|
In reading Sophrosyne's excellent post with her comments on the article I'd written entitled "Virtual World Economics: “Fair Value for Professional Services" and the interesting post by Dale Innis in response, I felt this merited a new blog of its own. Soph's argument (and John Jainschigg's at http://www.zzomg.com) argue that the virtual world economy is colonial, third world country and introducing atomic world pricing for goods and services would have a negative impact. I think though, that we need to look at some facts and perhaps some opinion. Excerpted from Soph’s blog (linked at end of this post): “But say I kept those earnings in SL: say I've got an income of a couple million Lindens a day. What's going to happen? Right: the prices of wings, sex toys and latex body suits in SL are going to go from $L500 to $L500,000 overnight. And if you're not in a business with atomic-world customers? You're not going to be able to afford anything, because I'll have driven up all the prices, across the board. The local economy will collapse, local producers will be driven out, and the only people left will be the successful colonialists, not the indigenous producers.” A major difference in the SL™ economy and the atomic world economy is that once something is created, say, a shirt, it can be resold millions of times for L$200 without the production costs, energy expenditures or overhead that a shirt in the atomic world would consume and require. Given this, the local economy should not be affected in an adverse way, but rather it will be stimulated by those participating in virtual worlds and shopping for these very goods. Do prices need to go up? No. I know a number of designers in world, as you do, that make a comfortable atomic world living through sales of their creations at “colonial” rates. Why? again, no production overhead. They’re not affected by rising fuel costs, rising labor costs nor are they affected by fluctuating prices in materials, equipment and so on to produce. Soph: “It's a completely valid perspective, and it's the one Rissa's coming from when she argues that my $L-pricing or donating my services undercuts her ability to charge a living wage.” I have never argued that your $L pricing or donating of your services undercuts my ability to charge a living wage. Rather, I have argued that those voices raised in protest for not getting paid what they believe they’re worth is partially their choice—they’re choosing to work for extremely low or no wage essentially giving away services and at the same time, some corporations and entities such as NASA (which you'd referenced) are taking advantage. Like you, I could donate my services—I too have a “limousine lifestyle” but I choose to charge what I’m worth. There is also the fact that if something should happen to that other income I can independently maintain my lifestyle and support my family. Soph: “Vids and Rissa deserve to make a living wage for their work. I'm not arguing against that. What I am saying is that their best strategy - maximizing their income and minimizing the amount of time they have to work to survive - has "negative externalities" for the digital economy. The sum of good individual choices can generate a bad collective outcome. I'm in a position to try to counterbalance some of that, to make choices favoring the good of the SL developing-nation economy, I think.” First, the work I do and I’m sure this is true with Vids, hasn’t resulted in "a maximization of income for a minimization of time”. In fact, more time is required due to the need for ongoing education about virtual world environments in general, onboarding, etc. in addition to our professional services. This time is often uncompensated. Secondly, this argument is invalid because the premise that it costs the same amount to produce virtual world goods for sales is inaccurate as stated previously. In regard to services however, the atomic world is populated with a number of charities and volunteer programs for any number of causes. These haven’t hurt my ability to sell my professional services there, and volunteering one’s time in a virtual world to provide a service or product has no effect upon this. I donate time too, for various causes and, in fact, World2Worlds has donated an event for Relay for Life’s auction. In the past, we’ve a demonstrated history of supporting the economy within Second Life through free vendor space on our islands for use by select vendors to advertise and sell their products and services. They keep all revenue and provide landmarks to their stores. Some of the designers have designed, at atomic world pricing, skins and shapes for our clients. They enjoy the benefit of both economies. The two economies co-exist. Do they work well together? Yes. Soph: “... And Why I'm On The Other Side”
Rissa and I do somewhat similar work, running professional-quality events. She's about the best there is at what she does; I'm pretty good. Rissa - who I count as a dear friend and mentor - would see me charge the atomic going rate for the conference services I provide, especially when I partner with atomic-world groups like NASA. I've thought long and hard about it, and I'm not going to.
Soph, I respect you a great deal, find your intellect and views fascinating and am enriched by our friendship and intellectual discourse. Now on to the rest of the comment excerpted from your post . . . Your reason for donating your services to NASA and other atomic world groups is to remain anonymous and to avoid the identity issues associated with atomic world business—taxes, payroll, etc. There is nothing wrong with this at all—your choice. I do wonder though, if the FAR covers this type of donation to entities receiving government funding. I’m sure they do, right? Referencing Sophrosyne's post at http://sophtopia.blogspot.com/2008/07/digital-colonialism-and-digital.html in response to my blog here entitled: "Virtual World Economics: Fair Value for Professional Services"
|
Thank you for engaging with my half-baked and radical views!
A couple replies: yes, as commenters on my post noted, a gift economy exists alongside the market economy in the atomic world as well. An atomic equivalent of me could easily be doing similar work for a local community center or science-education nonprofit. And similar considerations apply: they could bill their time at market rate, offer a charitable discount, or donate it entirely (on the FAR question - it's an interesting one. I'll have to ask my friends in the SL branch of the National Space Society, which has been doing that sort of work in conjunction with NASA for half a century or so - the answer must be out there).
I think the only thing that differentiates the digital case at all is the size and maturity of the economy: we're not just solo actors but shapers of the nature and future of the digital political economy. If my post had one point it was stumbling towards, it's that one. The rules of the game are set in the atomic world but in flux in the digital: it's important that we look hard at the assumptions we bring with us, and ask if our default rules and behaviors are the best we can do.
I'd differ with you, though, on the impact of wage inflation on prices. A friend of mine the other day divided purchases into three categories: survival (which has no digital equivalent), status (which does) and entertainment (which does).
I think that the prices of status and entertainment goods in the atomic world depend fairly little on the price of raw materials. When you can buy an adequate pair of shoes for $7, those $700 Manolos represent a premium for status, plus a markup representing the amount of disposable income Manolo customers have to blow. The cost of leather, assembly, storage and transport isn't more than a few percent.
Likewise, for a digital status good, yes, you can subtract the costs of production, storage and transport of atoms: which indicates that designer shoes should go for $693 instead of $700. There are already atomic companies trying this pricing model in digital worlds, though the colonial economy can't really support it yet.
There's evidence supporting my opinion: go onto SLExchange and look at the prices for luxury houses. The domestic market price is about $L500. However, there's a fairly large colonial market, with prices around $L20,000, even $L100,000. When I bought my first island land in June 2007, my neighbors were employees of atomic businesses who paid atomic prices for their (tacky-ass McMansion) homes, while I lived in an equivalent (but more tasteful) $500 home.
Sure, nobody *has* to charge what the market will bear, and that's my point: colonialism will produce two economies, and price pressure will force a wide gap between professionals and hobbyists.
As to my ill-phrased remarks on time/money tradeoff, Argent Bury expressed it as, "how much of your time do you want to monetize?" That calculation takes into account your hourly rate, your desired workload, your financial obligations, and as Dale Innis observed, the amount of pleasure you're willing to substitute for cash and vice versa. We all have different points on that continuum, and there's no moral weight to any answer.
But there can be moral consequences, at the intersection of our economic choices with the political economy of our community. I'm not advocating any position, just describing where I came out on those calculations, and asking all of us to look at the question and include the social consequences of our economic choices in our personal calculations.
Again, thanks so much for engaging with this stuff - it *is* fun!
I am fascinated by this discussion. But I'm also confused. :) I don't know where to post my questions - on your blog or Sophrosyne's.
I am no economics major - most of what I remember from B-school economics is that it is very difficult to predict accurately any specific result from a given action. There are simply so many variables.
You write: Given this, the local economy should not be affected in an adverse way, but rather it will be stimulated by those participating in virtual worlds and shopping for these very goods. Do prices need to go up? No.
I think I tend to agree with Soph's pov on this. There is a certain category of people that WANT to pay more, to drive the prices up. So although there isn't a need, there is a desire, or what Soph calls the status impact.
Soph talks about "a maximization of income for a minimization of time”. You counter with "In fact, more time is required due to the need for ongoing education about virtual world environments in general, onboarding, etc. in addition to our professional services. This time is often uncompensated." But this is simply part of the learning curve of the new technology, the new paradigm. In the atomic world the same situation exists. My significant other runs a business. If asked to do something that falls within the parameters of the business, but outside his current knowledge, he must study and prepare and invest a quantity of time for which he does not charge the client. But the next time around, he still has the knowledge. And even with the argument that the technology changes very rapidly, it’s expected that he can meet current standards. In other words, that's simply a cost of doing business, no matter which world we are discussing. That overhead has to be built into your rates.
Which leads me to the concept of fair rate. I do indeed think that if you are spending your atomic time doing work for businesses who intend to profit from your work and from their presence in SL, you should be paid atomic rates. I actually feel that quite strongly. But I also would prefer that those transactions occur in the atomic world, not in the virtual world.
I am only 23 days old in virtual world awareness and experience. (Quite honestly, 30 days ago I had no idea this whole experience existed.) But already I know that I do not want SL to be completely "real". Although I am excited and challenged by the idea of scripting and creating and possibly utilizing SL for RL purposes, there is still a point at which SL will become too "real" for me. And that point includes such things as money, liability, litigation and all the other necessary but stressful parts of atomic life. I'm sure that there is a major schism brewing between those who want virtual worlds to more accurately mirror the atomic world and those who, like me, would prefer to maintain an illusion of innocence, simplicity and escape. I agree with Soph that there are social consequences of economic choices. I'd like to think that in a virtual world we could make more choices based on the concept of healing the world, as opposed to strictly practical, sensible, atomic choices.
It seems to me - and again,I realize that I speak from a vast well of ignorance - that those people who wish to receive atomic wages should do so, but conduct the business in the atomic world. If that effort is a RL transaction with RL wage, it seems to me that the fears Sophrosyne states are ameliorated somewhat. The money remains outside of SL. For those artists/vendors/professionals who wish to remain anonymous, they receive fewer $L but they have to factor in the anonymity as part of the payment. This is probably overly simplistic, but it seems to me that part of the discussion must recognize that all wages are not monetary – there are other coins in the realm.
The whole concept that the government will begin looking at SL transactions and seeking a way to tax them - that is more reality than I'm ready to face. I recognize that possibility and understand the myriad of ramifications that will ensue if/when that happens.
Anyway, thank you for having this discussion out in public where we can all learn from it and enjoy the level of discourse. And thank you for allowing me to add my two cents!
I'm enjoying watching this, too. But I think we need (or at least I need) an executive summary.
The reason objects (as distinct from services) are so cheap in Second Life is:
1) They're a combination of software and digital art, thus essentially free to manufacture.
2) They're thus (generally) not subject to any constraint of scarcity (not true of no-copy/no-mod items no longer available for sale).
3) The majority of items in SL perform no function beyond adornment (obviously not true in discussing tools, etc.). In this way (and others), most SL objects differ from those in gameworlds like WoW, where brand is nonexistent, style is secondary, and of primary importance are enchantments or other power-ups afforded by the object to your character, which translate directly to speed of character advancement and other gameplay benefits.
4) Object-producers in SL leverage low cost/free to obtain market-share and build brand (that is: "cheap to free" is a business strategy in SL, as it is for Google on the Internet).
5) The majority of SL users do not wish to spend 'real money'(or money earned outside the worldspace) on virtual merchandise.
6) Even among users who don't mind the idea of spending real money, there's some friction associated with acquiring and spending Lindens. Some of this has to do with anonymity (i.e., even if LL promises never to reveal your identity, it's hard to believe you're really unfindable if they have your credit card info). Some with distrust of the atomicity of L$ transactions and the security of L$ accounts. Some with fear that RL money converted to Lindens and vice-versa imposes an exchange 'tax' in both directions. Some with fear of purchase foul-ups and inventory issues. And some with fear of dealing with anonymous sources who may not provide quality product or appropriate support.
However, even given the above constraints, the "virtual products" market is booming, and prices for first-rate work are (I think) tolerably fair, and hang solidly in the neighborhood of the kind of unit-quanta pricing you see in other microbilling contexts (e.g., the purchase of ringtones). And as market size grows, we really are going to see a lot of millionaires here, at $250L a pop.
The reason _services_ seem to have pricepoints all over the map is clearly manyfold, and seems to fall under the general aegis of William Gibson's clever note in Neuromancer: "The future is here; it's just not evenly distributed." Folks come to this environment with different requirements and expectations and skill-levels (at all aspects of business) and track-records, and then they find clients by different means.
A great deal of low pricing is, I think, community-driven. We all want to build global takeup of this paradigm for human interaction. And we want to empower our friends. So if your friend the hair-maker (who you know is a law-clerk in RL, not a rich investor) wants to start a store, you (the builder) may charge only a nominal sum for an interior design, build, vendor install, etc. This 'barn raising' approach is powerfully enabling and beneficial.
More low pricing is driven by the desire of creatives to build portfolios and brand recognition, in hopes of attracting paying work. Hard to argue with a person's right to do this.
More low pricing is driven by something I've never encountered in any other virtual world, which is that some people actually "roleplay" business in Second Life. I love this phenomenon -- 'homo ludens' at his best: people just love to suss out the mechanics of constrained dynamic systems and maximize profit; and beyond this, they love the cosmetics and conceptual space of business, competition and innovation. I have no doubt that many future global businesses will find their roots in such play, and the minute I have real money to play around with, I plan to plow it back into virtual business incubators that let people "play at business" with increased satisfaction, and that promote the really good ideas promptly into real-money markets.
More low pricing is compelled by the structure of some corporate incursions into SL. When a corporate move has top-down buy-in from the CEO, global marketing, the ad agency, divisions, etc., where it has at least the ghost of an ROI proposition and a business model, you're at least in the neighborhood of talking about an atomic-world deal at market compensation for digital creative work (in practice, there may be some discounting that goes on because SL is perceived as 'experimental,' but this may be counteracted by the perception that 3D technical and community/production skills are rare in the 'real world,' as indeed they are). But you're also talking about work that will only be contracted to people with a first-rate atomic-world track-record. The hope for pure 'inworld' talent, there, is that the folks contracting for such work (at market rates) will also pay their subcontractors at market rates (this is W2W's practice, I know -- mileage may vary with others).
The problem is that top-down buy-in is rare. More commonly, even the most apparently-lavish corporate commitments to SL are fairly 'intrapreneurial' -- the vision and responsibility of one (often) part-time person, usually attached to a communications function, indulged in their SL 'experiment' in much the same way as MarComm folks are now being indulged to experiment with flat-web social media. So there's brand ... but no real budget until ROI can be shown and buy-in obtained. And this is a long and painful process for the intrapreneur and any SL creatives who attach to him/her -- beset by every manner of obstruction, and every possible distortion and misinterpretation and denial and mockery of real value. Dealing with some of this is the job of every creative and metaverse dev who wants to see this market grow. And it's hard to fault those who indulge it to some degree, in hopes of gaining future work at better wages. But of course, there comes a point where you need to put your foot down, find your way upstairs to a real corporate decision-maker and say: "Look -- I can put 200 CIOs in 3D seats for four hours, let them listen to your message and interact with your global salesforce in vivid, powerful, authentic ways not possible with webinars or other flat-web media, turn them into a community that will show up at your events again and again and again, and give you their names/affiliations/contact info for follow-up. Tell me why this isn't worth an increment over what you'd pay for a one-way flat-web webinar with similar numbers and audience qualification. And tell me why this isn't worth at least a substantial fraction of what you'd pay to produce a real-world event for similar audience, less the enormous overhead associated with travel and atomic-world facilities?"
And (thank Ghu) the smarter ones scratch their heads and say: "You know, you're right. This is really a no-brainer." And as the paradigm grows, this will happen more often (from my mouth to Ghu's ear). In the (near) future, as more folks acknowledge the benefits and the population grows and the platforms improve, it should be possible for quality creatives to earn comparably in virtual and flat-web environments. At that point (in fact, starting now), we'll have to deal with another round of cost pressures from outsourcing; which I hope will be easier to manage than it is on the flat web, since so much of the ROI in virtual worlds (in the present timeframe, so long as the 'math of small numbers' still characterizes the medium) depends less on mechanics than on live service, and on social and business and linguistic fluency particular to target demographics. But there's also no question that the really huge money in virtual worlds will eventually be generated the same way it is on the web, by automation and low-cost/free distribution of essential services and sideline monetization by advertising (e.g., Google), and similar plays.
Bowing to Soph, who certainly knows more than me about anonymity and 'avatarics,' I'm not sure that retention of anonymity is a statistically significant contributor to price depression in SL service markets. At least not per se. Where I suspect this may already be VERY important is in the use of virtual spaces for covert market testing, e.g., in the fashion, financial and other sectors, where environments like SL provide a wonderful lab for trying out new designs and marketing gambits.
After the initial production, reproduction costs nothing. There is only minimal overhead (rent or tier fees and advertising). So products should remain very affordable. I think those selling products at high prices are greedy.
Services are an entirely different matter. Services that require actual man hours should not be cheap. What is a fair price for services? It depends on many things, but no person should be offering their services for cheaper than what they should be earning in real life unless they want to be overworked or they're trying to gain a reputation. How much does a designer get paid in China or Mexico? Will the virtual world have to match those prices? How does that affect quality? You get what you pay for.
Second, let's drop this other utopian notion that a shirt that you create once can sell endlessly forever in a digital world without any costs of production -- or any costs at all -- eliminating the ideas of scarcity and manufacturing costs common to the offline world. Wrong! Because you have to *tier the display of that shirt*. That DOES cost you something. You need to show it in world (or even on Slexchange.com, for a fee cut) and that means land, land is server space, server space does cost something. Worse, you have to pay for *attention*. Getting advertising clicks is very hard in SL -- attention *is* the scarce commodity. So you have all kinds of ads, events, people you wait on assiduously that you hope will put you in their picks, customized jobs, etc. etc. No, no such thing as "no cost to production" because humans need to get paid, and they are behind the machinery.
Third, SL is "like" a third world economy, because the wages people earn there, whether for shirt-making or sex work or land development or staffing real-life company projects, are significantly lower, or even at the extreme poverty level. But it isn't *really* a third level economy for most people because anyone who has a) a computer with a high-end graphics card b) a DSL or broadband connection c) disposable time and money that they have because they don't have to slave to eat or shelter themselves just isn't in the third world. They are hobbyists; they are low-paid housewives, students, disabled on fixed incomes or plucky entrepreneurs, but they are not REALLY comparable to third-world wage earners.
Fourth, whether the platformists and realists like it or not, the majority of people using SL use it because it is virtual and fantasy-like. They can get $1000 Lindens and feel like they have a thousand bucks, getting a car, a prefab, a suit for that price unlike real life. The illusion is sustained because of that fantasy-like pricing. Depart too far from that, and you lose customers. People who have tried to set up real-life products for sale within SL at RL prices in Linden usually can't sell them, because people don't need to hose their Lindens two ways and lose money to purchase that RL item -- they can bypass online systems and get it offline, or get it online in another system without micro currency.
What is the takehome from all of this? Real-life offline companies cannot expect to make a profit, a real authentic ROI in SL with real take-home cash, unless they go into rentals, consulting services right ont he grid itself, or content creation and sale *for the world itself*.
Trying to use the platform as a tool, as you use a webpage, doesn't ad from ROI; it merely creates a cost center for advertising with dubious metrics. Real life companies keep fighting the need to enter the world and play by the rules of that world, which is to create content and experiences for that world.
They and a small but very vocal and visible elite of tekkies are constantly lobbying for the integral virtual world to be destroyed or broken up ("to become like the web," "to break open the walled garden") and yet they simply cannot show how this 3-d streaming chat tool really enhances an existing Web or real-life experience. It doesn't. It needs a world to go with it.