The Real Problem With Virtual Economies is the Virtual Currency (Comment of the Week)

Really great comment from reader "Kyz", a 3D content creator who made an excellent living from the Second Life economy. Commenting on my take on Matthew Ball's analysis of payment options for Metaverse platforms (he basically lands on suggesting that blockchain-based payments may be the best or least worst alternative), Kyz says this:

I don't think the problem is traditional currency and payment systems, rather it's that all these companies develop models where virtual product is worth such small amounts that devaluation of labor is the actual problem. Magnified by some companies that are also using currency itself as product.

For instance, I did pretty well in SL riding on the coattails of the breedables craze. Enough for a couple of full time incomes. The pain point of making money was SL. Between limits, virtual currency converted to real money and the extra steps required.

I did the same at various points for selling content for game engines, just being able to find the trends and fill niches. These markets were much less painful because there was no virtual currency to deal with.

As an example of what Kyz's talking about, take a look at the Unity Asset Store, where creators sell virtual assets to developers across all budget ranges... for real cash.

The problem becomes even more clear, Kyz goes on, when one compares it to selling actual products:

Now I'm back to creating real life products, which is my first love. I prefer to make things that you can hold, and that serve a real life function. But in this real life business, I have no problems with money. It moves fast, it's dependable, it's measurable and the fees are predictable and built into my business model.

I would argue that what the Metaverse needs is to nix virtual currency completely and to value labor in the same way that real life labor is valued. People will pay if they really want a product.

Virtual goods as currently handled is sort of a scam. You sometimes work longer and harder than any sweatshop, for unpredictable results, specifically because of the devaluation that virtual currency and business models by these companies implement.

It's kind of amusing that some of the same people that will call for higher minimum wages, will also applaud virtual worlds where sometimes 8 hours of work might net you enough for a cup of coffee.

The only part of the Metaverse that shouldn't be virtual is the money.

It's rare that a reader comment is so on point, I feel the need to reconsider my opinion on the matter, and this one of them. And this is from someone who once made 2x a real living wage from selling SL content. But if virtual currency is still difficult for a creator on that level, what hope do the vast majority of creators who make far less have?

Pictured: SL Mesh otter avatar by Anya Ohmai. I.E. not from Kyz. But just look at fricking otter!

Comments

[lkosov]

Seems a very apples-to-oranges comparison, to me. (And a bit sour grapes.) Eight hours of work might net you enough for a coffee, in Second Life, sure--but the same can be said of almost literally any small business or side hustle. Creators must always assume the risk that their time will be unrewarded, or rewarded below their expectations.

There is no reasonable and practical way of ensuring a minimum return from developing an intangible product. What are you supposed to do, charge 38,400L for an AO it took you eight hours to script, on the assumption *anything* will sell one copy? Doesn't seem especially likely to work.

Also, it may be a mild inconvenience working with a virtual currency, but not appreciably more so than working with a foreign currency. Kaz boo-hoos the difficulty of converting Lindens to "real money", but transferring currency through Lindex, from Lindens to USD, is a heck of a lot easier (and faster) than getting, say, a deposit of Thai Baht into my (American) checking account.

[Joey1058]

It's a classic economics argument. You have a choice to work for an established company for a regular paycheck, or run a business that has no guarantee of a payout unless you're willing to hustle. Going digital means that you're accepting the form of the cost of doing business in that world. And one of the costs is going to be the system of currency exchanging. If the cost of doing business anywhere exceeds what your projections are, you're going to lose money. It doesn't make a difference if your payouts are in L$, US$ Thai Bhat, or cryptocurrencies.

[Kylinn]

I think one issue is that the L$ is worth so little compared to RL money that people are fooled into thinking they are paying more than they are. It *feels* like a lot if you're tipping a singer 250 or even *gasp* 500 L$ - until you realize that 500 L$ is worth less than 2 dollars US! If we had to pay in real US money - or if the Linden was valued more comparably with the US dollar (assuming US money since it's a US company) - people might be willing to pay more.

[Kaylee West]

I suspect that if users had to pay the same RL prices for things like on sites like TurboSquid, the SL economy would collapse. Users would have to think a lot more carefully about every item they buy because of the real impact on their RL budgets. The decisions might become more like "I'd love to buy that cool sweater, but my old one's ok." The other issue that would make people hesitate is quality. What looks great in the marketplace pictures may be totally crappy when you get it. Not all creators provide demos to try out first (especially vehicles).

[Sarrah Nitely]

I think something that's being forgotten here is that in SL creating and selling content was supposed to be fun! I run a mall and entertainment "business" in SL and all I want to do is cover what it costs me because I enjoy doing what I do. How are people supposed to afford to pay for items in SL if they are prices as real life things and why would they? I like to have lot's of different clothes to wear in SL, I'd hate to be in an RL position of having to budget to buy my next outfit in SL in RL they are virtuial after all and can vanish in the blink of an eye if SL has a...moment
It's a tough call because there is RL time involved which you could say needs to be paid for at an RL rate...but then this stops being fun and becomes yet another stressful RL business. Way back when SL started people came here to stretch their creative muscles and see what they could make. I think some people have lost track of that.

[sirhc desantis]

@Sarrah Nitely no I have not forgotten that and is the reason I rarely take on custom work anymore - just run stuff up for group for which I get to have a place to play.

Overall yeah no. Typical job? Consult with client, mockup, integrating client graphics, testing, initial client OK and change reqs, finalisation, client final OK, xfer of assets to client (assume it is custom/exclusive). Even for a fairly simple custom job, call it 8 hours. At 15 bucks an hour - 120 bucks. And thats a third of RL even I earned a decade ago

Would be nice :) But you have to fit the market you are in

[Pathfinder]

The market is made up of all buyers and sellers.

And in the end, the market decides what goods are worth.

No central planning, no authorities making decisions, just the natural emergence of the value of things by a community of people.

It's really that simple.

[Kyz]

@Pathfinder: That's true to an extent and there are parallels between virtual and RL markets. But there's more to it than just market demand and pricing.

For instance, my SL experience put an extra layer of cost into the mix. Linden dollars are a product or were, to LL. The currency wasn't just added to the company as a convenience for users, it was acquired by LL from someone that discovered that virtual money was itself a product that could be profitable directly or indirectly.

I mean, I get it, and if I ran a virtual world, creating an extra revenue stream from currency is something I wouldn't lightly ignore. But as a creator, I was hit with arbitrary limits on how much I could take out, dependent upon approval, and extra fees. I had virtual money taken out of my account because it there might have been fraud somewhere in the chain. Things you don't really deal with in RL. You don't pay for someone else's fraud or request permission for your own earnings.

So you've already got central authority there and central planning as LL (or whatever company) sets a value of a single unit of currency. That single unit, especially priced well below a single unit of RL currency sets the stage for the entire market. The lowest price for an item is going to be well below a penny USD. Perception of the markets value starts at that single unit.

But company policy also controls the market. LL to its credit kept the ratio stable, which is good. On the other hand, the company also controls the sink as well as the source. I don't have sinks in other areas of business and not in RL as such.

And then there might be policy, such as when LL was debating with customers as to whether or not allow free products or products below a certain price on LL's marketplace (the Kingdon days). Or that adding more fees by introducing mesh uploads might force users to increase their costs to cover the upload fees, etc.

The company that controls the currency does kind of set the value. An article of clothing might go for a higher or lower average in one world or another. I might be able to sell a virtual house on one market for a drastically different average price on another market.

Now of course I don't expect to sell a virtual house for the same price as a RL house, but there is a point where RL currency provides a consistent baseline for labor that virtual currency doesn't.