe is, like most real world land developers, a controversial figure in Second Life.) Anshe’s tenants pay her in Linden Dollars, the official currency in SL, which can then be bought and sold for real money over the LindeX, the company’s web-based commodity exchange market.

All of this is done with the explicit approval of Linden Lab, part of their business plan to foster a self-sustaining, user-created world where the top content creators and service providers like Anshe profit from their efforts. And while there are other successful SL real estate developers, Anshe’s enterprise is by far the largest; most of her private islands are linked together to form an entire continent which makes up, by recent estimates, 10% of the world’s total landmass.

Breaking Down a Million

All that in mind, you can now guess the hidden and semi-hidden caveats around the million dollar claim. To begin with, only part of it is based in actual Linden Dollars. “Anshe has ‘cash’ holdings of several million Linden Dollars”, her company announcement reads. If “several” meant L$3,000,000, that would be around $12,000, at market rates, which are now around L$250/US$1; still, even converting this currency to US dollars would mean selling it on the open market, and to have such a large bloc of cash hitting the LindeX currency exchange would surely devalue it.

The “millionaire” claim is primarily based on the stated value of Anshe Chung’s 550 islands, with a baseline price (when it’s first sold by Linden Lab) of $1675, meaning $921,250 total. But again, to sell all of those regions to other SL subscribers at that rate or higher, without devaluation setting in, would be a monumental task.

To make things even more complicated, CNN’s legal affairs blogger (and isn’t it surreal to cite that source for a story on a virtual world?) reports that “[a] spokesperson for Linden Lab told me she could not immediately verify Chung’s claim, because Chung’s property is held in many different names”– in other words, a single avatar is not, in fact, a millionaire. (Anshe’s SL real estate operation has numerous employees on staff.)

So all that established, a more accurate statement would be this:

If Anshe Chung gradually sold all her Second Life assets over a long span of time (to prevent market devaluation), and if all the assets actually owned by various avatars working for Anshe were successfully transferred back to her, and if the internal economy remained stable, and if Second Life had no serious interruptions of service through hacking, scalability failures, sale of the company, or other unforeseen incidents, then after a long and arduous process, Ailin Graef and her husband would have well over $1,000,000.

That’s a long way off from being a virtual world millionaire.

In fairness, the Graefs’ reasoning is not all that different from real world millionaires, whose own assets depend on the stability of the global economy. But ultimately, the Graefs’ claim is most analagous to the boasts made by stock option millionaires of the dot com boom. In effect, they own “shares” of a user-created world which are valuable only as long as current market conditions hold up. As we know from painful experience, those conditions often change, and drastically.

But for their sake– and frankly, mine— I hope Second Life’s boom times never end.

*Update, 1:58am: At Ailin Graef’s request, a clarification: the eviction mentioned in the linked article was not conducted by Anshe Chung or her associates, but by the previous owner of an island, who disbanded the existing community there in preparation to sell it to Anshe.

25 Responses to “Who Wants to Be a Virtual World Millionaire?”

  1. Johnny in England

    I own a quarter of a sim in Second Life, built a Shopping Mall and rented out the stores. I pay 75 per month in fees and make 135. Making it in Second Life is tough – the same as in Real Life. You’ve got to be good. Pretty soon the whole interweb will look like Second Life – a virtual 3D space with a real currency. All the posters who berate virtual worlds are gonna look pretty dumb then, huh? Smell the coffee.

  2. femina matahari

    I think the comments of the detractors here are of people who have either never been to Second Life or have been spent a little time looking around and decided to write an uniformed opinion, often the most listened to and always wrong.
    I joined SL September 2006. From nothing and a credit card investment of £250 GB I have grown a small empire of 7 islands giving me an income of 1500 US$.
    I discovered it is far more than a game and is in fact a platform on which an economy can be built.
    Yes it is risky but so are all businesses. Many a top business has gone to the wall in recent years. So perhaps you detractors should get an SL Life before you comment, and I don’t mean a 5 minute trip into the world. You are like tourists going to Egypt then claiming to be some sort of expert on the country. You have to live there and be successful in business to give informed opinion about the value of SL business.

  3. For those of you who think SL is a total joke I implore you to spend some time investigating the corporations who are investing in this venture. There is a wide range of things that can be learned about how people interact within the SL community that can be applied to the real world. Specifically, how to harness the power of having fun while actually working for real world applications. This is one of the better articles I have come across on the SL topic:

  4. eraserhead-
    [quote]With the track record of SL I don’t see 550 people lining up to rent space that requires you to a) pony up 1600 real dollars, and b) pay 200 real dollars a month for upkeep.[/quote]

    People actually to pony up to buy regions at 3000-4000$ nevermind 1600$ of private isle. And people do pay the upkeep because I’m one of them.

  5. eraserhead

    If by wins everything you mean a chunk of server space controlled by a company that can’t update its own code without screwing things up, yes, you are correct.

    As steven pointed out, some of you are arguing Microsoft vs server space, you can’t. Microsoft is a viable company, with real world holdings and product. Chung rents space on hard drives and rents it out to others in smaller chunks, she has nothing of value to anyone outside of SL, and could only sell at market or at a loss to others who wanted to but it.

    But isn’t that what providers do? Why yes, but you can host web pages, ftp, etc from providers that connect to the rest of the world. SL is a closed box with no way in except through LL’s client.

    With the track record of SL I don’t see 550 people lining up to rent space that requires you to a) pony up 1600 real dollars, and b) pay 200 real dollars a month for upkeep.

  6. It seems you are really stretching to tear down this story. How many real world stock based billionairres (e.g. Bill Gates, the Walmart family, etc) can afford to cash out at their net worth without devaluing their holdings in the process?

  7. Aren’t the major caveats around devaluation of the properties a little… Odd? Couldn’t the same be said for any of the real world’s richest people?

    I mean, Gates could never sell all of his Microsoft shares at once on the open market. Certainly a private sale would go over at current or higher-than-market rates.

    If we’re talking about the single largest land owner in SL, I’d say the same expectations would set in.

    Also, not all of Gates’ money is in his individual name (for tax reasons), so I don’t see how this situation is any different. Just that you can’t have corporations and shells and such in SL. You have avatars.

    I mean I don’t really give a damn about the story, just that the tone of your post makes it seem as if this money could never really be converted.

    That said, totally agree on BusinessWeek and the less-than-paper-money stories.

  8. Given the current instability of the SL servers, problems with griefers, sim crashes and servers unable to cope with the influx of new citizens – not to mention the rapidly plummenting US$ value of the Linden$, I’d say Anshe Chung’s empire is built on very shaky ground indeed. I certainly would not like to be relying on Secondlife for a real life income.