Economics 101 for Technology Investors

I usually stay away from the more tough discussions on the land speculation in the Second Life® world. The major reason for that is truly believing that land, in Second Life, is a pretty good example of a free market, where demand and supply are two key factors, but the ability to set your own price and reap a profit due to your selling skills and ability to manipulate the market is way more important. This is the good, old, capitalist free market at play. And, from my point of view, this is exactly how it should be.

Yesterday morning I got to attend a 2-day international conference on Venture Capital, where I happened to be one of the very minor speakers on pitching Second Life as a valid investment opportunity, but being realistic about its advantages and pitfalls. The audience were all veteran businesspersons, I would not be able to get away making promises — I would need to present statistics, metrics, and how to get a return on investment. I believe I made a serious effort to explain that any business in Second Life is risky — and that anyone claiming otherwise is simply a fool, an ignorant, or a plain liar.

Of course I had seen the recent announcement on Linden Lab®’s plan to drop the cost of entry for new islands — both on the auctions and for private islands. I was so glad! Finally, nobody could complain about a decrease on the pricing. Everybody wishing to buy an island now to create a new project in the Second Life environment, would be able to do so at a much reduced investment. These were good news!

The keynote speaker at the conference used to be a CEO of a major financial group, and I had the opportunity to listen to him and pay very close attention to the points he was making. He is someone who is not afraid to announce bad news and speak bluntly. He was never famous for painting rosy scenarios. When he was still CEO, he couldn’t possible understand what people meant with “strategic investments”. For him, there are just profitable investments — people would be thrown out of his office if they mixed “strategic” and “investment” on the same sentence. And he was not unafraid to quote Darwin to the audience and applying it to businesses: the economy is a beast with ever-changing conditions, and the rate of change is accelerating. There were 10 times more technological developments in the past 10 years than in the past 100. But it’s exponential: in the past 100 years, there were 100 times more developments than in the past 10,000 years. This is not expected to change.

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