NPR Interview about Second Life's Financial Sector--Old Shoes, Brevity, Disneyland, and Disclaimers

I spent half an hour talking with Scott Simon of National Public Radio's Weekend Edition, which resulted in this five minute story on the air yesterday. It was scheduled in advance, but I was still surprised when it happened...Scott Simon's voice is as comfortable as old shoes, and it was rather disconcerting to realize that he was talking to me . I rarely talk back to the radio. (I reserve that for conservative talk show hosts.)

They did a reasonable job of editing. I still need to work on getting to the point quickly enough for radio. (Cornell is actually going to be training some of us wonky academics to just say what we have to say, and then stop). But overall, I feel I did a reasonable job on the hardest part of talking about Second Life's economy--explaining why it has one in the first place. If I had it to do over again, I would say it like this (follow the link below for more):

Most computer games are like Disneyland--you give your money to Disney to enjoy Space Mountain and the other attractions. Disney gets the money, because they created all of the attractions. Linden Lab had a different business model in mind when they created Second Life. They rent land to anyone who wants to build their own Space Mountain, and give them the tools and parts to do so. Then, they will let the builder charge others to enjoy the ride.

Of course, building an attraction in Second Life isn't free. You need programmers, graphic artists, architects, and designers--and you have to pay Linden Lab for the land (which is actually server space and bandwidth). So the people who choose to create this content are entrepreneurs who need capital. That drives a demand for capital markets, both in real life and in Second Life

Of course, the problem with sound bites like this is that they don't leave time for the caveats. The most important one is that I don't intend to endorse any particular financial institutions in Second Life. Some of them seem more reputable than others, and it is fascinating to watch these entrepreneurial spirits create capital markets in the absence of any effective regulation, but they still all pose what we might euphemistically call "significant counterparty risk." I think they still have a tough question to answer: why would someone tap Second Life markets for capital, rather than real ones, especially given the high expected rates of return and the high counterparty risk. I have heard answers (see the Metanomics banking panels from January), but I am not yet convinced.

Another important caveat: On the show, I mentioned that people from the Financial Accounting Standards Board and the Federal Reserve Bank are interested in using virtual worlds for research on regulation and policy. This is true. However, I want to emphasize, on their behalf, that these individuals represent only their own institutions when they express interest in such research. FASB and Fed employees routinely make this distinction, but since they weren't on the show to do so, I will take this opportunity to do it for them. The standard disclaimer for FASB goes something like this:

FASB encourages the expression of views by
members of the board and staff, but that much of
what you'll hear this morning are my personal views.
Official positions of the FASB being reached only
after extensive deliberation and due process

I assume the Fed disclosure is similar. These are individuals at the Fed who think there are some possibilities for using virtual worlds, but they are interested in this on their own behalf, not as official representatives of the Fed. I am glad to see that many of these folks are coming to Emory's conference on virtual world (see my posts from last week). Maybe after extensive deliberation and due process, the Fed will take an official position that this research is worth funding. That hasn't happened yet, but I hope to make a persuasive case at the conference.