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Is fashion a bad long term business in Second Life?

By Celebrity Trollop | May 24, 2006

Over on Torrid Midnight’s blog, Frans Charming left an interesting comment:

I don’t know much about the fashion industry in sl, but i think that it will be a deadend street for most people in the long run anyway. With no production costs, everything will be availible allways. Style and Brand will still be important but it will behave different from rl fashion, i think.

This is an interesting point, but the cost of production of fashion in Second Life isn’t zero — the cost of mass producing a fashion design is zero. In this sense, one might as well think of the Second Life fashion marketplace as a very specialized niche software market. The cost of creating software itself isn’t zero. The cost of making copies of it are zero. The cost of distributing it are zero. But it still costs money in salary and talent to design and to build. Another example of such an industry is Hollywood — what do they sell? Content. How do they sell it? Any way they can possibly make a profit: DVDs, CDs, television rights, theaters. So it seems to me that the business of selling content itself is not at all a bad one — it is in fact quite lucrative according to The Big Picture, a fascinating book about the economics of Hollywood.

I also don’t believe that all content is always going to available. Even private sims have a maximum prim limit of 15,000. If you filled an entire sim with 1-prim vendors, you’d still only be able to offer 15,000 items — a truly ridiculous amount of designs to be certain, but not unlimited. (And the lag of all those pictures loading — very very scary.)

A major reason designers retire older or less marketable designs is because they want to reclaim wall space in their store — and wall space is NOT an unlimited resource in a 3D world like Second Life. (Just ask Ginny Talamasca or Elika Tiramisu! :D) Another reason designs are retired is that designers themselves have grown in skill and talent as they continue to create in Second Life — they don’t want to hurt the brand by selling “early” works which don’t quite meet their quality standards any more. And finally, there are designs which are created as specific “limited editions.” After they sell X copies, or have been available for sale for Y weeks, the creator takes them off the market.

As Second Life acquires more residents, there will be more consumers of content and there will still be a barrier to entry in content creation, namely brand and talent. Those two things taken together should not be underestimated. I think it’s safe to say that if the most talented content creators in Second Life sustain the quality level of their creations, they will continue to be successful entrepreneurs.

LindexallLindex90daysThis made me think about a recent post by Ginny Talamasca about the surprisingly rapid decline of the Linden dollar:

We work hard to keep prices moderate. Compared to most vendors of similar quality, our prices - ESPECIALLY on the more involved pieces - are significantly lower.

There’s been a lot of talk about vendors taking matters into their own hands and upping their prices to reflect the disgusting inflation that’s taken place. I understand that this probably has to happen. But if LL would get off of its lazy laissez faire ass and start to regulate the monster of their own design? A lot of this problem could have been prevented.

And Toast Bard also talked about raising the prices of her hair because of the falling Linden.

The top left graphic shows the value of the Linden vs USD for the lifetime of the Lindex market. The bottom left graph shows the Linden vs USD for the last 90 days. You can see as recently as the end of February, the Linden was trading at L$270/US$1. Today, the spot-market average is L$330/US$1. Tier for a private sim costs US$195. On Feburary 27, you could pay for tier by selling L$52,650. Today you’d need to sell L$64,350 to cover tier. You don’t have to be a rocket scientist to see that you’d need an additional L$12,000 just to cover the sim tier. If we say the average design sells for about L$250, that’s 48 additional sales needed to cover the 3 month devaluation of the Linden. At some point, something’s going to give. I don’t believe Linden Labs is going to start charging less for monthly tier, and I doubt they’re going to take Linden dollars to pay for it either. So really, the only other option is for the prices of content to rise.

At the moment, I am willing to believe many of the designers who can afford private sims probably can sell 48 more copies of a design a month, and as a buyer of Lindens I am currently a (short-term) winner: I can buy more Lindens with the same amount of USD, which means more shopping fun for me. (In fact, I can now place limit buy orders on the Lindex too, which means if someone desperately needs to convert LLD to USD, my buy order is sitting there waiting for fire sale currency pricing.)

So far, most fashion designers I’ve talked with are trying very hard to hold the line on raising their prices. In fact, most of them feel guilty if they do and then drop them back. How much longer can that go on? If the Linden continues to fall, I don’t think it will be long before we see the average price of outfits rise from L$250 to L$300 or more.

Topics: Opinion |

5 Responses to “Is fashion a bad long term business in Second Life?”

  1. Great post, as always. It does bring up two questions, however, that I wanted to ask; maybe you could address them in future blog entries.

    1) I definitely agree with you on the current natural limit for designers’ catalogs, because of the current technology. All signs, though, point to SL eventually enmeshing more and more of the traditional web with each upgrade; I wouldn’t be surprised a year from now, for example, if there was a full virtual web browser for avs within the grid. At this point, catalogs will once again become virtually limitless, with some smart aggregator (perhaps a future version of SLBoutique.com, for example, or Second411.com) collecting it all into one giant Amazon-like database. What will happen to the long-term viability of designers at that point, do you think? How many black suits can simultaneously exist, for example, before people say, “That’s it, I don’t need any more choices?”

    2) And speaking of the out-of-control inflation gripping the grid right now; do you think that designers are going to more and more start pricing their wares in US dollars instead of Linden ones? Many hairstyles I’ve come across, for example, sell for around L$200, and were priced at a point when that equaled US$1; those same hairstyles now, unfortunately, are only fetching the designer 66 cents. Do you think such designers will just start saying, “This hairstyle costs US$1, no matter how many Linden dollars that equals today?”

    Thanks in advance for provoking these questions from me; I look forward to you perhaps addressing them in the future in your blog.

    Posted by: Jason Pettus on May 24th, 2006 at 2:09 pm

  2. Want a “Second Life” in Fashion?

    I stumbled upon the Second Style Fashionista blog just now…and as I’m reading the entries, I’m wondering who these fashion designers and companies are and why all the pictures are all in digital form. Then it hits me… Oh! This…

    Posted by: TheRunwayScoop on May 25th, 2006 at 12:20 am

  3. Haha, what a comment can do that you place on a friends blogs. It’s ok, keeps me sharp.

    I will have to clarify my comment a little, and have given it all some more thought.

    First of all the comment on torrid’s blog was more a gut reaction and was not some deeply based theory, at that time. Second, i put it deliberately stronger/harsher then need because I do think that doing contract work is a better way to go, if that road opens up for you, and I wanted to create contrast.

    Now that i have been called on it, and forced to think more deeply about it, i will say this. The fashion industry in SL won’t be in trouble anytime soon. First of all, if SL will continue to keep growing there will be demand, more users will mean more business like you said.
    Second, LL will come out with advanced avatar meshes. That will probably mean complete new set of templates to work from, which old clothing will have to be adjusted to. And will give new opportunity to new/smaller designers to step up as well.

    Now there are some things that you said i don’t agree with. You said that the catalog is limited to the sim prim limit. Maybe that is true now, but that is depending on the status quo. Technology will advance and like Jason Pettus said, designers will be able to put their whole catalog up to browse through. And i already see some possible ways. Even just html on a prim or 2D in the client can do that. The quantity of clothes or any other sl product will become very large.

    Now i said it would be a dead end street for most people. I still think this is true. When the quantity becomes so large, you will have to have a large quantity and a high quality of products to stand out. Only a limited group of people/businesses will be able to do that. But even worse by having such a large quantity they will be able to have a lower price per product. If SL has say 10m users, they might be able to sell all their products for just 1L$ or 0.01US$ or 0.01€. Because of their large quantity they will be able to sell enough to still have a viable business. If you don’t have such a large quantity you won’t be able to do that. Only way possibility would be offering a higher quality for a higher price. But you would to be some exceptionally skilled person doing something no one else can. Highly unlikely.

    Other point which i haven’t touched is Brand and style and loyalty towards them Already you can see that with the growing group of designers that no one is operating in a space where they are the only one doing it a certain way. Ideas, techniques and styles are openly shared and crossbred with each other. To be honest there is one shop that i haven’t seen copied in technique and that is PixelDolls, if it isn’t, she will be, soon.

    So all styles will be available in large quantities and low priced. Only thing that would keep you a float as a smaller designer would be Brand loyalty. That could work. People love certain Brands and keep buying them, but it would be a hard business and you would just as well have to keep producing for these people to buy your goods. Which as you succeed will put you in the same position as the already big quantity, high quality group.

    This does not mean that todays Designers can’t succeed. Many of them are producing new clothes regularly and quality keeps going up. If you wish to survive in the future, that is exactly what you have to do. But many won’t be able or don’t wish to keep up. They will simply be washed away by a flood.

    And that is why i think going the contract work way for big businesses, if you get that option, is better. Not that that won’t be hard. And you know what, i hope i will be proved wrong.

    Posted by: Frans Charming on May 25th, 2006 at 6:46 am

  4. Sorry to keep adding lines to this entry, but Frans brought up something here that I wanted to comment on as well…

    I could completely see something happening in SL like what Frans mentions at the very end of the comment - of talented new designers in the future being brought on with a larger, more established fashion center, versus all of them opening their own stores like what currently happens. And in this respect, maybe both of you are actually right; that there definitely is a foreseeable end to the way most designers are currently doing things in the grid, although there will always be room for new designers to establish themselves and grow.

    The fact is that SL’s market is just now starting to become crowded and mature like RL, for the first time; before this period, there were just few enough designers, and a low-enough barrier to entry, so that all of them could start up their own stores and exist independently. As a new player myself, for example (five weeks and counting), it’s already almost impossible for me to get a sense of how many stores exactly exist in the grid, of which ones are good, of which of the hundreds I’ve heard of now are worth the precious little time I seem to have on the grid. This will just get worse and worse, the more the grid grows; and yes, like Frans says, such a system will likely lead to new designers not being able to gain a foothold at all.

    Of course, this situation is even worse in RL; here we have tens of thousands of designers to choose from, within thousands of stores in a metropolitan area. So how do we do it? Well, we read ads; we read fashion magazines; we subscribe to newsletters from stores and designers; we attend live promotional events; etc. And all of these things are already happening in SL as well, as you’re already aware.

    But another thing, that we haven’t seen too much of yet, is what Frans mentions; where a certain designer or group gets so big, they’re sorta known throughout the land in a megabrand way (RL, think Macy’s and Saks; SL, think Canimal and Wrong - places where simply everyone knows where to shop). In RL, these very popular stores not only release their own items, but also scoop up hot young designers, when they’ve reached the top of what they can do themselves. I’m sure this is what we’re on the verge of ourselves in SL, now that Frans has mentioned it and made me look at it that way; the death of so many individual stores, the rise of “megashopping” areas, where brand loyalty is used to transfer interest to new designers, not nearly as well-known yet and using this partnership to get there.

    And how amazing, by the way, that such a sophsticated free-market shift can happen within a virtual online reality? That’s the thing that’s really been blowing my mind about SL over the last month; not just the amazing clothes to be found, but also the complex lessons about the RL fashion industry, as well as RL small business, that can be learned there.

    Posted by: Jason Pettus on May 25th, 2006 at 10:21 am

  5. Very interesting and thoughtful editorial. I’ve often wondered if my own prices should be raised to counter the Linden inflation, then decided if I’m known for affordable clothing and skins, so be it. I don’t depend on this for a living anyway.

    But what will happen when designers who DO make RL rent money off their designs raise their prices to counter the inflation… and other designers don’t? Will brand loyalty win out over prices? It seems like it would be better for the SL fashion community to decide to all do it, one way or the other. On the other hand, if the value of goods is better for your (Linden) buck, will that affect the inflation? I’m not an economist, so I can’t say, but I do know the avatar fashion/accessory industry in SL is HUGE and might even contribute in some way to the Linden’s value. :)

    Things to think about, at any rate. I really hope the L$ becomes more stable.

    Posted by: Alaska Metropolitan on May 25th, 2006 at 10:28 pm