[We asked Raph Koster, an expert on virtual worlds, to comment on the recent controversy at Second Life. He writes a popular blog at http://www.raphkoster.com]

In the last month something happened that shook the world to its core. It was the sudden appearance of the capability to instantly replicate three-dimensional objects, suddenly in the hands of the common people. Everyone’s intellectual property was up for grabs, and the very notion of manufacturing under attack. Small business owners who relied on handcrafting luxury goods found themselves completely vulnerable to perfect knockoffs.

These events, of course, happened within Second Life, not in the real world: a virtual place, not a physical place, suffered these upheavals. But this isn’t an article about Second Life • it’s an article about culture clash, and the lessons of these events reverberate across industries and worlds alike.

SL is, of course, a virtual world on the Internet, which users can connect to. It is noted for its devotion to idealistic cyberlibertarian propositions: that users should own the content they upload, that everything in the world should be user-generated rather than broadcast from a monolithic content creation factory, and that virtual worlds are places for business and culture, not just games. It embodies many of the notions of cyberspace and metaverse, and the notions that “code is law” and “information wants to be free” are in its very bone and sinew.

Its users, however, are increasingly mainstream, and they make their living creating content: they make their virtual living off of creating the very content that the hacker ethic assumes will be free. They make use of the “copy permissions” system that serves as Second Life‘s virtual stand-in for IP law, essentially embracing the notion of DRM within their cyberlibertarian’s world. This form of microtransaction-based virtual business has become a core approach to monetizing all sorts of online communities: it is the blood that animates the technological body.

Then came CopyBot, a tool to replicate virtual objects that bypassed the permissions system, choosing instead to scrape its data directly from the data stream. It was the equivalent of an “analog hole” for digital assets. And suddenly, it wasn’t large media conglomerates feeling the pinch of IP theft • it was ordinary people struggling to make a virtual buck.

Why does this matter? In the last decades, we have seen the content business have to adapt to a frightening new reality: The cost to create a minute of content has risen exponentially, but the fair market value of a minute of content has plummeted. In our brave new world of digital assets and user contributions, we tend to forget that this will be hitting not just media companies in the pocketbook, but also all those Web users who are merrily uploading their creations to platforms that by their very nature are fundamentally defenseless against copying.

Microtransactions for digital assets and virtual goods is a rising, potentially multibillion dollar industry. To succeed, entrepreneurs who are building networked systems based on user content (be they citizens of Second Life or the makers of virtual worlds themselves) must realize that anything displayable is copyable; the value lies instead in service and in server-side functionality. Content is like songs around a campfire: destined to be enjoyed for free. Those who build businesses around hosting campfires would be wise to focus on making the campfire experience great, rather than charging listeners by the song.

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