Wiz Nordberg

The numbers are impressive, but don’t overlook the ‘entertainment’ factor.

By the numbers

Second Life just broke five million registered users. Apparently, that’s news.

I wish I had a crystal ball, because while I am quite sure virtual worlds are going to create a fundamental change in online life, I know that these five million registrations are not a good measuring tool.

Don’t get me wrong, I love facts and I love numbers.

Yet, the current obsession with Second Life numbers of all kinds is creating a cloud of confusion. Joe Kraus, an entrepreneur blogger I admire and respect, once said, “Just measure the goals you want to meet.”

Good advice. Goals are a great idea, but progress usually depends upon having goals we can measure and control. So, I guess we have to keep crunching those Second Life numbers, right?

Though people (including me) call Second Life a “virtual economy”, it is not a real economy. It is a toy. And worse, it is presently a volatile toy. So be careful about measuring something that, at its foundation, is a fiction.

Linden Labs wants us to believe it’s a real economy, and for good reason. Their product is a game, and illusion is part of the product. They’re not being much more deceptive than any other entertainer who creates an image and works hard so that the audience “suspends their disbelief”.

I quite like good entertainment. And I love Second Life. But I can’t ignore the numbers either, because I have goals I want to meet.

To cut through the cloud of confusion, it takes a perspective shift. I don’t look at the numbers as a reflection of a virtual economy. Instead, I look at the virtual economy as a way to measure the effectiveness of a social phenomenon.

The real business opportunities in Second Life will come not from actual profits made in a virtual economy. Rather it will come from smart businesses who understand how to harness the social motivations of those who use virtual worlds.

And please, resist the obvious. Taking real-world brands and plastering them throughout Second Life makes little sense unless those brands become equated with popular Second Life activities.

So what about those five million users advertised on the Second Life home page? I ignore them. Fortunately, Linden Labs provides a much better set of metrics about Second Life on their Economic Statistics page. Skip all the bits at the top and take a look at “Estimated In World Business Owners”.

Today, there are 25,365 businesses with positive cash flow. Six months ago there were about 10,267. That’s a very different story from the focus on the millions of registered users. Of the 25,365, a staggering 53% of these “businesses” make less than $US10 per month in profits. Only 610 businesses earn more than $US1000 in profits.

These are the numbers worth looking at. Yes, they are small. They don’t represent a huge market, nor do they represent in any real way a “path to wealth” by exploiting the virtual economy.

But, as with any simulation of the real world, these are indicators of people’s behaviour. Creating profitable Second Life businesses is quite hard, even if they only make $US10. The trend represents a sudden, upward curve of commitment and interest in “living” in a virtual environment and experiencing immersive entertainment.

Under the microscope, something vibrant is happening to a small but growing population of online users. I had a similar feeling in 1992, when a friend of mine and I were amazed that 500 people per month were coming to this new “thing” we created called a “home page”.

I am equally amazed at what I see today in Second Life.

Oh for that crystal ball!