A recent Financial Times article has a thought-provoking breakdown of seven major economic models in virtual worlds, questioning whether virtual worlds have long-term sustainability as a component in the rapid proliferation of Web 2.0. The article recalls the now-infamous run on Ginko Financial in Second Life and takes an optimistic look back at the episode. Says the article's author Eli Noam, "But far from identifying it as a calamity, to many commentators it confirmed the faithfulness of the computer simulation: after all, the real world had long experienced insolvencies, too."

First up for analysis, real product marketing. The article points out the disparity between Second Life's user base and its active users at any given time as evidence of why this might be a less effective model -- however, in focusing only on Second Life, the article fails to note what big business real product marketing can be in virtual worlds, especially those for kids -- after all, we just heard from Ypulse about how 'tweens are essentially begging to be marketed to by real-world brands in their virtual worlds and social networks.

Second, Noam is skeptical about the long-term profitability of virtual goods. Though we've seen entire online worlds sustain themselves on RMTs and virtual item sales, he does raise a caveat worth considering -- as user-generated content becomes more and more prolific, might not the value of virtual items drop to "almost zero?" While it's true that the increasing prevalence of user-created virtual items would cause finer crafts and more desirable creations to rise to the top of the heap and garner a value assigned to them by their popularity, I think that Noam is correct in noting that with so many options to choose from, successful virtual items might only command worthwhile prices for a short, fad-like time. The exception, of course, is where the owner of the world has control over the available items on offer -- but doesn't that fly in the face of the Web 2.0 ideal?

Third, Noam notes that business-to-business services -- for example, IBM and Electric Sheep's provisions to retailers, or other software developers for virtual facilities are prevalent and viable, but he also expects that strong competition and profitability gambles for consumers of those services might threaten the long-term growth in these avenues.

Further snags in the road to virtual worlds wealth worth considering are the creation of private worlds for specialized purposes, thereby reducing the appeal of more general worlds and the need to police music and movie content for appropriateness or copyright violations creating a drain. Notably, Noam actually foresees a time when, with community being such a critical factor in a virtual world or social network's success, companies will have to pay users, essentially, to use their service as the playing field becomes more populated and competition stiffens.

Noam's predictions are a bit bleak, but they do highlight some issues that are surely legitimate concerns when looking down the road to the possible evolution of a promising new technology space.

[Via FT]