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As Covid-19 destroyed real economies, Second Life’s economy boomed

On Second Life, the economy boomed in 2020.
Linden Labs
Business as usual.
  • Samanth Subramanian
By Samanth Subramanian

Looking into the Future of Capitalism

Published Last updated on

For three years now, Jonathan Martin and his wife have been selling home furnishings and decorations. “Tchotchkes, really,” he said, “stuff you put in your home.” Their shop, Sunny Bungalow, not only stayed open every day of the pandemic last year but also saw its sales double. “We’re trying to figure this out ourselves,” Martin said.

It helps, of course, that Sunny Bungalow is a virtual store, found in Second Life, the online world where people have lived parallel existences through their avatars since 2003. And it helps that the tchotchkes are digital antiques, truffled out in other Second Life stores and markets.

The spike in sales was part of a larger economic boom in Second Life, even as the real-world economy floundered through 2020. “We are seeing a 30-40% increase in overall in-game GDP,” said Ebbe Altberg, the CEO of Linden Lab, the company that runs Second Life. Once avatars earn Linden Dollars in the game, through the goods and services they offer, their players can cash them out into US dollars. Last year, players earned and cashed out $73 million—nearly a fifth more than the 2019 figure of $65 million.

The rest of the virtual economy grew too, but far more explosively, in ways that sometimes made Second Life seem like a tranquil backwater for grown-ups. The exuberance, in large part, is driving non-fungible tokens (NFTs)—virtual assets like plots of land in Somnium Space, another online world, or artwork of animated cats, or digital basketball card collectibles. Each NFT is a singular product, either one of its kind or part of a limited set; some NFT creators use blockchain technology to certify their products’ uniqueness.

The market for NFTs tripled in size last year to more than $250 million, according to figures from NonFungible.com, which tracks NFT sales data. There were several reasons for this, said John Egan, the CEO of L’Atelier, an independent subsidiary of BNP Paribas, which helped compile the data. It has become increasingly easy and frictionless to spend money online, and in lockdown, people were online far more last year.

A different kind of NFT

Second Life didn’t have quite as feverish a year. It has its own versions of NFTs: plots of virtual land or designer clothes for avatars or unique Sunny Bungalow tchotchkes, each different from the other. But these aren’t tagged by blockchain technology, and they didn’t go on the wild, speculative rides that other tokens experienced. The game’s economy grew more steadily, over longer periods—rather more like a real economy than a collection of speculative assets.

Partly, this is because Second Life is designed to be an anti-speculative market. Linden Lab has always acted as a sort of central banker to the game, tightly regulating its economy and trying to keep inflation in check. The Linden dollar-US dollar exchange rate doesn’t fluctuate; it has stayed at 249 to $1 for months. For a while, Linden Lab permitted casinos to operate in the game, but it quickly shut them down after the effects of gambling created a central banking crisis, Egan said. A few years ago, Linden Lab instituted some stimulus measures, dropping the price of land and making it easier for players to become first-time “homeowners.” That gave the economy a fillip, Altberg said. Second Life never sees the sort of frenzy that is, for example, witnessed frequently during land grabs in Final Fantasy XIV, another game in a virtual world.

The reason for this strict regulation of the game’s economy is cultural more than anything else: a recognition that Second Life is for living, not profiteering. Of the 900,000-odd monthly active users in the game last year, only 14,000 or so draw any kind of income from it. The rest come for the community, or to be different versions of themselves, or to find escape. During the lockdown, Second Life saw a surge in new registrations. Something similar had happened during the 2008 recession, Altberg said: a spike in players, higher engagement, the game offering “a reprieve from social and economic stressors.” But last year, many players who hadn’t logged on in years also returned, unable to pursue their full lives offline and spending increasing amounts of time online in any case. And they happened to spend some money while they were back.

Among them was Asia Ristow—which is her avatar’s name, the name she wishes to go by. Ristow joined Second Life 14 years ago, dropped away around 2017, and returned midway through last year. She’s always worked online, as a consultant, but when she found she couldn’t socialize in real life, she logged on—until she was spending 10 or 12 hours a day in Second Life. “It felt much less lonely,” she said.

Others were there for the same reason. One woman she met had, in the real world, purchased plane tickets to a bunch of countries, until the pandemic canceled all travel. “So she went to different worlds in Second Life instead,” Ristow said. Her own year in the game, Ristow said, involved joining a free co-working space: “It’s cheesy, it’s cute. A little coffee machine, little donuts, little desks, and a Stargate to teleport there.” She parks her avatar there even as she’s working on her offline job, just for the feeling of being around people.

The pandemic made its presence felt in other ways as well. Covid-19 support communities emerged, as well as a coronavirus resource center, created by a healthcare professional. People argued, while socializing within the game, about whether their avatars should wear little virtual masks. “We’ve also seen political turmoil and activism translated into the virtual space,” Altberg said.

Going shopping on Second Life

Not everyone in the game turned out to be a big spender last year. Ristow knew that some of the avatars around her were of players who’d lost their jobs in real life. “Some people were just starting out, or they were financially insecure. So they were looking for budget-friendly things to do.”

Others tried to substitute the experience of shopping online for the absence of shopping offline. “Buying on Amazon is not the same as going into a shop and looking at clothing, and you could do that on Second Life,” said Susanna, a copywriter from Graz, Austria, who asked to be quoted just by her first name. She bought herself “a sort of new skeleton” for her avatar—a better frame on which the graphics hung. In Second life terms, it was expensive—nearly 3,600 Linden dollars, or around $15.

Musicians set up virtual concerts, and players attended those, buying tickets or tipping the artists. One player, who runs a shop that supplies avatars with virtual pets and babies, and who asked not to be named, said that her business jumped 30%. “Unfortunately we live in a world where we’re shown these beautiful, expensive things,” she said. “That kind of lifestyle is very inexpensive in virtual life. Maybe it’s just about getting a necklace you can’t otherwise afford—it’s just as gratifying to wear one on your avatar.”

The gulf in prices between a Second Life kitten (about $4.30) and a Nyan Cat NFT (around $600,000) raises the question of which kind of temperament in the NFT market will outlive the other. It’s difficult to say if the crazier valuations will persist into the near future—just as it’s difficult to say, for instance, what the value of bitcoin will be a year from now. The action feels too new and too superheated to extrapolate.

Second Life, on the other hand, has grown steadily for the better part of two decades now. Its economy is unlikely to plummet, just as it refuses to grow at nuclear rates. But the coming end of the pandemic, and the return of everyone’s first lives, won’t leave Second Life unaffected. “Last year, things opened up here for a while in Austria, and I disappeared from the game,” Susanna said. “I got a lot of messages from my friends online, who were worried about me.” She shrugged. “But you know. It was summertime. It was possible to have a normal life.”

Correction: The Linden dollar-US dollar exchange rate is 249 to $1, not 320 to $1 as a previous version of this story reported.

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