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Making a Metaverse That Matters with James Au
32 Plays3 days ago
This episode features host Greg and Lewis Ward discussing the true nature of virtual worlds with Wagner James Au, author of Making a Metaverse That Matters, exploring the core design, economic, and community philosophies of successful platforms.
Summary
The discussion defines the metaverse as a vast, immersive virtual world with five core features, including highly customizable avatars and a link to the real-world economy . Au argues that to succeed, a platform must be fun immediately in a multiplayer context, operating as a "third space" where socialization is easy . He contends that Mark Zuckerberg's approach damaged the ideal of the metaverse by focusing too much on hardware and ignoring crucial lessons on community and regulation . The history of Second Life (SL) serves as a critical case study, showing that while strong community allows a platform to survive economic crises and bad onboarding, financial stability requires tightly regulated markets, learned through scandals like the implosion of virtual banks and the ban on unregulated gambling . Ultimately, the key to a thriving metaverse is prioritizing community, fostering diversity, and making creation easy .
Key Points
Core Metaverse Definition
- A true metaverse is defined by Immersiveness, Customization (avatars/tools), Scale (millions of people), a Real-World Economy Link, and Off-World Tech Integration (for accessibility) .
Identity and Design
- Avatars and Identity (05:51): Highly customizable avatars are critical for users to experiment with identity and personality . The Proteus Effect shows that an appealing avatar can boost real-world confidence.
- The "Fun First" Rule (15:40): Metaverse experiences must be fun immediately in a multiplayer setting (the Third Space concept) . This is why Roblox and Fortnite succeed.
- Meta's Misstep (10:26): Mark Zuckerberg caused "tremendous damage" to the concept by defining it around the Quest headset and ignoring lessons on managing toxic behavior, like the initial sexual harassment incidents on Horizon Worlds .
Economics and Stability
- Community Precedes Commerce (29:44): Platforms must succeed as communities first. Focusing only on profit (the "Cryptoverse" issue) causes virtual worlds to fail .
- Second Life's Stability (22:31): SL's active user base is stable at 600,000. The paradox is that if a user survives the long onboarding, they "never leave" due to the community.
- Regulation is Necessary (40:53): SL's banking and gambling scandals forced Linden Lab to impose tight regulation . This proves that a tightly regulated economy is essential for user trust and stability.
Timestamps
- 03:30 The Five Core Features of the Metaverse
- 05:51 Avatars and the "Proteus Effect"
- 10:26 Why Meta Damaged the Metaverse Concept
- 15:40 The Critical Rule: Why Metaverse Must Be Fun First
- 22:31 Second Life's Paradox: Why users never leave
References
Making a Metaverse That Matters
Wagner James Au
Lewis Ward
Greg Posner
Check out Player Driven
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Transcript
Introduction and Impact of Digital Existence
00:00:00
Speaker
Welcome to Player Driven, Greg here. We all live part of our lives online, but what happens when the virtual world connects directly to your bank account, your social life, and even your real world confidence?
Defining a Meaningful Metaverse
00:00:11
Speaker
Today we're driving to the future of digital existence with author James Au. We're defining what a metaverse that matters truly is, moving past the big tech buzzwords to uncover the essential ingredients from the freedom of customizable avatars and the power of user-controlled economies to the crucial lessons learned from early virtual world disasters.
00:00:31
Speaker
We're joined by Lewis Ward today and we're to breaking down. If you want to understand the next chapter of the internet and how it impacts you, stick around. Let's get started and enjoy this episode.
00:00:46
Speaker
Good morning, good afternoon. Welcome to Player Driven. Greg here.
Guest Introductions: James Au and Lewis Ward
00:00:50
Speaker
Today we have a really cool episode where we're going to dive into what the meaning of the metaverse is and talking just in details on what we're going to see. Today I am joined by James Au.
00:01:00
Speaker
He is an author and has worked for companies such as Linden Lab. Most recently he has written the book Making a Metaverse That Matters, which we'll be discussing today. I'm excited to dive into it. I'm also joined by Lewis Ward, who's going to help me with this conversation and ask much more brighter questions than I can. Before we jump too far into this, James, you want to introduce yourself and let us know a little bit about yourself?
James Au's Background and Industry Experience
00:01:22
Speaker
Yeah. Yeah. So my full name is Wagner James Al. I usually go by James, but Wagner and Al is fine as well. But yeah, I've been working roughly in the game industry, technology industry for a little bit over 20 years and kind of had many many hats. I've been ah on the full journalism side for GigaOM and Wired And then, you know, as we'll discuss, worked for Lindelab as their embedded journalist in their virtual world of Second Life and have worked with other companies on advising them on um launching virtual worlds and you're launching full-fledged metaverse platforms. So, yeah, it's been really interesting.
00:02:00
Speaker
Yeah, I'm excited to dive into that. But before we do too much, Louis, you want to say hi? Yeah, great to be back, Greg, and great to have James here. I wore a Hawaiian shirt in his honor. um And yeah, looking forward to the discussion because I know he's done a lot of interesting things related to all things metaverse and we'll go through you know exactly what the metaverse means, good and bad these days. But ah yeah, happy to be here and looking forward to this.
Balancing Real and Virtual Worlds
00:02:24
Speaker
Cool. And James, you know, I was looking at your your portfolio, your resume and all this stuff on your LinkedIn, and it was so cool to tell a story. Like, I'm trying to determine how you got into the industry, and it's a very cool story. But before we dive too deep into that, i mean, you grew up in Honolulu, Hawaii. Didn't you have better things to do as a teen than diving into the cyberspace world?
00:02:42
Speaker
Yeah, well, actually, it's called Kailua, small town on the beach, and so would go surfing. or play beach volleyball in the day. But, you know, I love Hawaii and it's always home.
00:02:54
Speaker
And the thing is, it is paradise, but you do want to, you think about other ideas, opportunities, places to go. And as a hardcore geek, I would, you know, be really wanting to see what the latest game is. And so, you know, you you enjoy Hawaii in all its splendor in the daytime, and then you wait till it gets dark.
00:03:15
Speaker
when you know you get your graphic display working really well. And yeah, just try to mix both, you know just the best of the real world, best of the virtual world.
Core Features of Metaverse Platforms
00:03:25
Speaker
So I read, you're kind enough to send me some chapters from your latest book, Making a Metaverse That Matters, and thank you for writing it it. It was a good read and I'm enjoying that. um In there, you say there are over a half a billion regular metaverse users. um You cite Roblox, Minecraft, and Fortnite as being some big examples.
00:03:44
Speaker
And you wrote that them and some other metaverse platforms or social gaming platforms will talk about share quote, five core features that that are integral and unique to them and that make them often better and different than the 2D web experiences we've all kind of grown up with. So I guess my first question for you is, you know what are those five points that the metaverse type experiences deliver that are yeah you know hopefully different and better than than the virtual experiences we many of us have often had or are online experiences least?
Exploring Identity through Avatars
00:04:13
Speaker
Yeah, so the metaverse is vast virtual world. It's highly immersive, which could mean VR headset or no VR headset. It could just be full-fledged 3D.
00:04:24
Speaker
So it's either 3D on your screen or on your headset. But mostly it's going to be you know on the on ah ah a flat screen, like on a mobile or or your desktop and so on console.
00:04:36
Speaker
It has highly customizable avatars and creation tools, which is very important. it it has the capacity to contain many millions of people so one advantage of that is you can meet people from all over the world and that's one thing that makes the metaverse platform powerful and it's connected to the uh real world economy and uh uh off off world tech or non-virtual world technology so in practical terms that means it's integrated with uh
00:05:08
Speaker
The virtual currency, typically of virtual currency, is connected to the real world economy in the sense that you can cash out ah your virtual currency. In other words, you can make an income from the the content that you create within the virtual world space.
00:05:23
Speaker
And integrated with real world technology is that, for example, and this is very important, a lot of people who use metaverse platforms are are physically disabled for for many reasons and are able to connect for example there uh there's technology now you can connect your brain to a virtual world and and control it there or if you're disabled you know you can still have ways of connecting within the virtual world and you know that becomes your social channel in a lot of ways um so yeah those are the the five things and that's taken directly from snow crash the novel because
00:06:02
Speaker
That really inspired the whole metaverse wave and it it it actually envisioned the whole metaverse.
Critique of Zuckerberg's Metaverse Vision
00:06:08
Speaker
And unfortunately, Mark Zuckerberg and some other folks within the tech industry sort of forgot that that's what we were all trying to build. And people like Tim Sweeney have been trying to build since the early 90s.
00:06:21
Speaker
Awesome. Something that you were talking about that it really kind of made me think a little bit differently was the concept of the avatars. And you just mentioned it again and how important it plays of a role in creating a universe like this because of the accessibility features that it provides, right? If you're too realistic, people are going to still end up being them shy selves. And i think I think there was a study mentioned how it shows that most people, if they are shy,
00:06:45
Speaker
still happen to be shy when they are in the metaverse. Like those qualities are are transferring over and i was wondering if you could talk a little just more about that and maybe explain it so so our audience can get a better idea of what I mean by that.
00:06:58
Speaker
Well, and on the the reverse side there's something called the Proteus effect where if you have an attractive avatar, and that doesn't necessarily mean hyper-realistic, but just a really cool, appealing avatar, you show more confidence in in the real world and in the virtual world.
00:07:14
Speaker
But really, the thing about avatars, and i say that as part of the definition, highly customizable, is to your point, a lot of people go into a virtual world space and you are engaging with millions of people.
00:07:27
Speaker
that are strangers. And so, you know, people are uncomfortable with expressing them who they are in real life often. And so they want to experiment with what their identity is and how they interact with other people in the virtual space.
00:07:42
Speaker
And often too, they're very young, you know, ah preteen teenagers, and they're still figuring out who they are. And so they, they need a ah space to play with their personality and express their personality. And they're just experimenting. And that's,
00:07:56
Speaker
that's an also That's an also important thing. And that's you might remember um Zuckerberg created an avatar that looked exactly like him. And that to me was a perfect illustration of he has no idea what the F he's doing with the metaverse because – Didn't go over very well. No, I mean, and it's in Snow Crash that there are diverse avatars. There's a dragon. There's a 20-foot penis. There's just all kinds of avatars. And it's not simply because people are having fun and playing.
00:08:27
Speaker
It's also they're expressing their personality they're figuring out who they want to be in real life and and well how they want to express themselves. So, yeah, very important. Yeah. My daughter does that in Roblox all the time. I mean, I'm, I'm the one spending the money for her new outfits or whatever, which is, you know, it's got, it's got a certain look you need to do as a, as a Roblox avatar, but still there's ah a lot of customization experimentation with someone in that age group.
00:08:49
Speaker
Yeah. yeah It's funny. We, We've been talking with some indie studios that develop Roblox games and something that's happening a lot now for
Success Stories: Roblox and Fortnite's Engaging Experiences
00:08:56
Speaker
Roblox. They're making quick games, seeing what people like, what people don't like. And it sounds like it's the same thing in the metaverse. One of the stories that you told in there, I think it was about someone that was dancing and was practicing their dance moves. And you know it's one of these things that if you're shy, you can practice in the metaverse under a different disguise, for lack of better words, right? ahead And see how people react to it and maybe give you that confidence to go out and do something, right? I can see that positive effect ah and kind of A-B testing social...
00:09:20
Speaker
Yeah. Social cues and in there. Yeah. Yeah. And like I've seen Roblox, for example, compared with Steam or they'll just say it's a game platform. And the game industry is sort of confused why Roblox is really huge. And I'm like pulling my hair out. It's because it's a metaverse platform. it It's not only you're able to create interactive experiences, but you have hundreds of millions of people. There's 360 million monthly active users of Roblox.
00:09:48
Speaker
And also you have all this high degree of customized customizability. So unlike Steam where you create a game and if you're to update it, it's a whole arduous process like Roblox. You can adjust it dynamically on the fly and also you can adjust it based on literally millions of people interacting with it and get really interesting interactivity and then improvements that you can do on the fly. And yeah, it's you know that's all part of the vision of what we originally read about in Snow Crash.
00:10:19
Speaker
You mentioned meta a few times, so maybe I'll ask this one. I think you throw a little bit of shade at meta for confusing people about what the metaverse is and isn't. And I guess you know one of the questions I would have is, what what is the, and you mentioned Zuckerberg's avatar and things like that, and we know how that didn't go over very well when it was introduced. But can you give me a little more color on, you know, from your perspective, you know, with Horizon Worlds or some of the other things that they have done, which are pretty metaversy. But overall, maybe it's the XR piece. Maybe it's something else that i'm that I'm not grasping. But I got the sense, as far as I've read through your book so far, that you think Zuckerberg has, you know, done a disservice and in at least some respects to or damaged the metaverse concept to some extent. yeah
00:11:02
Speaker
I'd like some more color on that. Oh, Zuckerberg has done tremendous damage to the metaverse as a concept and a vision and also really as an ideal. And, you know, now people think the metaverse, if anyone thinks about it at all, is it's something that meta wants to build as opposed to being this this vision of bringing people together of all races, all nationalities together in the same virtual world space.
00:11:27
Speaker
It's immersive, so you feel a ah deeper connection to them than in social media. And also for people who are disabled, like I mentioned, a lot of LGBT people are in metaverse platforms, like in VR chat.
00:11:40
Speaker
I did a survey, it's upwards of like 25%. So you have this space that has all this potential. Disabled veterans, lot of military veterans go and they interact and they socialize with fellow veterans. And so there's this whole...
00:11:55
Speaker
this whole vision that I've seen play out in in real life, in real life in the virtual world, that in Second Life and other platforms like that, that totally ignored by meta. Basically, Zuckerberg defined his metaverse vision based on, well, we bought the Oculus headset, we turned it into the Quest headset, and they they thought that would be like the next smartphone.
00:12:19
Speaker
And so they kind of threw off you threw throughout this term metaverse without really understanding it and like i i quote internally a survey of people within meta say most of them say they don't think even zuckerberg has explained the metaverse to them as as employees and so it's very uh it's very convoluted and so yeah to your point of horizon world they launched that but i go through in the In the book, they basically ignored most of the lessons from virtual world developers that around, for example, on community, like one of the very first things that happened was a ah a female journalist got sexually assaulted, like her avatar was dry humped from all directions by various people. And
00:13:09
Speaker
There was a guy at Linden Lab, the creator of Second Life, and he he joined Meta, and he was telling the company, this is the first thing that's going to happen, so you have to plan around that, and they ignored him. And so they sort of ignored all of the wisdom of people from Linden Lab. Also, John Carmack was there.
00:13:26
Speaker
As you know, ah he's been trying to build a metaverse since the early 90s, and they all got sidelined, and so they've been making mistake after mistake, and... yeah they're They're going in other weird directions now. They're kind of saying, well, now the metaverse is recreating your real-life living room.
00:13:44
Speaker
and yeah It's just very haphazard. AI glasses are laing yeah the latest thing. The XR headset, you again, i have no idea why they think they can get around the the creeper geek aspect, the you know glass hole issue. of yeah That's already happening. People are wearing it. Well, it's it's dudes wearing it.
00:14:06
Speaker
With a camera on so they can creep on women. And, you know that social aspect's never been addressed. And you can't just assume it's going to go away because you're meta. But I really think he's in that big of a bubble that he doesn't realize that these issues still exist.
00:14:24
Speaker
Yeah, we did a a call with Sonya Haskins from, i mean, a player driven with Sonya Haskins who does AWE and she was getting sexually harassed in these, i mean, i can't say it's exclusive to Meta, but very early on i think it was echo arena i could have gotten the game wrong it was one of these early hardcore games where it was probably 95 young males whatever and she was telling meta this is really bad and if someone did this you in you in a grocery store you would be arrested for assault or whatever and they kind of listened to her but uh anyway yeah it's not just meta but yeah there is that uh that
00:15:02
Speaker
you know Some of the distance that you get from the metaverse in some ways you make you feel makes you feel that you're insulated also, or at least there's that risk of if there aren't if there aren't systems in place to prevent certain things from happening, or least if there aren't norms in that community already established, then some people go to their worst instincts, and if nobody stops them, they'll just keep doing it.
00:15:23
Speaker
I mean VRChat has a karmic system where you have more and more access to the virtual world based on how you how long you are in there and your behavior. So people don't even like – you can ignore the hardcore – noobs who just joined.
00:15:40
Speaker
And you have to actually earn – you have to prove that you're not an a-hole to to be able to have full interactivity into VRChat. So yeah, there's ways of doing that. But yeah, you have to think about that first.
00:15:52
Speaker
So you covered Roblox in Chapter 4 and Fortnite UEFN in Chapter 5. What's a key thing that Roblox and Fortnite, what they have done right from a metaverse design and live service platform that you've seen?
00:16:04
Speaker
Yeah, i the the big thing is they're very fun immediately in a multiplayer experience. And so they're very cross-platform. So they, you know, like with Roblox, you can instantly jump in on a phone,
00:16:18
Speaker
And also with Fortnite. And so you can bring in your friends, your real life friends, your real life family members. And so it's, yeah, it's just, you have this fun game experience that you instantly jump into. And um I blame Zuckerberg again with this is, is sort of proposing the metaverse as kind of this very imposing, like, oh, you're going to go shopping and you're going meetings in there.
00:16:43
Speaker
you know i take I talk about this with Second Life. they We kind of went that direction with launching Second Life is talking about the real-world aspects, the real you like the real-life applications, without really getting the fun part right because it's got to be fun immediately to the vast majority of people who are there to to play games, to socialize lightly. So, yeah, they both got that right in their own kind of demographics. So, like, Roblox is targeting at least to start a younger game Player base and Fortnite, you know you go in and you've got the Battle Royale and it's immediately challenging. fun That's more for you know teens and young 20s. But yeah, get that immediately fun and a multiplayer aspect. Just jump in.
00:17:25
Speaker
then we can Then we can do the real life business applications yeah a few years down the line. Yeah, I think lot of truth to that and that there's, if you have it so open-ended like Second Life that people, you know, show up at the bus terminal as it were and they're kind of bewildered with what to do next. And I guess yeah there is some, at least for younger people in particular, and I find this true of socialization generally, like if you just go down, if you're just hanging out with your...
00:17:52
Speaker
friends doing nothing, it's a little bit more awkward than if you're doing something together, like playing a game or watching a movie or 20 other things. It doesn't almost matter what it is. As long as there's some other thing that you're kind of doing on the side, the socialization flows a lot more easily. And I think- exactly. i mean, it's a, the metaverse is a third space that happens to be online, you know, third space, the sociological concept, like there's a bar,
00:18:17
Speaker
a neighborhood bar or a park, a place where you are not, you know, your work self or your home self, you're kind of in this place where you can socialize broadly with a lot of people.
00:18:27
Speaker
And, you know, you go to a bar and there's games to play or, you know, in the park, there's Frisbee and so on. So, yeah, you got go think of it that way.
00:18:38
Speaker
um So going back to Second Life.
Second Life's Early Success and Diverse User Base
00:18:40
Speaker
So I know you covered that in Chapter 2, and you were the embedded reporter there for many years and you know know a ton about that stuff. So I kind of want to pick your brain on this. So we'll go down the rabbit hole, if we will, on Second Life, which is one of these smaller metaverses. But it was also early and very advanced and continues to be very advanced and from my perspective. And you know it's been around for 22 plus years, so they've done some things right. Um, but if people read the chapter on second life, do you have a point or two about, you know, what made it great or exciting early on and perhaps, you know, what has since happened to it from your perspective that, uh, maybe they'll get a better sense of if they pick up your book.
00:19:15
Speaker
Yeah. Well, I mean, what went right is it it was the first platform to reach mainstream awareness that really was trying to capture the whole metaverse experience. Everything I mentioned of, you know,
00:19:27
Speaker
Highly customizable avatars, creation tools you could build immediately. This is even before Minecraft. You could actually just construct a 3D building, a castle or a spaceship or whatever. And then there's physics and there's scripting so you can actually create, make it interactive. And that's the first like actual platform to show all of that and show what was possible and immediately got...
00:19:52
Speaker
people excited from all walks of life. Like as a reporter, I met people like who are artists and academics and yeah people who are not only gamers. They were seeing this. Well, ah you know, most of them had red snow crashed. So they they saw where this was going.
00:20:06
Speaker
And so there, know, there's incredible lot of energy and buzz. And that's why we saw kind of like the metaverse hype wave of a few years ago, like a lot of companies started putting up headquarters and,
00:20:19
Speaker
creating marketing experiences like American apparel and Coca-Cola and so on. So that's what they got right is really capturing the vision and showing there is an interest in it. And then I go into the the flip side of what they didn't get right, at least to start. And, you know, for example, the, the whole thing I was talking about, whether this is a game or not, like that's like, if you, if you talk about the Second Life user community,
00:20:47
Speaker
is second life a game is still this philosophical question that generates a huge amount of arguments and they go by citizens, right? Their preferred term residents. Yeah. residents Yeah. Which again, yeah, I think it's a categorical mistake and it's, uh, you know, I love Philip Rosedale. He's brilliant.
00:21:05
Speaker
ah he, you know, the, ah the, the lead founder of of second life, um, he was never a gamer. He's not a gamer. So he, he wanted it to be like a, a online burning man. Cause he was a, he's a big burning man guy.
00:21:18
Speaker
and and, you know, and I've talked to Philip on that. I think he agrees now. It's like, Philip, yeah, burning man is really cool, but only 50,000 people go to burning man. And it tends to be a fairly wealthy folks. And it's like, You're not going to go to whole diverse group of people to go into this thing if you're going for that Burning Man thing as opposed to make it a fun game experience to begin with. And then you'll have – like with Minecraft. um Minecraft launched a few years after Second Life and because it was a fun game experience to start with.
00:21:50
Speaker
Now you have schools using it. You have communities making these really amazing projects like they rebuild like game the Game of Thrones world or New York City or things like that. And so there's art projects and education projects and science projects that are going on, but it was it had to succeed as a game first.
00:22:08
Speaker
I, you know, I think there's gonna be people listening to this that are surprised that Second Life is still even around and being played, right? I remember going through it in high school when it first launched and like that, oh my God moment. And something I took note of before the call is I love you talked about design and philosophy and some of the problems that they have or that you saw. And you just mentioned two more, right? Is it a game, right? You start with that first onboarding experience and like, all right, what do I do now? And then and then what what's the experience? And then also you said long onboarding. You got to download the executable. You got to install it. You got to set up a profile. There's like a lot of this. And Philip, great dude. i We spoke to him and clearly knows what he's doing, but not a gamer. Like what worked about this and why is it still here?
00:22:55
Speaker
Well, that was that's kind of the hilarious paradox is it is such a huge challenging onboarding experience. But if you get past the first three hours, you never leave. Like there's a community that the active user base is still about 600,000, which is it. Second Life is about as popular now as it was in 2006, 2008, when it was on the TV show, The Office, and people were making movies about it and so on. But the user base hasn't gone away. and It's still often it's the same people. Like I've known people in Second Life.
00:23:29
Speaker
that are there, they' they've been there around 20 years. And so, you know, I think Philip said the average user is there 14 years or something like that. Yeah. yeah So, yeah so once you get past all those hurdles, I think it is just because the main way you get past all of those onboarding hurdles is you meet someone in Second Life and they help you out. And so you immediately make a friend and then that friend leads to other friends.
00:23:54
Speaker
So if you're one of the lucky few who could actually meet someone who engages with you and then they start taking you around and showing you everything, like it's ridiculously deep. the ah People don't know this Second Life is the largest contiguous virtual world ah of any like virtual world that you're like most of them, you have us loading screens and so on. Like you can walk from one part of Second Life to the other, it would take you days and days because it's it's about the size of Los Angeles right now.
00:24:26
Speaker
And so, yeah, it still has this kind of amazing quality. just so deep and rich. it's just that you have to get past this onboard experience. They're working on it now. they They launched, because now it's finally on mobile and they launched the first on-wrapping experience, has some game gamification. So they're trying to address it that way. They also launched a streaming service so it launches on the web and it's still ah it's a high res experience so it's a good experience immediately so yeah they're playing around with that and yeah I'm i'm talking with them about you know improving that even more just to get it like immediately fun and immediately amazing so people see all of the incredible things that are in there
00:25:07
Speaker
That's super cool. I had no idea it came out on mobile now. i feel like that's something like nostalgic. Get that in front of people. like Everyone's going remember that episode of The Office with Dwight. like who Yeah.
00:25:19
Speaker
a scandal that i remember was big news at the time. I think it was in 2007. I think you said, you know, you wrote for Wired. I know Wired covered it. MIT covered NBC News, even the Sydney, Australia Morning Herald. And this was about a bank called Gingl Financial, which collected $750,000 of of us dollars, which i think was like million Linden dollars.
00:25:40
Speaker
um circa 2006 2007 and then it imploded and it basically wiped out all the money that those second life residents had put in the bank and then it got covered as like a financial scandal in a virtual world um so i think the fbi eventually came sniffing around looking for online fraud so if i can since you're the man can you give a quick a quick rewind on what gingko financial was what happened to it, and then what was the fallout for the rest of the rest of the community after banks like it went away.
Risks of Unregulated Virtual Economies
00:26:13
Speaker
Yeah. And this is the flip side to wanting to create a Burning Man ideal, a complete open society. Like if you make it as free as possible, you're going to have bad actors.
00:26:24
Speaker
And the thing that was, or one of the things i was innovated about Second Life is they made they made it possible to convert Linden dollars, that's the virtual currency, into U.S. s dollars. You could sell it Originally, it was further on the open market, so you just go to a website like a bunch of community members created websites where you could sell it.
00:26:42
Speaker
Eventually, Linden Lab took that over called it the Lindex, where you would sell it so they could control the supply Linden dollars. But because it's a completely open platform, you know people some people said, well, okay, well, then we're going to have gambling. We're going to have casinos because you can sell the Linden dollars for US dollars so what it actually is online gambling.
00:27:03
Speaker
And then, yeah, you had – unregulated banks like Ginkgo popping up where Ginkgo kind of, I don't want to say it was a a Ponzi scheme, but like it was offering high returns on investment, as I recall. And, you know, eventually there was like a run on the bank. Like you see in, ah what do you call it? Like, um it's a wonderful life. You know, like there's a whole line of people that Jimmy Stewart watching, but they'll In Giko's case, it was like robots and supermodels and furries and so on trying to get their money out.
00:27:36
Speaker
um But yeah, that was kind of one of the first hard lessons Linden Lab had to learn is like if you have this open world, you're going to have these controversies. So yeah, they eventually said, look, no, you can't open a bank in Second Life.
00:27:52
Speaker
unless you actually are a banker, you are licensed to have a bank in real life as well. And yeah, so those, those all went away and really, you know, for, for most people, they, they play it as a social game.
00:28:05
Speaker
And so, you know, I don't think it caused a long-term damage. It definitely caused unrest for a few months, but you know, people, it didn't really impede what people were there to do, which is, you know, go to you know, fashion events and nightclubs or, you know, build, uh,
00:28:22
Speaker
steampunk societies and so on. So yeah, it's kind of where they're at now. Yeah. i mean, um so yeah, Lyndon labs did a banking policy.
00:28:33
Speaker
If you had any kind of return on investment, you had to have an an IRL bank charter. I think there were like 20, 30 banks. So it wasn't like just, just Ginkgo financial. There were a bunch of them that kind of appeared and then they disappeared once they put in that policy because, um,
00:28:48
Speaker
none of the banks in there had a real world bank charter. If there was a real bank in there, they left, whatever. So it kind of disappeared. I guess I'm wondering, um you know, did that run on the bank or the disappearance of banks?
00:29:00
Speaker
um It didn't sound like you said, like it caused like a big recession or like tons of people left that it was kind of a fringy thing to begin with. But I'm just trying to understand, you know, obviously in the real world, and we've talked about real world connections already,
00:29:14
Speaker
If all of the banks in the real world, including our bank disappeared, I think we would notice it, right? And so I guess I'm wondering in the virtual environment of of Second Life, you know what was the response from community members or or was there just a very little response basically once those types of companies, financial institutions disappeared?
00:29:34
Speaker
Yeah, I think it was more of a collective shrug because there was already an established community of people who were already there to interact with each other because it is a community, people that they actually know each other in Second Life and they end up meeting in the real life. And there was a ah Second Life convention, so people would actually go to Chicago or New York or San Francisco to meet people. So you know there was already that strong community. And that's one of the important lessons I try to impart is the metaverse platforms have to succeed as communities first.
00:30:06
Speaker
before you impose the financial
Community Building in Metaverse Platforms
00:30:08
Speaker
stuff. Because if you put the financial stuff there, people ah end up, they're there to make money. That's kind of been the problem with the, I call it the cryptoverse. So it's a virtual worlds that are linked to NFTs or cryptocurrency. None of them have really taken off because of this problem. It's like, if you are saying that you're there with the idea, like in Decentraland, that your property is going to be super valuable at some point, and you can sell it off.
00:30:34
Speaker
then people are only there for the profit motive. They're not there to hang out with other people and meet other people and make friends and work on creative projects. And so, yeah, they've kind of gone nowhere because of that, because there's no, you know, people are already there for the wrong reasons, so to speak. Like you can have financial stuff happen later. And there's a lot of people Second Life who merchants who make high quality 3D content and they make a really good living. Like they, you know,
00:31:01
Speaker
The high-end folks will make literally millions of dollars on virtual fashion and other items like that. But what Second Life did right was getting the community there first and making sure people really wanted to be there to hang out with each other and to to be friends with you each other and kind of have some more of community. community Yeah, that's a great point. And I know I was watching a GDC vault video about a game designer. I think he was doing All Beyond Online. when I might be sure that's still around also.
00:31:30
Speaker
Matt, somebody or other from something interactive. But anyway, I was watching the video and he was talking about intrinsic and extrinsic motivations, which is like the extrinsic is stuff like the economy. Like you may need to do it. You may need to grind in the game. But what you really want to do in the game or the pleasure you get from it is like intrinsic to you, right? You have fun.
00:31:50
Speaker
You socialize. You have other things that draw you there that you may do the grind, but you don't do the game in order to do the grind. And we're talking about Decentraland, not something I know a ton of about, but i I know what it is. yeah But if all it is is external stuff and you if you do these three things, you're going to make some money, but there's nothing in it which is fun for the individual or positive or social or something to them that gives them you know some reason to keep coming back, none of the economy stuff matters. Is that is that a fair assessment of what I'm totally. I mean, that was a big buzzword a few years ago is play to win with this idea that people would play so they could earn cryptocurrency or NFTs. And like none of these things took off. Gamers –
00:32:33
Speaker
themselves hated it like they feel like they're just you're just trying to monetize me you know you didn't call it a you didn't call it a ponzi scheme but axi infinity was called a ponzi scheme yeah so anyway come back around on you know whether whether ginkgo that's a notable one yeah like you had i post about that on my blog you like folks in the philippines that are literally poor in real life but they're playing this game on mobile because you know they can make some money off of it and it's like you don't want that you want people to be you know hanging out with each other, meet each other. like i would like to be friends with someone from the Philippines and know about them and they know about me. and
00:33:08
Speaker
you know yeah All that goes away if you have just this big financial imposition on the whole experience. Yeah, we have to talk about it with the studios that we work with, right? At the end of the day, a game needs to be fun. Someone's not going to come back to your game if it's not fun. and when If your game is fun, you'll build a community and that community will keep coming to your game. At some point, that community will start spending money in your game. And it's kind of all cycle. It comes down to, is the game fun at the end of the day, right? And yes, people can make it fun, but you need to build a fun game for people to come.
00:33:37
Speaker
I would even say just engaged or addictive, right? Because I think we i think another another one we did with Professor Eric Zimmerman and I said was, what was that was i game? at Diner Dash. Was that a fun game? and And he was like, well, it's almost like you need them more to keep wanting to come back to interact with it. It may not necessarily be fun. Fun is fun is great. But if they have another motivation that brings them back fulfillment, satisfaction, grinding, whatever it is that they find, mastery of something, whatever it is that brings them back, as long as you have that hook and you know what that hook is, that's good enough. So not all gaming experiences are fun. Some are scary, right? Some are horror, whatever. But it makes you feel something strongly. Let's put it that way. Yeah, yeah.
00:34:20
Speaker
and And with the metaverse, it's other people to great extent. It's people that you meet. from all walks of life it was just gone so another experience or another event that happened i remember was that they did ban gambling right they had a skill gaming policy introduced because people again with a wide open space people were creating slot machines people were creating casinos and this is another avenue once it's connected to irl money that people would scam each other at the end of the day you may not call it a ponzi scheme whatever you want to call it. But obviously if you're running a casino in there and you're running the algorithms behind that casino, you can make it so that the house, you know, wins or whatever, whatever you want to do it. So there's, and there's no rules on that or they weren't.
00:35:01
Speaker
So I understand that. And I think it was late 2007, uh, second life put in the skill gaming policy. There were casinos, there were slot machines, even a stock market called SL cap X, which I, which I eventually went under as well. Um,
00:35:16
Speaker
So basically there was, ah like I said, a bridge to real world money. So, you know, am I right that, you know, when they banned, because I was talking to Philip philip about this earlier this year, that when they banned gambling, the economy contracted 40%.
00:35:32
Speaker
So I think it was much bigger than the banking shutdown, if I got this right. And so my question to you is, is that right? when When gambling was outlawed in that community, Am I right that either a lot of people left or at least a lot of the money left that world because that was a big thing of what adults were doing in that world? Is that is that fair? Or what what's your take on the gambling ban, which was not too far separated from the the banking ban? Right. Well, I don't have the access to the numbers that he does, but I will say the active user base remained solid like you had, you know,
00:36:08
Speaker
Some people left, but like I've always said, the the the user concurrency and so on is basically remain steady. So. So, yeah, there were people who left because there was no longer you know casinos and stuff. And then now they have regulated skill gaming. So if you go into a place with skill games.
00:36:26
Speaker
And it'll say you're from, oh, people from Arizona or other states cannot, yet you cannot even access, like ah you'll get red flagged and you'll not be able to access it. So, so it's still there. It's just, it's just regulated. um So it doesn't seem to be as large a part of the, the virtual world, but um yeah, really with the economy, you know, those people left, but you know, they, they cash in their Lindens, the Linden dollar supply has remained stable. Like the,
00:36:55
Speaker
Inflation-wise or value of the Linden dollar, always been about $250 Linden dollars to one US dollar. So, yeah, it was kind of a a temporary a temporary trend, so to speak, that people were some people were into, but it really didn't affect the active user base. So, yeah, I don't know if I'd say it was like in causing the economy an implode because that was never really a ah main part of the economy.
00:37:21
Speaker
Sure. And on our prep call, kind of along those lines, you kind of talked about certain crashes that coincided with, say, the Great Recession, right? And just how things are happening in the market. And you noted that experimental marketing budgets in Second Life started to dry up in 2008, 2009. And that Second Life citizens and users were kind of pulling back on the spending as the US economy crashed. Does that sound about right? Was there kind of comparisons between the two? Did you witness that?
00:37:48
Speaker
Yeah. Well, what was interesting is, so there was the, the housing crash. So, um, it really hurt the real life economy and you can play second life for free. So a lot of people would just still play second life. It's just that they're going to spend less money.
00:38:04
Speaker
And then on the higher side, like the real life business side, you had all these marketing companies creating experiences like Nissan, like had a whole car park where you could drive Nissans around and so on, those kinds of things.
00:38:16
Speaker
Um, They had that marketing budget for a while, but then the crash happened. And yeah I remember one of the the top soccer lab marketing guys like, hey, we're going to have to start pulling back because that's the first thing to go during an economic crisis is the marketing. So yeah, that caused a big Denton that what's again, interesting is the user base didn't really go there's sort of a the big companies left most of them started pulling back or completely leaving. But, you know, again, the community was already well established shows still there just like, okay, well, we're not going to go to the the BMW car park to to screw around we're just gonna, you know, go to a pirate event or something.
00:38:58
Speaker
so Yeah, because I remember when I was there, there were a lot of companies there. And then it looks like after that timeframe, a lot of the companies just kind of went away, not just the banks or whatever, but you're saying a lot of them kind of pulled back at that point, which is is interesting.
00:39:12
Speaker
And I guess related to the Great Recession, one of my questions is, you know, it feels like Linden Labs Knew it had under-regulated its financial markets in that timeframe. It outlawed bam gambling.
00:39:26
Speaker
It outlawed banks unless you had a charter, which basically got rid of all banks. And then the economy stabilized for you know largely and has kind of remained stable. yeah And I'm just wondering if it's if you found it ironic or found yourself thinking that
Virtual Banking Regulations vs. Real-World Systems
00:39:41
Speaker
coming out of the U.S. s Great Recession, where the big banks that got huge amounts of money were rescued by the government, as it were, instead of allowed to go under or instead of banned, they were basically given giant piles of cash and they're still there today. And I guess I'm wondering if you or your residents are in your reporting already.
00:39:59
Speaker
you saw any irony in that Linden Life arguably did a better job regulating its financial messes in the 2000s than the US government did in a general sense? and that i ever cross your mind? Because in in retrospect, it crossed my mind.
00:40:15
Speaker
I guess what you can definitely say is is the virtual banks that were in Second Life, they weren't there to be part of the community. They were there to you know make a a quick profit. And so, you know, we did not have that too big to fail aspect that we did in the real life economy, where it's like, okay, yeah if you if you can't abide by the rules that we're opposing, then, you know, see ya. And, you know, it might've, you know, if you did that with the real world economy, you would have, it'd be much more challenging. But, you know, since it is a virtual world and you're there to role play and have fun and you're not, you know,
00:40:54
Speaker
Generally speaking, your you know your your rent or paying other bills is not dependent on being the virtual world. you can you know You're not as attached if the virtual banks go away.
00:41:06
Speaker
And I guess I'm wondering if there's a general a more general point, right, in terms of other metaverses. So going beyond Second Life now back to what Roblox is doing, what Fortnite's doing, what you know what meta may be doing in the future, or others that emerge that aren't even here yet. you know is it would you Does it make sense to you that those metaverses need to be careful about what they do in the financial area in particular? Because if they give people the freedom to you know, rug pull other users, they will probably do it because that's what people will do in the real world if you give them that capability. And I guess I'm wondering if you, you know, if you found a cautionary tale from the lessons of what happened in Second Life that other metaverses should be aware of lest they suffer some similar setbacks.
00:41:53
Speaker
Yeah. And I say metaverse platforms because, well, that's a bigger thing I get into the book. Like there's the metaverse as a concept and then there's the execution, which is individual metaverse platforms. And ah Second Life is probably the one with the most open still to this day economy where you can quickly exchange Linden dollars for US dollars. Most of the um other Metaverse platforms like Roblox, you can buy Robux and Fortnite has its own, though it's more, it's directly from the company and you can't easily sell it from user to user. So that's one way they've controlled the economy. I think to the detriment of the community, because at the,
00:42:31
Speaker
that makes it harder to set up businesses as an individual creator. um But yeah, like the the big lesson here was with the the kind of the cryptoverse folks because they were, you know, they're they're the ones that have to deal with the the various rug pulls because the, you know, this this whole idea like as we're talking about that you can, you know, you can take your NFTs and you're trying to make a killing. So it's got to be a lot of fluff and scam to get that rug pull possibility. So Yeah, that's been the big lesson. I hope other Metaverse platforms follow in Linden Labs footsteps. of You can have a tightly regulated economy where users can sell their currency to within each other and also make it easier to build businesses.
00:43:17
Speaker
But yeah, you have to be very you have to be very careful about how you control ah the the the whole supply of Linden dollars or other virtual
Managing Virtual Economies and the Need for Regulation
00:43:26
Speaker
currency. That actually happened with the pandemic is – ah During the pandemic, there was a kind of a slight growth in the user Second Life user base, like a lot of people who played Second Life years ago when, you know, they're all trapped. We're all trapped in the house. So they they went back in. And so you saw a spike in people purchasing Linden dollars.
00:43:46
Speaker
And what's happened is the user. The spike kind of dropped off after the pandemic, but the Linden dollar kind of hurt the dollar, the Linden dollar for a while where it was a little less valuable.
00:43:58
Speaker
So they've had to decrease the the virtual currency supply in Second Life to stabilize it, which they they did recently. So, that's yeah, that's why they have a a full-time economist and at Second Life or at Linden Lab working for them.
Strategies for a Meaningful Metaverse
00:44:14
Speaker
James, your new book is called Making a Metaverse That Matters. So let's ask it simply. How do we, what should we pay attention to, to make a metaverse that matters? Yeah. So really it's about, as we're saying, make a fun experience, make an experience that it serves the online community, encourage diversity, not only of, you know, all people of all the walks of life, but people from all over the world and age ranges and so on.
00:44:42
Speaker
And make it very easy for people to create and and like create immediately, like within Second Life and even Minecraft, you can start creating you know blocks and so on and build things. So, yeah, really have faith in in communities and community creators because there's just an and untapped wealth of people doing amazing things and companies have to be willing to step back and and let the community come forward and sort of form organically. And you want, you know, some regulations to prevent toxic behavior, but you know, if you foster community and foster diversity, you will succeed and it'll be amazing.
00:45:22
Speaker
And you'll be totally surprised by the amount of creativity that people will come up with. VR chat's another one worth mentioning in that they're doing incredible things. And it's a, it's a larger than second life. I think,
00:45:33
Speaker
Well, it's in the many millions of of users. So, you know, this is possible and it's being built and the companies that are succeeding are not meta. Well.
00:45:44
Speaker
James, I can't thank you enough. We learned about what makes a metaverse. Just getting into the details of kind of the design philosophy, how you build it, what you see the problems are. I think it's all just crazy stuff. And i don't think people often relate things like Roblox or UEF and to the metaverse and what the metaverse actually means. So I think you do a good job at explaining, hey, this is what a metaverse is. This is what the terminology means. This is what it actually defines And I think That understanding alone can open people's minds saying, oh, okay, this is what is happening here. And just hearing how long these platforms can live with these communities, I think is super cool. Before we do end today, you want to let us know where we can find more about you or where we can find the book?
00:46:25
Speaker
Yeah, well, it's on all book platforms. So it's all around. And if you get the book, I will say email me and I'll send you, I did a afterward that I just wrote and published a couple months ago. So I, you know, do an update of where we are now and and have some really interesting stuff I learned since the book came out.
00:46:42
Speaker
So that's available. You can follow me on my, my Patreon where I'm mostly blogging there because my old blog, it's, you know, I've been blogging about Second Life and virtual worlds in general for so long that the platform that I originally started on went out of business. So I moved to Patreon, but I'm also on LinkedIn and X Twitter on SL Hamlet there.
00:47:03
Speaker
and Blue Sky and all the platforms. Yeah, please connect because I'm talking with other virtual world developers and metaverse platforms and hopefully we'll be able to announce some things. I've been working on some projects that are really cool. So yeah, please connect.
00:47:19
Speaker
Awesome. We'll have links to all of James's stuff that he mentioned here. Louis, know he's been writing for our sub stack. So I'm going to say that you should check out our sub stack. We'll have a a link to it. But Louis, let us know where we can find information about you.
00:47:32
Speaker
Yeah, so um you know like like James, I'm super interested in where all this stuff is going. So I covered games and XR stuff at IDC for 15 plus years and recently left that company. So looking for something new right now. But yeah, happy to be here and doing some Substacks articles and whatnot.
00:47:50
Speaker
and would like to keep going this direction. So anyway, it was a super interesting discussion and I'm mostly doing LinkedIn and Substack and I'm happy to talk to anybody about you know the video game industry or XR stuff if you wanna chat.
00:48:04
Speaker
Awesome. Well, gentlemen, again, thank you so much for your time today and I hope you have a great rest of your day.