Why doing business in Second Life is high risk, low return
By John Pospisil
Up until last week Englishman Anthony Smith was an upcoming online casino mogul. He’d spent almost $US4000 and thousands of hours setting up “Casino World” on Second Life, and all revenues generated by his online casino were being reinvested back into his business.
He had grand plans about how he was going to grow and expand, and then last week without warning, the company behind Second Life, Linden Lab, decided to ban online gambling, and shut down casinos operating in Second Life.
Although the US Government had banned online gambling in October last year, at the time Linden Lab had left it to casino owners to decide whether they should continue with their enterprises. This was the wrong thing to do according to Smith.
“If this law was made in October, 2006, I think it is wrong of Linden Lab to take my money,” Smith told iTnews.
Smith is asking Linden Lab to forgive three months of server maintenance fees because he no longer has a source of revenue to pay them.
This story illustrates one of the key risks of setting up an online business in an environment such as Second Life.
It’s never good to set up a business that is totally dependent on another business to exist, especially when you have little in the way of leverage — but that’s exactly what you’re doing when you set up a business in proprietary platform like Second Life.
As Linden Lab has demonstrated, it will, at its discretion, dump businesses if they become a liability, and of course if Linden Lab should ever cease trading, so would all businesses operating in Second Life.
The other thing you should know is that VERY few Second Life businesses generate significant revenue.
In June, of about 42,597 businesses operating in Second Life, just over 81% generated less than US$50 per month according to Second Life’s own figures.
Less than one half of one percent of businesses (132 businesses) generated more than US$5000 of revenue. It’s impossible to know whether these businesses actually made profits, since we don’t know what their costs were.
The bottom line is that while Second Life might be an entertaining pastime, as a business platform it poses a number of significant risks, and so far has only been able to generate modest revenues for in-game businesses.
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July 31st, 2007
There are risk as with any business. But keep in mind most business cost US$50,000 just to start-up. starting up at US$4,000 is by no means that high of a risk. In fact most Second Life’s business are started up for a significantly less amount.
I do think you are absolutely right in that I wouldn’t invest thousands of US$ into Second Life on a business entirely reliant on Second Life. But Second Life can be used (when innovatively) to help small business to reach a larger audience as I have done so with my website that is partly reliant on Second Life.
I also think if one builds a purely Second Life business as a way to pass time instead of watching TV, or playing some other video game, it could actually be done for the cost of a dinner, and generate a bit of extra cash to pay for a few more dinners and your internet connection.
July 31st, 2007
I earn a very decent living from my business in Second Life. I have been a resident for 1 year now and I work at minimum 50 up to 70 hours every week “in-world.” It’s the most fun I’ve ever had at work, that is for sure! My bills are always paid on time in Real Life and I get to be my own boss and set my own hours.
I create and sell items in Second Life, and I pay my fees to use virtual land to do so. But because I create my products from scratch, which is free, I’ve only spent 10 USD to launch my business a year ago… the rest I earned in the game. In Second Life it doesn’t necessarily take money to earn money.
I used to sell items used for gambling, (simple Raffle Boards.) After the reports many months ago of the FBI investigating gambling in Second Life I stopped selling those items. Soon after that Linden Labs outlawed the advertising of Casinos in their search and classifieds. The warning signs that this change were there for a long time now.
I understand the risks involved in operating a business reliant on another business. And I do my best to pay attention to what is happening around me and move my company in best direction accordingly. Like any business venture, there are risks involved, but also possibility for great success as well. (I guess it’s a gamble I am willing to take.)