BUSINESS

Comparison Shopping

How much does it cost
to sell virtual goods online?

by Pollywog Gardenvale

What's the best way to shop in the virtual world? Are you one who enjoys wandering around the mall, or would you rather do a quick search, find what you want, click to buy it and be done with it?

Although tens of thousands of merchants maintain places of business in Second Life, an increasing number are choosing to list their products in what amounts to a good, old-fashioned online catalog—similar to what you might find on Amazon or eBay. The two primary providers of these robust e-commerce solutions are the ubiquitous SL Exchange and the former SL Boutique (which has been recently reworked and relaunched by The Electric Sheep Company as Shop OnRez). Both of these services use a combination of in-world kiosks and database-driven web apps to list products, process orders, and deliver merchandise in-world to the avatar of your choice.

According to recent figures released by Linden Lab, during the month of October there were 49,156 businesses operating in Second Life. Of these, 3,806 merchants sold more than $200 USD worth of virtual goods. For most people, that’s enough to “make tier” and pay for a high-speed Internet connection. But even more impressive is the fact that 157 in-world merchants sold more than $5,000 USD worth of virtual goods during the month—and the holiday season had not yet begun. That’s a whole lot of poofers.

As far back as 2004, people were wondering if the SL Exchange was taking a giant leap backwards by reverting to the 2D world of HTML and XML to manage in-world transactions, but today the path is clear. Virtual world commerce requires the type of backend processing that already exists in abundance on the 2D Web. Today, 3D viewers are launching browsers, and browsers are launching 3D viewers. It’s only a matter of time before the line between the two worlds fades into the background.

One would think that the sale of virtual goods would be a natural fit for a company—such as eBay—that already has the infrastructure in place. However nearly a year ago, CNET reported that eBay had banned the sale of all virtual goods from the online game community—a market that is estimated to be worth somewhere between $250 million and $880 million a year. However, they excluded Second Life from the ban because, according to an eBay spokesperson, there was a question about “whether Second Life should be regarded as a game.” A recent “Second Life” search on eBay produced a listing of 176 items for sale or auction, including land, how-to books, Lindens, and assorted gadgets—all being offered for U.S. dollars.

A recent post on the SL Exchange forum estimates the number of participating merchants to be “well over 3,000.” The actual number of items currently offered for sale in the SL Exchange Marketplace is 258,664. Our sampling of Shop OnRez vendors during the last week of November, revealed there to be 4,221 stores selling a total of 119,082 items. SL Exchange offers shopping with delivery, real estate listings, and a currency exchange. Although they do not charge merchants for a standard listing on the site, they do charge extra for enhancements such as bold-face text, or a border. SL Exchange charges from 3%–5% commission on each sale, and also charges a monthly fee of L$50 for each merchant hosting a “Magic Box” that is used to manage inventory items. (This fee kicks in after a 60-day grace period) SL Exchange merchants can purchase banner ads on the site and can also pay extra to have a listing on the Home page.

Although this sounds like a better deal than paying rent on a store in a mall, many merchants maintain both a catalog “storefront” and an actual showroom where people can examine the merchandise.

Shop OnRez also provides complete order processing and fulfillment services, with the additional convenience of being available from the OnRez Viewer. Unlike the SL Exchange, Shop OnRez listings are free and they do not take a commission on sales. Nor do they charge an administrative fee for the use of the “Dropbox.” They plan to implement a charge for search placement and will soon announce an advertising program. In the larger picture, The Electric Sheep Company plans to eventually offer Shop OnRez to sellers of virtual goods in other worlds—which may come as good news to some of those merchants who were given the boot by eBay last year.