Linden Labs vs. the US Fed: How user-created content creates economic value

Lindenlab_vs_us_economyPhilip Rosedale, founder of Second Life and CEO of Linden Lab, is the recipient of the WIRED Rave awards in the business caregory. His achievements are presented in the form of a comparison of the Linden Lab’s economy with the US economy (represented by former Fed chief Alan Greenspan)… well not really a scientific comparison, but one that provides a nice insight into the scale and creativity of user-created products:

Second Life is a subscription-based 3-D virtual reality application operated by San Francisco-based Linden Lab. The game gives its users (referred to as „residents“) tools to add to and edit its world and participate in its economy. The majority of the content in the Second Life world is resident-created. Linden Lab actively promotes the concept that residents retain the intellectual property rights to objects they create (although they are required to offer Linden Lab an open license to it).

Since 2002, users have created a functioning economy based largely on services and real estate. As such, it is a perfect example of the crowdsourcing idea described in the previous posting – and another case for our concept of „interactive value creation“. (More background information at Wikipedia).

So where does this lead to? Here are some excerpts from the WIRED article „Rosedale vs Greenspan“:

Size of economy supervised:
Rosedale: $7.7 million per month.
Greenspan: $1 trillion per month.

Technique to encourage maximum spending:
Rosedale: Ensures that the Linden Dollar doesn’t appreciate against the US dollar, making it impractical and unattractive to keep Linden Dollars in savings accounts.
Greenspan: Ensured that interest rates remained low during periods of relatively slow growth, making it impractical and unattractive to keep US dollars in savings accounts.

Means of maintaining price stability:
Rosedale: Aggressively adding money to the currency supply as the overall size of the economy increases.
Greenspan: Reducing the supply of money by aggressively raising interest rates when inflation begins to rise.

Rosedale: “I’m not building a game. I’m building a new country.”
Greenspan: “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to un-expected and prolonged contractions, as they have in Japan over the past decade?”

Read more here. And in any case, the Second Life Economy is in the moment much faster growing than the US Economy, has a younger, educated and healthy population, no enviromental concerns, always good weather, and is in no war with anyone.

About the Author:

Frank T. Piller is a Co-Director of the MIT Smart Customization Group at the MIT Media Lab, Massachusetts Institute of Technology, USA, and a chair professor of management at the Technology & Innovation Management Group of RWTH Aachen University, Germany, one of Europe’s leading institutes of technology. Before entering his recent position in Aachen, he worked at the MIT Sloan School of Management (2004-2007) and has been an associate professor of management at TUM Business School, Technische Universitaet Muenchen. Frequently quoted in The New York Times, The Economist, and Business Week, amongst others, Frank is regarded as one of the leading experts on strategies for customer-centric value creation, like mass customization, personalization, and innovation co-creation. His recent analysis of the crowdsourcing business model “Threadless” (co-authored with Susumu Ogawa), an innovative crowdsourcing business model in the fashion industry, has been elected as one of the Top-20 articles in MIT Sloan Management Review.