Time to Pay Attention to the Virtual Economy

It may seem crazy but virtual real estate is hot business these days. Last week, British businessman Jon Jacobs sold his Neverdie club in the virtual game Entropia for $625,000, a record sale for a virtual property. Jacobs had bought the property in 2005 for $100,000 by mortgaging his real house, a move people labeled as insane at the time. However, looks like Jacobs is having the last laugh. After transforming the property by adding a mall, nightclub, stadium, and a dozen bio-domes into a highly lucrative business where gamers came to buy all kinds of virtual goods, Jacobs began earning a neat $200,000 a year in income. When he decided to sell Club Neverdie, the resulting 550% return on his virtual real estate investment in a short five years sent shockwaves in both the virtual and the physical worlds. It’s doubtful that your house will have that kind of return even in 30 years.

Check out the promotional video for Club Neverdie and judge for yourself if it seems fun and fabulous enough for you to pay to enter and play:

You don’t have to be a player paying the entry fee to a club in Entropia, or buying virtual swords in World of Warcraft to have encountered the virtual economy.  If you’re on Facebook, and brought a birthday cake icon for a friend, you just paid real money for a virtual good. In fact, Facebook members support a $750 million a year virtual economy.

Virtual economies are defined by the sale of virtual goods, like clothes for your avatar. According to the research firm The Inside Network, virtual goods in the US will grow from $1.6 billion in 2010 to $2.1 billion in 2011. That means that the virtual economy is set to increase by 40% in one year, and potentially double in size in just two years! Max Miller recently wrote an great piece on the promising future of the virtual economy on BigThink. Frankly, isn’t it time you became a “virtupreneur” (virtual entrepreneur)?

Jon Jacobs thinks the sale of his club is just the beginning of a very profitable era of virtual goods and services. “As soon as the Facebook generation wake up and embrace virtual reality, we are going to see a giant wave of virtual world millionaires,” he predicts.

For inspiration, check out the top extravagant and outrageous virtual goods listed by Forbes magazine. 

Ayesha and Parag Khanna explore human-technology co-evolution and its implications for society, business and politics at The Hybrid Reality Institute.