Parallel Worlds: How the Video Gaming Industry Reimagines Real Estate
The 2020 MIT World Real Estate Forum went virtual for the first time this summer, drawing more attendees from various countries across the globe than in previous years. While the forum has always addressed a broad range of topics — from technological innovation and design, to climate change and resilience — this year’s program featured a particularly unique panel called Parallel Worlds: How the Video gaming Industry Reimagines Real Estate. Moderated by Alina Nazmeeva and Dr. Andrea Chegut, this session explored the economy and built environment within online games and virtual worlds, and how virtual real estate expands the world of physical real estate. The article below is a summary of this fascinating panel conversation.
Panel Participants:
Dr. Andrea Chegut, Director of MIT Real Estate Innovation Lab
Alina Nazmeeva, Designer and Research Analyst at the MIT Real Estate Innovation Lab, and co-creator of (un)Real Estate podcast and research initiative.
Ebbe Altberg, CEO of Linden Lab, creator of Second Life
Giorgio Tarraf, Technology Intelligence Director at L’Atelier BNP Paribas
Introduction
There are over 2.5 billion people who participate in virtual economies around the world. Many of you have probably heard of Fortnite — maybe from your kids; or Minecraft: perhaps you learned about it from your college kids. Or you just may play it yourself! Currently, Fortnite has over 350 million players, and Minecraft has a user base of over 126 million monthly players. Both games have their own economies, meaning that players can purchase goods and services from the game’s creators to amplify their experience. Second Life, in fact, was among the first online games to use virtual economies, where people can buy and sell almost everything in the world to each other. It is also one of the oldest virtual worlds in existence.
Beyond entertainment, virtual worlds actually serve as economic markets, event arenas and social hubs, where people increasingly live, work and play. Users of virtual worlds, often called residents, can build cities and become real estate developers in the virtual. Today we’ll discuss how it all works, where we are headed, and what relevance virtual worlds and virtual economies hold for the real estate sector.
Key Bullet Points and Quotes:
·Virtual worlds are platforms
Ebbe Altberg: “To us a virtual world is a place where users can create their idea of what their virtual world is or should be. People can come together as avatars within that virtual world to communicate, socialize, interact, trade and do all the things that you know people do in physical space, but just in virtual space. Although in virtual space, you can also do a lot of things that are beyond what’s possible in physical space.”
“At Linden Lab we are creating Second Life, we create the platform that allows people to construct land and to construct content on top of that land, and then invite other people into that land. It could be private or public space and that particular space could have different purposes. It could be just art. It could be a school. It could be an office. It could be a clinic. It could be anything. Anything that you can imagine could be constructed there.”
“Giorgio Tarraf: “The easiest way to picture a virtual world is to imagine a videogame where anything is possible. There is no script or storyline.
The appeal of virtual worlds is very primal, very human, and comes from the feeling of endless possibility. It’s like discovering a New World. You’re no longer restrained by geographic location. It doesn’t really matter how much money you have. I mean, there’s a minimum because you have to access it, but after that it does not matter. You’re not even constrained by the laws of physics. Also, the laws of business become different.”
·Virtual worlds are becoming more complex and sophisticated as job markets and business ecosystems, social and cultural hubs. Games and entertainment are only a narrow use case in virtual worlds.
Ebbe Altberg: “In Second Life, I see every use case you can imagine: there are museums, schools, there are university students. We have one customer (university) that has over 10,000 students, classes in a variety of subjects. A lot of people are training in there. I know of a lot of nurses for some reason. They are practicing, seeing patients and learning their trade inside Second Life. Because here you can simulate a scenario in a safe and much cheaper way than in physical space. ”
Giorgio Tarraf: “People are entering these spaces not just for entertainment. Many people have immediately started making money, not necessarily winning the Fortnite tournament and making $3 million at 16, or becoming a world-famous streamer and making $35 million deals. Many young people are able to have a side gig to supplement their income. Others have started companies building Minecraft worlds, renting and selling them on a marketplace, and they can generate significant revenue. Many of these people may not have found these entrepreneurship opportunities in the real world, and we should not be dismissive of their success.”
“We’re also seeing an emergence of jobs across industries: virtual architects, urban planners, skin and fashion designers, development consultants, content moderators, marketing experts, conflict mediators, virtual government workers. These people need to be compensated for their work! A lot of this work is often overlooked in the data, but it’s there and it’s real.”
·Virtual worlds have economies, where their users buy and sell, trade and monetize virtual assets, including real estate. These economies are growing year by year
Giorgio Tarraf: “When we started our research, we opened Pandora’s box: we discovered new types of virtual worlds often built on decentralized infrastructures such as Decentraland and Somnium Space. These are platforms where people can own their virtual assets. Right now, when you buy a skin in Fortnite, you don’t really own that skin. You’re basically leasing an entry in a database controlled by the publisher. Blockchain technology and non-fungible tokens now allow users to own virtual goods and assets and trade them on open marketplaces with little restrictions.
This is where I see really the evolution of virtual worlds: they become platforms. The data speaks better than I do: nearly 100 million dollars have been invested in decentralized virtual worlds in the last two years, both on primary and secondary markets. Many companies are competing to emerge as the next Amazon or Visa for virtual worlds. I believe that we will see the first unicorn (the first billion dollar company) in the virtual world space emerge in the next five to seven years.”
Ebbe Altberg: “[The] Economy of Second Life is in the hundreds of millions of dollars GDP. People purchase a currency called a Linden dollar, that they use inside of Second Life. You can also convert those Linden dollars back out to fiat currency, so you can buy real food, pay real rent. And last year people in Second Life cashed out over $65 million in earnings. So for some people, this is where they make their primary income. For others, it is also augmenting their income.
Early on we declared that all content in Second Life is owned by the residents. We [Linden Lab] have a right to display and promote it and we have some control as far as whether we need to take action on it if it’s illegal content. But it is the users’ content: they can do as they wish with it.”
· Virtual worlds are, first and foremost, social spaces
Ebbe Altberg: “It’s also not just what it looks like and what capabilities that has, but also what type of a community is being formed in there. Is that a good community? Do people treat each other nicely? Do they have shared a interest or beliefs?”
Giorgio Tarraf: “Community and sharing are really going to become increasingly important in the virtual real estate space. In virtual worlds, people often spend time where the other people are, whereas in the real world many seek areas with lower density as they look for privacy. Real world dynamics do not always hold true in decentralized virtual worlds such as Decentraland.”
· Location value in virtual worlds depends on the shared appreciation of aesthetics
Ebbe Altberg: “Like in physical space, there are all kinds of different types of communities around different types of designs or interests. There are people that like to live around a golf course and those that like to be by the lake.
In Second Life, you can create these kinds of places where people have a shared appreciation for the design and functionality. They become very popular, but there is always a maximum capacity of the number of people that can live in a particular neighborhood. There’s long waiting lines to be able to enter some of these neighborhoods. People also trade and switch neighborhoods that they want to be in. I call them neighborhoods, but those can have almost any design, it could be sci-fi, it could be a different time-period-themed neighborhood. There is a place, made by a Dutch woman, which is a replica of 1920s Berlin, where people who have a fascination with art, fashion, and music of that time period can rent a house. There is a tremendous value in that, because only so many people can fit in there. You know, it’s just like ‘location, location, location’ is still true in virtual space.”
Giorgio Tarraf: “In virtual worlds, cultural landmarks will become a point of interest in the future and that’s already the case in some video games. Open public spaces and other congregation points will often increase the valuation of a plot of land.
Aesthetics also play a very large role because everything is possible. You don’t have strict construction regulation or building codes, and people become more sensitive to the aesthetic of the built environment. I agree with Ebbe, the way it looks is very important.”
· Location and foot traffic matters in virtual worlds
Giorgio Tarraf: “The success of a parcel or a building in Decentraland depends largely on foot traffic. Users usually enter Decentraland around a central plaza. Land around Genesis Plaza has been selling for astronomical prices — hundreds of thousands of USD in some cases. This prime location guarantees you high visibility for your project.
Like in Second Life, there are neighborhoods in Decentraland currently developing around specific types of activity. There is a casino district, a fashion district, a museum district. You see them become more or less valuable, depending on the activity type. For example, in [a] museum district, the land will likely be less expensive than it would be in the casino district, simply because you’re more likely to make money through the casino than through a museum or an art gallery, at least for now.”
·The technological infrastructure, and both software and hardware, play a tremendous role in the future of virtual worlds adoption and the success of virtual economies
Ebbe Altberg: “A simulator is ultimately the foundation of this land. It’s a server: on top of the server is a simulator that creates this virtual world that users create, which we just express as land, as something you can buy and sell. You can only put so many people on a simulator at the same time. You know, almost every popular modern MOO, Fortnite and others, you will never see more than, like, 100 or a couple of hundred players sharing the same virtual space at the same time. Then they start using techniques like sharding, or, creating multiple servers that can each hold 100 people or so, but they don’t all see each other at the same time. So having a huge crowd of 10,000 people, or 100,000 people, or a million people all being in the same virtual space at the same time is a problem that hasn’t technically been solved yet.
That matters if I set up a store and I want to have a lot of customers come through. You can operate a coffee shop but you can’t really operate an arena or large space that has a huge number of users like a website can have: hundreds of millions of concurrent users. Because of that, people backed off a little bit around 2008–2010. The people that stuck around were the people that love the concept, or, the people that didn’t have the means to start a business in the physical world. We see the successful brands in our virtual world are not the familiar successful brands from the physical world. Those are other brands that are extremely popular within the virtual world because they become specialists at creating the kind of content that really works within the context of a virtual world.”
Giorgio Tarraf: “Today we have faster computers, faster connections and have a newfound desire and capacity to explore. We are looking for new places to create new opportunities, and big players such as Facebook are entering the space as well with their virtual world Horizon VR.”
“…Signals show that we are approaching a tipping point toward the mainstream, however the problem is that the current generation of hardware is clunky: VR headsets are uncomfortable and phones are distracting. Walking around looking at a phone is not the most fulfilling human experience! I’m waiting for a product that allows you to overlay the virtual layer seamlessly. The Google Glass AR experiment didn’t work out, however there are rumors that Apple is currently working on their own AR headset, and I honestly can’t wait to try it!”
· Today, with Covid-19, we see increased interest in virtual worlds and virtual economies among a broader audience
Giorgio Tarraf: “Growth predictions for the next five years happened overnight in 2020. We see many signals that COVID-19 significantly drove more people toward the virtual economy: In late March, Verizon saw 100% increase in video game internet traffic; payment processor Visa saw 200% increase in gaming spend in April, compared to last year. Internet provider Comcast had a 35% increase in video game downloads compared to last year — that number rises to 80% for new releases only.”
Ebbe Altberg: “Now we’re seeing a resurgence of interest in Second Life, because we’re obviously seeing a huge generation of younger people that are spending more time in the virtual space than in physical space. Humans are basically shifting their time from physical space to virtual space over time. It’s already shifted to the point where it’s not a second life. It is a first life. It’s where they spend most of their time. It’s where they have their friends, their loved ones, their business and their income. That’s where they are.
With a pandemic like this, we’re seeing an acceleration. Virtual space doesn’t have the limitations of physical space, even more so now. Historically in the graph, we’re going to see this bump of the progression from physical space to virtual space.
But it’s been a trend that’s been going all along, we’re just seeing its acceleration now. Second Life has had a lot more demand: more users [have been] coming in lately because of the constraints of physical space. In the future, we can expect to see virtual space at some point maybe even becoming dominant, and that physical space is kind of this occasional thing you do. Because there are things you can do in physical space that you cannot do in virtual space. And I’m not sure when you will be able to take a shower in virtual space or procreate or eat food, but it’s becoming less and less required to have a substantial existence in physical space.”
·Virtual and physical intersect in various ways, from complex simulations, augmented reality technology, and virtual replicas of physical spaces
Ebbe Altberg: “We’re already seeing basic use cases of simulating a physical space in virtual space before the physical construction. If you’re going to build a large airport terminal, you want to understand how people move through it: can they find Terminal A, can they find other things? How would they move up the escalator down the elevator?… You can simulate all traffic patterns in virtual space before you make mistakes in physical space. We’ve seen a lot of people use Second Life to construct, for example, a campus library. And the librarians could actually have a sense of the space and improve the space before they made all physical mistakes in construction.”
“Imagine a decade or two or three from now: you have a virtual overlay of your physical space. So when I go away, I can still interact with my community that I belong to in physical space, in a virtual version of that space. I can go over — during Covid — to my neighbors’ house to play poker with them. And over time, I think you’ll see that the value of physical space will be increased by the virtual overlay. You could also see scenarios where these overlays can improve understanding of the space.”
Giorgio Tarraf: “Since 2016, Pokemon Go allowed me and many others to discover new neighborhoods and landmarks. Many players now also check whether they have access to Pokémon gyms or Pokéstops from their homes. Though it is unlikely to affect their purchase, the virtual layer has become a factor to consider when looking for a place to live. The nature of the gameplay also helped people meet their neighbors and make new friends, without the necessity of spending money in the game. In a matter of weeks, Pokemon Go’s virtual layer influenced the behavior of hundreds of millions around the world and proved how a viral virtual economy could impact the perceived value of real estate.
Imagine selling billboard space on your property for extra income or decorating your building with non-destructive street art. What if Banksy decides to virtually paint on my building? Can you imagine? That will almost certainly impact the property value. These elements are not calculated in a developer’s spreadsheets, however they could significantly impact the value of a plot or the level of interest around a development. I have little doubt that the mass adoption of mixed reality goggles could transform our relationship with the built environment. I think there is incredible potential there. And Banksy, if you’re seeing this, you can paint my walls anytime.”
· Virtual worlds create new opportunities and often serve as a social equalizer
Ebbe Altberg: “I definitely think of virtual worlds as an equalizer. And a lot of the things that physical space gives you an advantage in — whether it’s race, gender, geo-location — all of these things suddenly get sort of taken away because, as an avatar, I can be anything from anywhere in the world. Now it’s kind of down to raw skill, ability and motivation to succeed. Of course, in Second Life, you’re still going to have people that are more successful than other people. We have someone who got an early start in real estate — Anshee Chung — who was on the front page of the news (Business Insider) over a decade ago for being the first millionaire in virtual real estate. You’re always going to have people that have a first mover advantage or learned the unique skills of the trade, but the barrier of entry is roughly the same for all of us.
I see a lot of these people, that, for some reason, have one or more constraints [within] physical space. Disabilities, whether physical or psychological. Maybe you have a fear of being outside with other people, or you’re in a wheelchair, or your age makes it difficult to perform a certain task…these people have basically found that Second Life is an incredible medium for them to perform, compete and to have a successful life. That’s what I mean when I say that for some people it’s first life. That’s part of the joy of working here for me — hearing so many success stories of people that had constraints that made the physical space a difficult or negative experience, [and now] being able to blossom and have successful lives, socially, as well as economically in Second Life. These stories make my job incredibly fulfilling. “
Giorgio Tarraf: “Virtual worlds can create opportunities for people who sometimes cannot access these opportunities in the physical world. [In a virtual world] there are lower barriers to entry and the cost of starting a business is virtually zero. If you have talent and enough time, you could potentially start a very successful business. This is why many young people are now able to supplement their income, or even earn a living by working in virtual worlds.”
“I’m going to put on my social scientist halo for a minute:
I agree with Ebbe that virtual worlds are social equalizers. One of the highlights of the research we’ve done was to speak with the population of these virtual worlds. We talked to people with autism, people living with disabilities, LGBTQ+ people, and other marginalized folks who described these worlds as an opportunity for socialization and self expression. Unfortunately, we also sometimes encountered dismissive labels to describe folks who spend time in virtual worlds. I believe it’s now time we embrace their experience as a valid lifestyle in a new type of reality. Though virtual worlds may not be a place where everybody spends a majority of their time, for some people they could be their best chance to start a business or have a fulfilling social life.
Virtual worlds are a growing phenomenon that will eventually hit the mainstream, especially as we have better and faster internet access across geographies and adopt immersive hardware. People will enter the space and find things to do that they would not be able to do in their physical environment. We are seeing constant innovation, and now is a very exciting time to look at opportunities in virtual worlds.”
Conclusion
Virtual worlds, their economies, and the technologies that facilitate the development of virtual worlds, play fundamental roles in the daily life of billions of humans. With the COVID-19 pandemic this has become more evident. More and more people partake in virtual worlds, invest in virtual economies, purchase virtual real estate, study and learn new skills online, play online games or spend time and live out growing portions of their lives in the virtual. In turn, virtual worlds continue to become more sophisticated, and expand what possibilities they offer, and experiences they can create.
Regarding virtual goods, and virtual real estate in particular — the study of virtual worlds becomes more relevant. From Augmented Reality art exhibitions to an in-game gear or buildings in virtual worlds, virtual goods aggregate social, cultural and economic value. In virtual worlds, arguably, local community and location is as relevant as in physical cities. Foot traffic affects virtual businesses, and the interesting design decisions attract more people. In more and more ways, real and physical social and spatial structures mirror or extend one another.
