Who Wants to Be a Virtual World Millionaire?

So, it’s semi-official: the Second Life avatar known as Anshe Chung, featured in a recent BusinessWeek profile of SL, is now worth over $1 million dollars. The news has already stormed through the blogosphere (as here, here, and first scooped here), but judging by most of the commentary, it’s provoking more confusion than understanding.

Did she become a millionaire through hacking, a pyramid scheme, or virtual gold farming (as most Internet commentators seem to think)? And does she really have more than a million dollars in Second Life-based assets (as Ailin and Guntram Graef, the German couple who own the Anshe character, claim)?

No, no, no, and finally, yes and no.

After the break, some clarification that hopefully cuts through both the hysteria and the hype.

How the Virtual World Works

To understand how the Graefs can make the claim, you have to understand both the revenue model of Linden Lab, the company that owns SL, and the revenue model of Anshe Chung, virtual real estate developer. Briefly:

Unlike other online worlds, Second Life has no monthly subscriptions– instead, if you want to own virtual land for a home, a business, or other project, you pay Linden a monthly land use fee, based on the amount of acreage in your account (from $5/month up). For the most ambitious subscribers, Linden also sells private islands of 16 acres each, which they can buy outright from the company for about $1600, while paying a monthly land use “maintenence” fee of several hundred dollars. (Each island is actually a single server; in fact, think of Second Life land as analogous to renting out server space for a website or file storage or whatever– it’s just that in SL, the data is represented in 3D.)

Over the last few years, Anshe Chung and her growing staff have been buying up Second Life land, acquiring private islands, and after rezoning and beautifying it, subletting it out to other SL players. (Often this involves sharp elbows, imposing strict building codes, or sudden evictions of long-standing communities* [see Update below], which is why Anshe is, like most real world land developers, a controversial figure in Second Life.) Anshe’s tenants pay her in Linden Dollars, the official currency in SL, which can then be bought and sold for real money over the LindeX, the company’s web-based commodity exchange market.

All of this is done with the explicit approval of Linden Lab, part of their business plan to foster a self-sustaining, user-created world where the top content creators and service providers like Anshe profit from their efforts. And while there are other successful SL real estate developers, Anshe’s enterprise is by far the largest; most of her private islands are linked together to form an entire continent which makes up, by recent estimates, 10% of the world’s total landmass.

Breaking Down a Million

All that in mind, you can now guess the hidden and semi-hidden caveats around the million dollar claim. To begin with, only part of it is based in actual Linden Dollars. “Anshe has ‘cash’ holdings of several million Linden Dollars”, her company announcement reads. If “several” meant L$3,000,000, that would be around $12,000, at market rates, which are now around L$250/US$1; still, even converting this currency to US dollars would mean selling it on the open market, and to have such a large bloc of cash hitting the LindeX currency exchange would surely devalue it.

The “millionaire” claim is primarily based on the stated value of Anshe Chung’s 550 islands, with a baseline price (when it’s first sold by Linden Lab) of $1675, meaning $921,250 total. But again, to sell all of those regions to other SL subscribers at that rate or higher, without devaluation setting in, would be a monumental task.

To make things even more complicated, CNN’s legal affairs blogger (and isn’t it surreal to cite that source for a story on a virtual world?) reports that “[a] spokesperson for Linden Lab told me she could not immediately verify Chung’s claim, because Chung’s property is held in many different names”– in other words, a single avatar is not, in fact, a millionaire. (Anshe’s SL real estate operation has numerous employees on staff.)

So all that established, a more accurate statement would be this:

If Anshe Chung gradually sold all her Second Life assets over a long span of time (to prevent market devaluation), and if all the assets actually owned by various avatars working for Anshe were successfully transferred back to her, and if the internal economy remained stable, and if Second Life had no serious interruptions of service through hacking, scalability failures, sale of the company, or other unforeseen incidents, then after a long and arduous process, Ailin Graef and her husband would have well over $1,000,000.

That’s a long way off from being a virtual world millionaire.

In fairness, the Graefs’ reasoning is not all that different from real world millionaires, whose own assets depend on the stability of the global economy. But ultimately, the Graefs’ claim is most analagous to the boasts made by stock option millionaires of the dot com boom. In effect, they own “shares” of a user-created world which are valuable only as long as current market conditions hold up. As we know from painful experience, those conditions often change, and drastically.

But for their sake– and frankly, mine— I hope Second Life’s boom times never end.

*Update, 1:58am: At Ailin Graef’s request, a clarification: the eviction mentioned in the linked article was not conducted by Anshe Chung or her associates, but by the previous owner of an island, who disbanded the existing community there in preparation to sell it to Anshe.