Virtual Reality and Virtual Goods – Boon or Bane?

Our world is becoming increasingly digital. From media and advertising to dating and music, the 1’s and 0’s of digital technology have touched nearly every aspect of our culture.

Up to this point, the digital medium often ties back to the physical world. A hopeless romantic, in the non-metaphorical sense, might use an online dating service to meet someone. They do so with an intent to go out an a date — to a restaurant, movie theatre, or a place where they will interact face-to-face.

But what happens when a digital medium is used to further solidly one’s existence in that medium? What happens when people begin to value online interaction, experience, and life over that of the real world?

According to Susan Wu of Charles River Ventures, virtual goods are the next big business model. Susan makes a compelling business case for virtual goods and even helped spearhead a Virtual Goods Summit to further examine the subject.

 image Virtual goods are the digital items that people purchase in online communities like Facebook and Dogster or in virtual realities like SecondLife. They are the digital flowers that people send to each other on HotorNot, swords that online gamers buy, or even islands that SecondLifers purchase.

Virtual goods are becoming big business and according to Wu, create “real value” for people. Buying virtual items with real money can lead to more hours of entertainment or enjoyment in a virtual world compared to what that same money can buy in reality:

A couple of years ago, I spent 10 real dollars to buy 1 million gold in a game [yes, it was legal and part of a world where real money trade is not prohibited.] My friends mocked me and told me I was throwing money away, so I tried to explain it to them: 1 million gold would give me 20 hours of entertainment. If I were to go to the movies, 10 real dollars would buy me 2 hours of entertainment. Assuming that 1 hour of movie watching entertainment gives me the same personal satisfaction as 2 hours of game playing enjoyment, I would have been willing to pay $50 in exchange for that 1 million of virtual currency. In fact, I felt like I had gotten a bargain paying only $10!

Wu goes on to examine other economic implications, including international arbitrage opportunities (e.g., Chinese “farmers” spending 12-14 hours / day “farming” players to sell to U.S. gamers) and market liquidity that shows promise and will likely continue to increase (e.g., SecondLife’s first millionaire).

From an economic standpoint, there’s less to discuss about the “real value” of virtual goods and the virtual worlds where they exist (disclaimer: I am not an economist and thus cannot seriously speak to economic implications). Perhaps there is a more obvious and important cultural observation regarding these growing digital worlds; the consequences of man’s preference for virtual reality, virtual interaction, and virtual goods over the real world, human interaction, and physical goods.

One of the more significant outcomes of such a preference is habituating individuals to a world where they make the rules. As Plato noted in The Republic (through the mouth of Glaucon), when punishment is absent, man tends to ignore previously adhered to social constructs; virtue is dependent upon the presence of authority. For example, Community Standards, like those in SecondLife, are not strong enough to deter crime. SecondLife’s tagline says it all – “Your World. Your Imagination.”

Yes, the real world has crime too — the difference lies in the fact that not only is real punishment possible but that criminal offenders ultimately do not control the very essence of their fates. In a world of 1’s and 0’s, everyone is their own god; after all it’s “their world.” If someone tries to destroy it, they can create a new one.

In a virtual world (inclusive of everything from SecondLife to message boards), people do more than create their world. They create their very identity. Anonymity means they not only can do whatever they want, they can be whomever they want.

Why bother going to the movie with your friends as Mike Smith when you can stay home and be the digital rock star Kent Ocean? Why spend time in physical reality investing in other people when your virtual world can simply revolve around you, when you can do whatever you want? Why choose to value others when you can have more self-satisfactory “real value”?

Wu is right. The digital world and virtual goods have suddenly not sprung a human tendency for “lazy consumption.” But it does proliferate it. It does entice it. It does make it more appealing.

Matrix BatteryAs virtual reality and the digital world becomes further ingrained into our society, it will be incumbent on us to educate GenerationMe and its counterparts to understand that the virtual and physical world collide. Employers will find indiscreet photos on social networks. Spending 10-hours sitting on your butt everyday has implications on your health. Consistently choosing gaming over activities  in the real world will likely leave you sitting at the lunch table by yourself.

We are not quite at the point of The Matrix. *People cannot plug themselves into the machine and continue to exist. Given the option, I’m sure some would choose it. And that would be a frightening *reality.