Your Time: Virtually, Your Only Direct Cost

An interesting concept I’ve realized about business in virtual worlds, involves the issues of direct and indirect costs. The concept goes like this. . . In the real world, creating a product or service has its associated costs. These costs are generally put into two buckets. Direct costs are those activities where costs can be tracked directly to the cost of making your widget or producing your service. Examples would be working on a drill press to machine a part, or the time you bill your client to be his personal trainer in the gym. Indirect costs are activities not directly tied to the output of your product or service; there’s overlap in the costs as they are shared across activities such as utility bills, rents, and “general and administrative” time. But in the virtual world unlike the real world, there is only one direct cost: your time.

Why is this? It is because of the basic fact that there is no cost involved to copy data. Put simply, I hit copy/paste and its done. Let’s look into the ramifications of this in the metaverse and see what it means business-wise.

Every object in virtual reality is just that, virtual. The designers of virtual worlds first create the framework, then the tools that allow objects to be created. Once these tools are available, you can begin creating your virtual product line. So here you are sitting at your computer, thinking of all the cool things you are about to build or create. Did you just finish placing that materials order for the products you are about to make? Did you order the drill press or lathe to work on your designs? No? Well of course not, these things that usually fall into the bucket of costs, just aren’t necessary.

Ok, let’s go back to the tools for just a second we’re going to use to build our virtual widgets. These tools are offered for free, or as part of the software to experience the virtual world. Because we are going to use these tools to build many products hopefully, the time it takes us to learn the tools and even a fee if you might pay for them, are indirect costs; your learning curve and fee to purchase a license will be spread across all of your products you create. Yes, if we created just one product, we would have a direct cost for the tools, but we’re thinking product lines here. With me so far?

In the virtual world, products don’t expire or spoil. Food spoils and eventually must be discarded, but products don’t spoil in the metaverse. This is one reason why deciding to make refrigerators as a product line in the metaverse is a really bad idea. Novelty maybe, but not a serious business venture. When a restaurant purchases food, that cost is spread over every dish made, any waste created in the process (oops, I just dropped his steak on the floor), and any left overs to be refrigerated for tomorrow’s service.  If I wanted to create a plate of food in virtual reality, I never have to worry about it spoiling. If I need more, I just copy what I’ve already made. The only cost here was my time to create the very first item. See where this is going?

This last statement brings up the overall point of this post. The only cost associated with making virtual products is the time it took to make item #1. This is a very important fact to consider when comparing real life to virtual life product manufacturing. I did not have to buy any machines to make item #1. I did not have to purchase any food or a place to store the extras, nor did I have to arrange with a materials supplier to deliver to me JIT (just in time) the necessary inputs to making my widget. The only direct cost was the time it took me to make the very first product item. Every copy from here on out, has no costs associated with its creation.

From this point on, making more of the same is just a matter of copying the original. In Second Life, setting up a vendor (sort of like a vending machine for your products) creates copies for you the instant your product is purchased so you only ever need one copy of your product. Here’s where the real life business people who manage large factories fall out of their chair. In the virtual world, you don’t need a warehouse! There are no costs associated with storage of materials or products.

Armed with this knowledge now, it’s apparent that starting a business in the virtual world has minimal costs associated with it. Unlike in real life, the virtual environment is very friendly to starting up operations. Rarely does it cost anything more than your time to learn how to use the tools and possibly a premium membership in the virtual world should you choose. But this low start-up cost means something else very important to understand, low barriers to entry–competition and price wars are just around the corner.

Happy virtual business start-ups to you all!