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Capitalism thrives in virtual world

Capitalism thrives in virtual world

In the beginning, the online virtual world was a place for action video games such as Grand Theft Auto, or hanging out and chatting. Today, it’s a very different place. Commerce and capitalism have entered the picture.
Miklos Sarvary
“A big change happened when the virtual worlds decided to give ownership to assets (there), which gave rise to an interesting and thriving economy,” says Miklos Sarvary, the new Dean of Executive Education at INSEAD and creator of the school’s campus in a virtual world called Second Life. “People started to develop clothes and lights and chairs and rooms and houses, and because there was ownership, they began to trade, and you have today a thriving economy where people are not just going to chat but also to shop: they go to bars, which actually generates some revenue from those visits. There’s an economy going on. Ownership really created an environment similar to the real world in the sense that people can come up with their own projects and you can find literally any kind of real world activity.”

INSEAD bought its own virtual island in Second Life to set up a virtual campus a year ago. Why an island? “When you are in Second Life, the best way to have a private environment is to buy an island,” says Sarvary. Another parallel with life in the real world: “It cost about $1,000 and we have to pay rent of $100 a month. It’s a pretty good deal in my mind.”

The assets purchased may be ‘virtual’ but the money exchanged to buy them is real, and a virtual banking system handles transactions. “There’s an exchange rate and an internal clearing system. People earning money on Second Life can exchange their online dollars for money in the real world,” he says. “And globally, we are talking about a virtual economy that is about a half a billion dollars a year.”

And this doesn’t count the significant amount of activity happening offline. “For example, if I’m having someone build a house for me offline (for my virtual property) I’m not necessarily paying him or her a transaction fee in the virtual world; I may be paying him offline with regular bank transfers and that kind of revenue wouldn’t be included in the half-billion dollar virtual global economy.” 

INSEAD’s Second Life campus virtually parallels the school’s Europe campus in Fontainebleau. There is a classroom, a bar where people gather, a laboratory for marketing experiments, a conference room, and an area with tents for Outward Bound-type bonding exercises.

“The basic idea (behind the virtual campus) was very simple. We are a big school that attracts a very diverse community. With campuses in three different places and with students coming from all over the world and then going back to work all over the world, it’s very difficult to engage with such a diverse and geographically-distributed community. We regularly hold MBA and Executive MBA sessions where people who are considering applying to the campus can get information. We have used the virtual world to disseminate conferences. So every conference we run, we do so in real time, also feeding it into Second Life, so all the people who couldn’t make it to the conference can still participate in the conference in real-time; they can ask questions, they can hear the speaker, they can see their slides.”

But how does this participation come about? It’s not like traditional online learning. You have to re-create yourself. Literally. “You have to set up your own avatar,” says Sarvary. “You go online and create your own login and select your persona and your name. It’s free.”

Virtual worlds are the zenith of social media. But they are complicated, even once your avatar is set up. You have to log in, navigate your avatar from place to place and therein lies the difficulty for both teachers and students. “This is the biggest hurdle for the adoption of the virtual world,” claims Sarvary. “It takes much more effort, it takes some time before you can really become familiar with the technology. You need training. The students are a little more eager to participate, but the professors are not exactly willing to take risks, so typically this is the biggest barrier to entry. I have become a little bit carried away with my expectations, but have re-adjusted those.”

Visitors to INSEAD’s Second Life campus include people sending their avatars to conferences, or potential, far-away students sending their avatars to the virtual campus to have a look around before applying for courses. It’s certainly cheaper than travel. And in the world of global pandemics, there are other uses. “If Swine Flu breaks out and we have to lock down the campus, this virtual campus might be one of the ways to keep the school going and save the business,” claims Sarvary.

But the virtual business environment isn’t all about education and family fun. “There are issues related to gambling or pornography, problems with hacking and copyright,” admits Sarvary. “But these things are being dealt with, and I don’t think in the near future virtual worlds are going to be less safe of an environment than the traditional internet, which used to have a lot more illegal activities (fraud and so forth); but today it’s a pretty safe place.”

Another potential downside: becoming addicted to life in a virtual world. “This is another area that has its dangers,” admits Sarvary. “But it also has plenty of opportunities, because when you think about it, there are a lot of people who might be excluded from society for a variety of reasons. And in my research I have discovered a lot of genuine friendships in this virtual world between people who would never have been able to meet otherwise.”

There is also potential for economic upside in today’s world where unemployment looms large everywhere: could the virtual world be the new employment frontier? “A lot of jobs have already been created,” says Sarvary. “A lot of designer jobs, all kinds of objects needing to be made. Some people who specialise in designing certain objects like houses or fashions have found jobs in the virtual world. From an economic perspective, the virtual world works as a free market economy where people can trade, and that’s the most important thing.”

Another area of job creation in the virtual world: who will create the technology to keep it all going? There are a lot of questions to be addressed, and that means opportunities. “Is the virtual world going to be a 2-D screen, or will there be a 3-D version?” Sarvary wonders. “Is it going to be on the PC or some sort of more complicated gaming interface? Will you use a joystick or some sort of goggles that allow you to have special vision? At the moment, it’s a bunch of entrepreneurs who are developing these virtual worlds.”

Sarvary remains optimistic about the future of virtual worlds and Second Life. “The advantage of these virtual worlds is that they bring the internet to life. The internet is a very powerful communications medium, but the virtual world really brings it to life.”

To find out more about future virtual events on the INSEAD Second Life campus, click here.

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