Two back-to-back workshops today at the Virtual Worlds Fall 2007 Convention in San Jose illustrated the potential for business in two different kinds of worlds: those with closed economies, with no or minimal or potential user-made content, and those with open economies with extensive freedoms for user-made content. The panelists at "Virtual Goods: the Next Big Business Model" (Craig Sherman, CEO of Gaia Online; Timo Soininen, CEO, Habbo; David Fleck, CEO, GoPets, Kyra E. Reppen, Senior VP and General Manager of NeoPets and Susan Wu, Charles River Ventures, moderator) gave us the main key for success: sell pets even for the pets, and make halos scarce (one reportedly sold for US $6,000 on E-bay). The closed economies can not only ensure uniformity of content and safety for this child and teen market; they make it possible for complete game-god control to preserve value (the E-bay sale took place without Gaia's knowledge and in violation of the TOS).
More realistically, the percentage of revenue for these companies selling virtual goods ranges from 65-85 percent; the question is whether they will open up enough as they scale to enable more user-created and developer studio designed content to enable the industry to grow. GoPets envisions the offering of a Worldbuilders Kit in 2008 to provide opportunities for entrepreneurs; the far-seeing CEO Eric Bethke of GoPets is drafting a kind of Bill of Rights for customers to give them rights to their intellectual property. Advertisers are able to work with these game companies to do product placement, and they seemed keenly aware of the sensitivities of their customers to over-advertising -- the "TIVO effect" that is driving so many people to ignore TV advertising, even as they begin to move away from television all together to the web. With tens of millions of young people joining these games, the audiences begin to look substantial, although possibly skittish about branding; yet to sustain the continued development and maintenance of them, advertisers' support is needed -- as even users concede, sometimes looking for branding as a kind of imprimatur of "cool"..
At the panel "Virtual Currency/Virtual Business = Big Business (Guntram Graef, Co-Founder, Anshe Chung Studios, Ltd., John Bates, Evangelist, Entropia Universe, John Zdanowski, CFO, Linden Lab, Peter Phillips, Technical Director, Millions of US, and Edward Castronova, Associate Professor, Indiana University, moderator), it was clear that the subscription numbers of these user-generated virtual worlds are far less, but the volume of transactions in the world not only for the world-makers but the various businesses operating inworld are in real dollars. Still, the economies *are* synthentic and strict controls exist. Restraints on the Linden currency, for example, include a determined policy of Linden Lab to keep printing five percent or so of the money supply to ensure the stabilization of the rate at about L$270 per US dollar. When the economy suffers a profound shock, like the sudden banning of casino gambling this summer, driven largely by credit card processors who put pressure on LL to shut down gambling in compliance with new legislation banning of Internet gambling in the US, 40 percent of the volume of user-to-user transactions were lost in a single day. Yet the exchange rate only dropped a point, and the Lindens simply stopped printing and selling Lindens, and within 3 weeks they absorbed the overhang and were able to make it up due to continuing growth.
Asked about inflation and depression of wages with this dictator-like money-printing policy, which wouldn't be fiscally sound in healthy real-life economies, John Zdanowski said that in the long run, a stable currency was better for everyone and made doing business more predictable; deflation was not good for anyone. The ability to adjust rates of emission when crises occured was something Guntram Graef of ACS said was particularly welcome. When an audience member asked Graef if his assets reported by Business Week at a million $US were all trapped inworld and not able to be expatriated to real life, Graef confidently pointed out that ACS' some 500 islands were a fraction of the more than 12,000 now open on the SL grid, and that in the very unlikely event that ACS were forced to sell their holdings, the Lindens could stabilize the land market by simply rolling out less sims on the auction for a few weeks and sop up the excess without incident.
I queried Zdanowski (Zee Linden) if he would have to conceive of closing the LindEx when Linden Lab open-sources the server code within the next year, as a possible surge of many third-party servers would lead some other companies to make their own currencies or merely charge costs in real-life currencies (a possibility contemplated on the wiki for the Open Grid Architecture). He said a plan to make some kind of "SSL Token" that would be "limited, valued, and secured" was being considered, and that history showed the countries tended to cooperate to make common currencies. He sees his job as mainly how to make the LindEx and the virtual economy sustained and able to survive in a complex regulatory environment, as the Linden dollar that enables microtransactions is a very important part of the Second Life experience. Zee conceded that probably the next wave of regulatory activity could be related to banks and stock exchanges in SL, although LL has no intention of becoming involved in regulation. He said he has hired an attorney familiar with the prosecuting of Internet crimes to in a sense play the role of "Eliot Spitzer" [http://en.wikipedia.org/wiki/Eliot_Spitzer]. Quite a few Europeans peppered Zee with questions about the VAT tax; which he explained LL had absorbed for its customers but now could no longer justify, although an additional month's grace period for enforcement was being added, along with new account features to provide detailed invoices in PDF form required for VAT reporting.
Edward Castronova commented that in this Metaverse, "We already have to worry about government and virtual world relations," which he felt was a common theme running through the conference. "Those who went ahead are doing the mine-sweeping," he said. While some companies might want to make a safe bet on a safe pet, depending on their profile and their brand, others will be attracted to the high-stakes game of Second Life and other worlds with compelling user-to-user real-money-trade economy that helps integrate virtuality with reality for an increasing number of VW inhabitants.
Just how much are the companies represented at Virtual Worlds Fall 2007 willing to gamble now on virtual worlds? At the first VW 2007 conference in the spring, the volume of deals was estimated at $5 million -- later this was revised to $7.5 million with more contracts following as a result of connections made at the meeting. Now the figure estimated conservatively for VW Fall was $20 million, a mixture of investment directly in worlds themselves, in metaversal development agencies, and tools to make the worlds. Part of the reason is that in this "Age of the Avatar," as Reuben Steiger of MOU dubbed it, when asked from the podium by by Chris Sherman, Executive Director of Virtual Worlds Management/Show Initiative, LLC (the convention organizer), nearly every one of the some 800 people in the hall for the keynote speech said they had an avatar, even though roughly half were coming to seriously look at the virtual world industry for the first time.
This Monday the 
Virtual Worlds Management released a 
As we 
While tradehouses for virtual currencies are nothing new, one recently opened up that applies a unique twist. 
Although not officially launched yet, 
Second Life got its second major inworld financial exchange today with the opening of 
Anshe Chung, 