October 14th, 2007
The august business publication, Financial Times, offered its analysis of Economics 2.0 a few weeks back, and I wanted to briefly comment here. Â After reviewing seven business models in a virtual world (Marketing Real Products; Selling Virtual Products; B2B Services to Virtual Operators; New-Style Services such as sex, gambling, and education; Media Content Distribution; Creating Community; etc.), the article concludes:
“…Opportunities exist for specialised computer simulations and for advanced multiplayer video games. Virtual worlds, however, make a much wider claim. They want to be entire worlds of numerous activities. They want to be profitable simulations of the entire economy. And that is less likely to be successful. Virtual worlds are mostly consumption economies in which people spend money earned in a real world. They resemble more a resort economy based on entertainment, and such an economy requires a constant injection of outside dollars, and a costly ratcheting up of the thrill level to keep the relatively scarce visitors coming back. The commercial operators are likely to have the greatest incentives to make their islands more attractive, and this means that the virtual worlds will become increasingly over-commercialised, making them less attractive to many users. And this would also mean a costly rise in the required financial incentives to steer users to visit the virtual world.
These dynamics are less visible in early stages of a virtual world, where growth raises the value of created assets. However, once this growth slows down, as it inevitably must, and with competitive entry into various services and virtual worlds, their economics will follow the pattern of classic boom-bust cycles. The upward self-reinforcing growth of a virtual world can quickly be followed by a downward spiral.
Thus, it is not likely that competitive virtual world activities will be particularly profitable, outside of short-term unique products, and of the ownership and management of the world itself.”
I do not fully agree, of course, but airing & sharing the views of skeptics is always important. I do think, however, that The FT’s comparison to that of a resort economy may be a useful paradigm to consider at various stages of virtual world economic development.
This entry was posted on Sunday, October 14th, 2007 at 5:16 am and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
