SecondLife as a Developing Nation?

Every now and then someone likes to come along and make the distorted statement that the 3D virtual world SecondLife has a per capita GDP that rivals emerging countries. Let’s take a look at that statement and see if it actually holds up.

According to the CIA World Factbook, as of 20 October 2008, Second life boasts a very loosely approximated GDP of $215 million per annum with a population averaging about 900,000 regular users (per month). Go back 60 days and the population is slightly higher at 1.2 million. This would put their GDP somewhere between $179 and $239 per capita. By other calculations the population of day-to-day users (people who’ve checked in in the last 14 days) is a more accurate measure and that would put the population at around 500,000 and the per capita GDP at a number closer to $430.

In other words, if SecondLife were a country it would be hovering at the bottom of the pyramid with other African nations like Liberia ($500 GDP), Burundi ($300 GDP), Congo DR ($300), and Zimbabwe ($200).

Now before all you economic gurus out there lambast me, I realize this is incredibly fuzzy math. For one, the total number of residents (people who’ve created accounts) in SecondLife is about 15.5 million. A good portion of those are very casual users who create accounts and never come back (like myself). If this were the real world we might factor in some of these people as ‘tourists’ but it’s impossible to calculate them in with such limited data (like when they created accounts and when their last log-in time was). Also, there is no ‘cost of living’ in SecondLife because all the money being used in the system comes from outside of the world itself. If you make bad business decisions in SecondLife just re-up with paypal and you can start over as a millionaire. (If only life were that easy in Africa!)

More important than any of this, SecondLife’s economy is an entirely closed economic system meaning the only thing that effects the economy is what’s “in world” – anything outside of it doesn’t exist and therefor cannot be accounted for with any model that applies to the real world ecosystem. (If we got into counting monies that exist outside of Second Life that could be potentially put back in we’d just be right back at real world economics.) The creators of SecondLife, Linden Labs, recognize this which is why they’ll never talk about a GDP when referring to spending in SecondLife.

Instead they use two metrics called UHL or THL (total user hours logged) and PMFL (positive monthly linden flow) to determine the so called ‘state of the economy’ in SecondLife. Jessica Holyoke created a formula to determine whether or not SecondLife was in a recssion:

In looking at the PMLF, I took the mode, or the central number, of each category except for the $5000 and above category. For that category, I used $5000. I then multiplied the amount earned by the number of users in that category. I then added all of those sums to create a monthly total which is an estimate of the total PMLF. I was then able to compare the average PMLF for a calendar quarter and track percent growth within that particular quarter. Growth is measured as the difference of the starting value and the ending value divided by the starting value.

Quarter 3 and Quarter 4 2007 both saw negative PMLF Growth. The percentages were not more than 2%, but they were both negative. Negative economic growth for two calendar quarters is an indication of a recession.

THL also avoids the alt effect because it measures how much total time is spent in world. While certain content creators do not need to spend any time in world, people searching, purchasing and using their products do need to be in world to use their purchases.

THL growth was negative for Quarter 4 2007. The only other time it was negative was in Quarter 1 2005. In talking with wise resident Gwyneth Llwellyn, around that time, the Lindens stopped paying L$500 for each host of an event. This may have created a negative use rate.

In dividing the quarterly values of PMLF by THL, you get an index I will call the Quarterly Profit per Capita (QPC). Because of the lack of historic PMLF values, QPC cannot go back before quarter 3 2006. While QPC is lower now, it is not dramatically lower. QPC was 0.26 during the Quarter 4 2006 boom and 0.20 for Quarter 4 2007.

So while total profit might be down, and showing recessionary signs, the strength of the economy based on the people who use it have only slightly slipped.

As you read, her calculation looks at money being spent in game excluding land sale because it creates another flaw in the argument. In the real world we can’t just make new land whenever we determine the market is ripe. The surface of the earth is finite and our country boarders make it difficult to acquire more even if we decide we need to. In the real world that leads to war. In SecondLife someone at a server farm flips a switch and you’ve got a while new in game country or island to sell off.

There simply is no scarcity in SecondLife. As long as people are playing it and they are spending more than they are earning as a whole, the system scales up. LindenLabs buys new servers and everyone (playing) wins. If SecondLife were ever to truly go into recession, it would mean the costs of operating the SL servers was higher than what the company was making from it’s users and growth would either be halted or you’d start to see in-game islands (which represent different servers in real life) start to disappear to recoup costs. If the real world were like SecondLife the United States would be considering deleting a few of it’s States right about now! (ha, I kid!)

If you wanted to be really bold you could try to correlate total hours logged (or time in world) to sleeping in real life but most of us can’t control when we sleep or wake up and we certainly can’t just ‘check out’ of life for weeks on end and just return as if nothing ever happened.

So, despite what a number of enthusiasts will claim, SecondLife can’t be compared to the real world at all, much less to developing countries. It’s almost an insult but I can see the (questionable) logic behind the statement. SecondLife can be used to analyze spending trends and metrics of SecondLife players…and perhaps the number of real world users with expendable income but that’s it. There are a million and one other examples I could point out: for instance lack of governance, no physical suffering or consequences, oh and how could I forget that SecondLife avatars get around primarily by flying(!). I’ve already written too much but if this truly interests you, check out Billy Millis’ paper on the economic and legal paradoxes of SecondLife here.

What is interesting to me about SecondLife is the amount of money that circulates through it on a daily basis. On average $1.5 million US dollars a day and countless user hours logged. Imagine if there were a way to direct that sort of human engagement and spending to solving the real world problems of actual developing nations.

Other Interesting Facts about SecondLife
- SecondLife users prefer Obama to McCain by over 2 to 1.
- Reuters tracks the SecondLife economy here.
- Daily SecondLife economic statistics.
- Maldives was the first real world country to open an embassy in SecondLife.
- LindenLabs runs it’s own fluctuating currency exchange.
- SecondLife has spawned a number of protest groups including the hilarious GetAFirstlife.com