Virtual money for virtual goods

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The Linden dollar, Second Life's currency, may not have much value -- it takes 270 of them to equal a U.S. dollar -- but it forms the basis of an economy. That economy supports a living for some and is wildly lucrative for an elite few.

The Linden dollar is used in a 3-D online virtual world to buy and sell virtual objects such as motorcycles, cars, furniture, houses and clothes. People create their own animated characters, called "avatars," and use the virtual objects to explore a computer-generated world called "Second Life" for social, entertainment, educational and economic reasons.

Avatars communicate with one another through text messaging or audio tools. People using computer keys can make their avatars walk, run, drive cars and even fly. The avatars gather at virtual parties, concerts, dance clubs, shopping malls, movie theaters and castles.

Economic Reality

Believe it or not, the economic system inside this virtual world viewed on a computer screen has real-world economic implications, because the Linden dollar can be exchanged for the U.S. dollar.

That means people inside the game are making real money.

Here is how it works: People inside Second Life can obtain Linden dollars by setting up an account through Linden Lab and using an online, peer-to-peer trading platform called the "LindeX," or virtual exchange.

For every one U.S. dollar, they get about 270 Linden dollars. They can use their Linden dollars to buy virtual objects, and people who have mastered the online tools to create such objects can exchange their newly reaped Linden dollars for U.S. dollars.

Universities and businesses have conducted research in Second Life on a range of subjects, including robotics, brand building and product development. Many hold online business meetings and host conventions in locales such as a virtual Alpine village.
Raising Funds

Non-profit groups have raised money through the site with activities such as the American Cancer Society's "Relay for Life" virtual walkathon.

Second Life also has gotten the attention of the Internal Revenue Service, which expects people to report income they make from the game. A congressional subcommittee held a hearing in April on the evolution, culture and future of virtual worlds such as Second Life.

Fred Fuchs of Houston makes his living creating content and providing other services in Second Life. Fuchs runs FireSabre Consulting, which regularly employs six people from New Zealand, Australia, Japan and the United States.

Clients pay FireSabre in real-world currency, though "there was a time when we accepted SL currency for smaller jobs," Fuchs said. When Linden dollars were cashed in, his company reported the income, Fuchs said.

One FireSabre project, for the National Physical Laboratory in the United Kingdom, involved creating a 3-D model of a climate monitoring satellite, he said.

"In the final version, visitors walk around the satellite and hear voice and see text information about the satellite's technology and goals," Fuchs said.

Fuchs, an electrical engineer, founded FireSabre in early 2006. Prior to that, his experience included a stint for a NASA contractor designing training simulations for astronauts using the International Space Station.
Setting Up Shop

Randy Ford, a computer consultant and software engineer from Farmington, Ky., has created a business, Renouf Labs, with two stores in Second Life.

Among other things he sells to Second Life participants are avatars complete with virtual hair, skin and clothes, rotating barstools and a virtual mechanical horse that starts slowly and gets wilder until an avatar is bucked off.

"Given the time spent creating, drawing and helping customers, I am not making much per hour," Ford said. "On the other hand, it is a foot in the door of a new technology and could eventually lead to some extra retirement income."

Ford said he makes about $200 a month or more in Second Life and last year made enough to require reporting the income to the IRS. Ford said he hopes to make closer to $400 a month this year.
Old School

Jeremy Lipschultz, the director of the School of Communication at the University of Nebraska at Omaha, has helped set up UNO classroom activities in Second Life. Using an avatar, he bought a large projector screen that could display a PowerPoint presentation.

"It was a little intimidating," Lipschultz said. "You go into a store, and it's sort of like being at Nebraska Furniture Mart. But you know you're not there because really you're looking at a computer screen."

After looking at the displays, Lipschultz pushed a "buy" button for the projector screen, which transferred his Linden dollars to the seller's account, while the newly purchased item was added to his inventory list. The item cost about 1,000 Linden dollars, or about $3.70 in U.S. currency.

Large research, nonprofit and education projects are one thing. Some people participate in Second Life just to be entertained, such as text chatting at a bar and lounge.

"In some places you might pay for an artfully designed beer" and place them with your avatar, Fuchs said. Some lounges are devoted to flirting and dancing, while others attract people interested in politics, technology or business. There are hundreds of bars to choose from, Fuchs said.
Self Idealizing

People who might have difficulty with their speech or have other disabilities can find Second Life liberating, Fuchs said.

"An idealized self is something that appeals to a lot of people," he said.

Lipschultz said some people see Second Life as an ongoing game with no end. "Others see it as virtual online communications, with space similar to the physical world."

Still others have used the site as a creative extension of their own identity, or as a way to earn money by creating virtual objects and selling them, Lipschultz said.

"People spend their time and money in SL mainly for entertainment," said Ford of Renouf Labs. "Those that come looking for money usually leave disappointed."

Paying money to buy virtual products in an online world might seem odd, but it is similar to someone buying a ticket to see a movie, said Brian Mennecke, an associate professor in management information systems at Iowa State University.
Intangible Value

"I've been entertained -- or not -- for two hours, depending on how good the movie was," Mennecke said. "So if I'm exchanging that for cash, that's what I get. If I'm paying a company for an e-book, is that tangible? No, but I get to listen to it or read it."

Mennecke has conducted research and classes in Second Life.

"One issue with Second Life, it is like going to a costume party, with the party mask and people doing things they otherwise wouldn't. I ask people not to be disruptive to others. Most will abide by that," Mennecke said.

People using avatars to annoy others are called "griefers." Security can be programmed into sites in Second Life that send "griefers" away or ban them from the area.

Just how much money people make inside Second Life varies considerably, but it can be substantial. In a research paper published last year on tax issues raised by the economic system in Second Life, Mennecke and three other Iowa State professors wrote that one woman working as a land developer in the virtual world reported a net worth in the game of more than $1 million.
Making Money

According to San Francisco-based Linden Lab -- which launched the Web site in 2003 and continues to run it and track movement within it -- more than 48,000 registered users in each of the last six months had at least some positive monthly cash flow.

In each of those months, more than 150 registered users earned the equivalent of $5,000 or more, more than 14,000 users earned the equivalent of between $10 and $50 and more than 25,000 earned up to $10, Linden Lab said.

Earning $5,000 a month for a year would reap participants $60,000. Taking in $10 a month would reap $120.