Presentation I gave at Virtual Goods World Europe 2010. Covers Second Life Economy in Q3 of 2010 and new breeds of virtual goods in Second Life. A look at Second Life social gaming. User generated goods... that generate goods!

1. New breeds of Virtual Goods
in Second Life
Thor Olof Philogène
Second Life Monetization

2. New breeds of Virtual Goods
in Second Life
Session themes
1. Overview of Second Life’s Economy Q3 2010
1. 3D Virtual Goods that function as social games
2. Externalities and vertical impact

3. Second Life Economy
in Q3 2010
Largest changes compared Q3 2009:
– increase of 7.2% in World Size
– decline of 11% in User Hours
– 115% increase in Web Merchandise Volume

4. Second Life Economy
in Q3 2010
– Average Monthly Repeat Logins rose
5.3% year over year
– Stable amount of participants in the
economy (currently at 486,000)
– Linden Dollar (L$) supply at a 12-month
high in Q3

5. 3D Virtual Goods
functioning as social games
Timelin
e

6. User generated goods
… that generate goods
• 3D pets (or plants) with AI and genetics
• Operate as social games requiring regular
caretaking
• "Breed" and generate offspring of variable rarity level

7. How we got here…

8. “Breedable” High Level Business Model
Food
Boosters
Nests
“Performanc
e Stats”
Pets

9. Virtual Good Value
“Typical”
Virtual Good Value Models
• Virtual Good value largely determined by the
context
• Game type virtual worlds use context design to
set Virtual Good value (functional)
• Open type virtual worlds largely see social
contexts determine Virtual Good value (can
influence value through artificial scarcity)
Reference to the “The Virtual Goods Business Model”
by Juho Hamari
Second Life SG
Virtual Good Value Model
• Content exogenous, as the virtual world is
not designed to affect Virtual Good value
• Virtual Good value mainly determined by
design of the Virtual Good itself (and its
inherent characteristics)
• Virtual Good $ value a result of functional
characteristics

10. Virtual Good Value Components
Functional
Social
Hedonistic
References to:
“Virtual item sales as a revenue model” and
“Virtual Consumption” by Vili Lehdonvirta 2009
Performance
&
Breeding Pedigree
Appearance
&
Customizability
Genetics
creates value within
context of social game
Design
creates non-$ value
within broader context
of Second Life
Socially Desired
Provenance &
Rarity
“Breedable” Virtual Good Consumer Value

11. Mechanics Used
Second Life SG Virtual Goods
integrate all the game mechanics that
promote their usage and sale
Purchase promoting mechanics:
• Item degradation
• Artificial Scarcity
• Limited Inventory
• Special Events Content
• Upgrade Induced Devaluation
Viral mechanics directly tied to performance:
• Social game success duplicates amount
of animals that need care (and costs)
• Emotional Attachment
• Results in:
Social Crew Mechanic
Virtual Good
Game
Mechanics
Second Life SG Virtual
Goods
Context

12. Examining the Money Earning Logic
In summary we’ve seen a new generation of
Second Life entrepreneurs put together 3D social
game in the shape of Virtual Goods where:
• Virtual Good design = business model
• Viral mechanic leverages free-to-play strength
without ever actually being free
• Business model and game design based on
perfect price discrimination logic
• Retention and acquisition mechanism are one

13. Externalities & Vertical Impact
The usage and increasing popularity of these
Virtual Goods has induced economic activity
in the form of:
• Sale of niche products
• Sale of niche services
• Sale of complimentary goods
• Needs from Virtual World setting
Positive spillover effect on Second Life
in terms of:
• Content creation
• Retention
• Social interaction

14. Impact on Social Setting
Second Life SG Virtual Goods migrate from the
game sphere into social contexts contributing to:
• Exterior identity as accessories
• Settings for social interaction
• Strengthened social identity
• Game knowledge (Cultural capital)
• Game performance (Symbolic capital)
• Viral “generosity” (Social capital)
With purchase promotion being an integral part of the Virtual
Good design the next generation of these Second Life SG
should embrace mechanics & optimization around the connector
Reference to framework of Pierre Bourdieu

15. Successful Virtual Good Entrepreneurs
The equivalent US$ value of all Second Life
Resident-held L$ amounted to
$26 million US Dollars in Q3 2010
Thanks to a new generation of entrepreneurs
complex social games have established themselves
in Second Life leveraging a unique approach and
innovative business model expressed in the shape
of this new category of virtual goods.
These entrepreneurs have successfully:
• Operated in Small teams
• Joined ranks of top revenue earners
• Created top selling category

16. Thank You!
Thor Linden thor@lindenlab.com Ultravox
A link to this slide deck will be posted on my Twitter