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Second Life: I’m not dead yet!

According to some media Second Life is deader than the Dodo, with the Daily Telegraph publishing their death knell last week.

“Research for The Daily Telegraph shows just 580,000 people logged on to the game last week.”

Actually, that research was just some journo going to the Second Life openly published stats and facts, and seeing that 589,147 residents logged-in during the last seven days.

The article goes on to cite many business people who think it no longer has the legs to survive past the end of 2009. 

I can see why folks may think Second Life has had it, but they would be wrong.

For example, the numbers of logged-on residents during the last 60 days is 1,422,527 which is the same as the last time I looked in January 2008.

When, over a year later, the same numbers hold up then the community has stabilised and it is a great system for trialling virtual work and commerce.

The problem Second Life experienced however, was that they let their banking system fail and disclaimed responsibility for it.

As I said back in December:

“Second Life's popularity disappeared when their banking system collapsed in summer 2007. The banking collapse was a reaction to Second Life being forced to close down gambling facilities in their virtual world in July 2007.

“Until then, the website had been a phenomenon, growing from virtually no users to over 10 million in a year. This was incredible, and everyone felt it demonstrated the new emergence of business models.

“In particular, the fact that Second Life allowed real commerce to be transacted by converting real US dollars to virtual dollars, meant that everyone started to test commerce in virtual worlds through the service. For example, several banks invested in major projects in Second Life, including ING, Wells Fargo, SAXO Bank and Deutsche Bank.

“However, several banks also operated in Second Life that were managed by guys in their bedrooms. These included banks such as Ginko Bank, run by a Brazilian chap at home.

“The trouble Ginko Bank experienced started when internet gambling was forced to close under US Laws. The management of Second Life decided that they also had to close access to gambling in virtual worlds in July 2007 to comply with this policy, which led to a major run on the virtual banks.

“Until this date, a lot of the commercial transactions taking place in Second Life, where people converted real US dollars to Linden dollars, were for gambling purposes apparently. Therefore, the closure of gambling denizens in the virtual world meant that folks immediately started to take money out of the virtual banks, a bit like Northern Rock but worse.

“So imagine you are Andre Sanchez in Sao Paulo, the one-man band behind the virtual Ginko Bank. “You have over a million real US dollars on account, translated into around 275 million Linden Dollars that you are managing for the Second Life community.

“Suddenly, your customers demand their money be converted back to real dollars, and you drown in their demands so you just close down the virtual bank, leaving punters with losses of around $750,000 in real life.

“This led to calls for compensation from Linden Labs, who operate Second Life, but they said it wasn’t their job to regulate the banks.

“Result: Second Life’s popularity collapsed and, in a desperate move to rebuild trust, they said that only real life banks with real world banking licences can now operate virtual banks.”

In other words, the virtual world operates in a very similar manner to the real world.  The regulators of the virtual world, Linden Labs, abrogated their responsibilities when Ginko Bank failed which lost confidence.  Equally, the US ban on gambling on the internet made it clear that many of Linden's users were there for the gambling, which was a reason for loss of users.

Another gating factor for many is the fact that you can only access Second Life from a machine with the software downloaded which restricts access and appeal.  This is the same for other successful virtual worlds of commence, including Entropia and Utherverse, but it doesn’t mean these worlds are irrelevant or should be ignored.

And there is real commerce taking place in virtual worlds which will increase over time, particularly as these worlds move into standard flash media such as the world of Webflock from the Electric Sheep company. 

This means that those who laugh off Second Life's failure are wrong.  Equally, those who think Second Life is dead and gone are wrong.  I know of plenty of companies still using Second Life for virtual meetings and conferences, as well as other tools and universes.

Bottom-line: don’t discount virtual worlds quite yet, and there will be ways to make money out of these world through social finance as they mature.

The Hype, 2007:
“In October 2006, Second Life (SL) had 1.2 million residents; in December 2007, they have 11.5 million.”

The Reality, January 2008
“The actual number of SL users, those who logged-in within the last sixty days, is just under 1.5 million, compared to March 2007 when SL had 4.458 million residents and 1.68 million users.”

The Reality, April 2009
“The actual number of SL users, those who logged-in within the last sixty days, is just under 1.5 million.”

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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