In order to run a business on Second Life, one needs to have a general understanding of the SL economy. The currency in Second Life is referred to as Linden Dollars. Linden Labs makes the economy independent of pricing by freezing the exchange rate on a market-based currency exchange with US dollars and other international monetary currencies. Linden Labs reports that the Second Life economy generated about 3.6 million dollars in the month of September 2005. The 2006 Second Life gross domestic product (GDP) was 64 million US dollars. Estimates of the 2007 GDP are between 500 million and 600 million US dollars. If you would consider Second Life a country of its own, that would rank it at 166 just below Grenada. Second Life has a larger GDP that 20 other countries. The Second Life economy is no joke. The estimated economic activity in 2007 will create about 550 million US dollars. Money can definitely be made on Second Life.

Linden Labs has a very intersting exchange system set up. They call it LindenX. To control LindenX Linden Labs has set up “circuit breakers.” They are market mechanisms that basically freeze the exchange levels if market acts in certain ways. If the average exchange rate in any given day increases or decreases more that 10% the Exchange market freezes for one hour. 20% for two hours. 30% until noon of the next day. These circuit breakers help keep the exchange rate stable. One thing to look out for is Linden Labs handling of monetary policy in Second Life. Linden Labs maintains a currency peg of about L$270 for $1. This is similar to what the Chinese do with Yuan. This practice could be argued to inhibit change in value. Currently, the exchange rate is US$1.00 US dollar for L$267. L$51 million changed hands today.

The Second Life market is a free market or laissez-faire economy. There are two types of costs to to be taken into account when doing business in Second Life: Membership plans and Virtual Land Use Fees (Tier Fee). In order to own land in Second Life, a Premium membership is required. A Premium account comes with advanced technical support and a 512m2 parcel (if you donate 512m2 to a group). These issues are really insignificant compared to the amount of space. If the Penn State Library were to move onto Second Life they would need at least a 1/4 Region or more. An entire region costs $1675 US dollars and an additional $195 per month in Tier fees.

From this brief economic analysis of Second Life, one can assume that the Second Life economy is growing at a stable rate, and under the eyes of Linden labs, the exchange rate between Linden dollars and US dollars has stayed the same over the past few years. This makes it a safe environment for businesses. The facts about increasing annual GDP also prove that profits and revenues are possible.