L$: Show Me The (Real) Money

I got one more thing to say about Linden Dollars in this string of posts. Back in ye olde 1999, I helped take a few silly companies public. These Internet companies took investors’ money on the proposition that they had a lot of site visitors, and even though they had no revenues, someday they would figure out how to extract money from those visitors – the phrase was “monetize the eyeballs,” and yes you could actually read that in the offering prospectus. Of course, they never figured out how to monetize the eyeballs, and the whole industry went bust.

Then Google came along with its monetization through search advertising. And now everyone thinks that search and advertising are the only ways to make money on the Internet. Seriously, when was the last time you heard of an Internet business model that wasn’t fundamentally about advertising?

Second Life, of course, gets money from usage primarily through hosted software fees. Yep, put aside all the fancy talk about virtual land, avatars, user-created content, etc etc, and our business model is basically a hosted software business. Now, this is no mean feat – but it’s also the case that for our usage to expand as broadly as our ambition, we will have to see diminishing margins in the hosted software business (because other people will have to run SL servers in order for the usage to be as worldwide as we imagine).

But what is the Linden Dollar? Is it somehow another way to monetize those famed eyeballs of yore? I think in a sense it is. Linden Dollars are issued in proportion to the estimated future value of our virtual world. This means we will receive payment for building the economy of our world, and if our world becomes as large as we hope, this is going to correllate to all the eyeballs in SL, it will in the aggregate be a massive amount of real money. What would have happened if Netscape created the Netscape Nickel in 1995, a virtual currency for Internet users to participate in a new global micropayment economy? (One of many fun Netscape whatifs.) This is not a forever business model, it lasts only so long as the world is expanding, but man it’s a big pile of real money nevertheless.

I rarely ever think of our business in terms of money – there are so many mind-expanding aspects to what we do. But one of the really interesting features of our service is our virtual currency, and thinking about its ties to real money is unavoidable.

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