Marketing Methods: Using freebies to build business

In my last post, I talked about the idea of designing promotional products or sales around notable dates.

Today, I want to talk about a related idea, that of using freebies as a way to build business.

In real life, giving product away is a good idea, but when considering doing so, you must also balance the benefit against the cost of making the product. In Second Life, on the other hand, it doesn't cost anything to make additional copies of something you sell, so freebies can be a terrific way to create loyalty and interest among existing and potential customers.

On Friday, Insky Jedburgh--who is featured in my soon-to-be-published book, The Entrepreneur's Guide to Second Life, as an expert and well-known builder of custom and prefab castles--sent what I understand to be everyone on his friends list an offer of a free sample of his specialty.

Since I wasn't logged into SL at the time, I got this by email. It said, "Insky Jedburgh has offered you...'FREECASTLE PACKAGE' in Second Life. Log in to accept or decline the offer."

This was pretty cool. And knowing that Insky does good work, I decided to check out the freebie.

Well, it's a pretty nice little castle. It's small and only has a couple of rooms, but I'm sure it has plenty of uses, and would surely fit on even the smallest plot of land. And he smartly attached a notecard and a landmark to it which makes it easy for anyone who happens on it to visit his showroom and see what else he sells.

I would quibble with some of the choices he made: He has plastered his name all over it, and I think he may have overdone it a little bit. Similarly, if you touch the castle in any way, up pops the notecard offer, and that can be a bit annoying.

But the principle is very sound: At no financial cost to himself, Insky has reached out to a lot of people, giving them all an easy way to see what his work is like. Plus, by putting his brand all over the place, he's showing that he's not shy about letting you know who the builder is or where you can go if you want something else he built.

The notecard says so, explicitly: "Freecastle is intended to act as an advertising tool for IJ Designs, but if you would like a modifiable, non advertising version please" ask.

Ultimately, I recommend this marketing approach to anyone getting started, and so do many of the most successful SL businesspeople. You can give freebies away in your shop, to everyone on your friends list, to everyone on your update group or, really, to anyone you choose. And if you're smart about it, you've found a simple, inexpensive way to cultivating a new customer, and any others they might lure in for you with enthusiastic word of mouth.

But, do be sure to be smart. Word of mouth works both ways. If your freebie is low-quality, or is bothersome to people, you may end up shooting yourself in the foot. And that's no way to build a profitable business.

Marketing Methods: Notable dates as promotions

I was wandering through the Second Life forums this evening, looking at the latest postings in the classifieds section (Requires signing in) for interesting things SL businesspeople are doing to promote their businesses, and one particular listing stood out for me.

This posting by Ryntha Suavage , in which she announced that she is celebrating her fourth year in SL by having a 50 percent off sale on everything in her store reminded me of something that someone told me while I was doing research for my book, The Entrepreneur's Guide to Second Life.

Which is, essentially, holidays and special anniversaries are a golden opportunity to offer special promotions or put out special products.

For example, if it's Valentine's Day, this person told me, it's a great reason to put out a new product line, say clothing, covered in hearts or other romantic imagery, on the theory that there will be shoppers all over SL looking for something to give their beloveds.

But it's not just Valentine's Day that presents this opportunity. Any event or notable date provides such a marketing opportunity, if you are smart enough to recognize what it might be.

The lesson, then, is to think about what dates are coming up that would be good to celebrate in such a way that your customers or would-be customers will flock to you.

In the case of Ryntha Suavage, offering half off all her products because it's her fourth anniversary is very smart. If such a promotion brings in new customers who end up liking her stuff and come back later for more, then losing a little bit on individual sales for a few days--actually, until November, when her sale ends--will likely pay off. And that's particularly true because of one of the wonderful things about being in business in SL: That it doesn't cost you anything to produce additional copies of an item for sale. Thus, making a little less per item now in hopes of building loyal customers may well pay off in spades later on.

But, for something like a new Valentine's Day product line or an anniversary sale to work, you'll probably want to have an update group in place long before so that you can send out a notice and alert people ahead of time. Without doing that, your special products or your sale may simply fall on deaf ears.

Residents Speak: Foolish Frost

Among those who know Second Life really well, Foolish Frost is a name worthy of respect and admiration.

He is a builder, par excellence, and a scripting magician. These days, he works as a contractor doing full-sim builds, and envisioning what makes a better experience for Second Life residents.

I spoke with Foolish while I was writing the chapter in my book, The Entrepreneur's Guide to Second Life, on running a building business--meaning constructing houses, castles, domes and other structures--and on his own, he had a book's worth of wisdom to share.

I thought I would share one of the suggestions he had made and discuss it briefly.

"Never treat people as lesser," Foolish said. "You never know who they are and what they know."

It's an interesting comment. The idea he was getting at is that in Second Life, people are who they choose to present themselves as. You encounter an extremely well-dressed country gentleman and he may, in fact, be a homeless woman logging into SL from her local library.

You really can't possibly know, is what Foolish is saying. And as an entrepreneur, trying to build a business that depends on a good reputation for, among other things, treating your customers right, you want to be careful to treat people, as the cliche goes, as you would like to be treated.

The thing is, some people might encounter a sultry fox wearing trashy clothes and decide, for whatever reason that they don't need to respect them the way you would respect a conservatively-attired female human avatar. In a world where people can be whatever they want, after all, there are class issues. But Foolish's approach to that would be to say, No matter what this person looks like here, you have absolutely no idea who they really are. They might actually be someone with a lot of money who is ready to drop a lot of it on developing two or three full sims.

Ultimately, the lesson that you'd be wise to follow as a businessperson in Second Life is that you simply cannot afford to make judgments about people purely based on what they look like. You have to remember that everyone has a sense of wanting to be someone they're not, and SL is the perfect environment for that. But just because you're a sultry fox in a virtual world doesn't mean that when it comes to business you're not a valuable customer that should be taken seriously.

And more to the point, as a businessperson, you can't afford to make the kind of mistake of judgment about someone that could come back to haunt you if people find out that you treat your customers--no matter who they are--with anything less than respect.

Europeans: You'll need to pay VAT on your SL purchases

According to a blog post from Second Life Insider, Linden Lab has been informing at least some European Second Life users that they will be adding VAT on top of any purchases, like land, subscription fees and tier fees.

Here's the text of an email cited by SL Insider:

"We have identified that you reside in a European country. Accordingly, your next bill will reflect Value Added Tax (VAT) charged at the rate specified by your country. Please note that VAT applies to all payments to Linden Lab such as land sales, monthly maintenance fees and Premium subscription fees.

"If you are eligible for a VAT exemption, you may submit proof of your exemption status, such as your VAT number, here:
https://secondlife.com/account/vat_enter_id.php

"If you have other questions, please read the VAT FAQ:
http://secondlife.com/corporate/vat.php

"You can also contact us via the support portal:
http://secondlife.com/support

"Best regards, and thank you for your continuing support.

"Linden Lab
Creators of Second Life"

This is noteworthy only because it means that if you're European, you're going to have to take that additional cost into account when figuring out your budget for, say, the land for your store. It probably won't be that much additional money, though if you owned an entire sim, it could probably add up.

It's an interesting move, if it happens to be true, which I have no reason to doubt. Americans, for example, haven't received any such email informing them that they will have to be paying sales tax. Though one wonders, upon reading this, if that will come soon.

More likely, Linden Lab has been told by the EU that it needs to collect the VAT, and, wanting to be a government-friendly corporate citizen, decided to comply. But of course, that's just speculation.

Anyway, keep it in mind when planning your budget, as you don't want to find yourself short of cash when it comes time to pay the taxman.

Follow-up on Armani store coming to SL

Yesterday I blogged that Armani had opened a store in Second Life, but that existing and newer fashion businesses shouldn't worry.

Well, here's further evidence of why that was true, and why famous real-world brands don't pose an automatic threat to purely in-world businesses.

During the day, a lot of Second Lifers tried to visit the Armani store to check it out--the one advantage a brand like that has purely because of its name.

This was a typical result, courtesy of the blog, Shopping Cart Disco:

"I’d like to tell you how spectacular the build is. To tell you about ALL THE AMAZING ITEMS you can purchase at their wonderful, well planned out SL location - because, well, they’ve had more than a year of research in SL to plan it out.

"But no, I’m here to tell you about another craptactular build by another (corporate) entity that didn’t bother whatsoever to think about how things really work in Second Life. To embrace the community. Without the community, SL builds are sure to fail, which results in the company dismissing Second Life as just another failed and crummy venture, when really - it was the corporation’s fault in the first place."

I couldn't have summed up the problem better myself. It's just that: A lot of companies are trying to ride the wave of interest in SL and jump right in, but they simply don't do the research on what it takes to succeed, or they hire the wrong development company to do the work for them.

In the case of Armani, we can now report, they simply blew it by populating their store with a paltry roster of products, and the products they did have are nowhere near as good as those available from dozens of existing SL fashion boutiques.

And, just like that, in one day, they've blown it. Their reputation is shot, and they've lost any advantage they had because of their name. Perhaps it was just a soft launch, but it is probably too late for them to recover their reputation in SL.

And, ultimately, that's the point: Whether you're a big real-life brand or a total unknown getting started in SL, you have really just one chance to, you know, "make a good impression."

If you do, word of mouth will be your best friend. If you don't, as in the case of Armani, it's your worst enemy.

And you'll have no one to blame but yourself if that happens.

Paying taxes on Second Life profits

One thing I get asked a lot when I'm speaking on panels, or just talking to folks about entrepreneurship in Second Life, is whether it's necessary to pay taxes on income earned in the virtual world.

In a word: Yes. It may seem to some like a game, but as far as your government is concerned--be it the U.S. Internal Revenue Service, the Canada Revenue Agency or any other--money you make as an entrepreneur in Second Life or any other virtual world or online game is fully taxable.

Of course, unless you're an employee of Linden Lab or the Electric Sheep or some such company, any money you make is self-employment income, and should be dealt with as such.

So, for example, in the U.S., that means that you would have to file a Schedule C Profit or Loss from Business (Sole Proprietor) form to go along with your 1099; In Canada, self-employment income from Second Life is reported on lines 135 to 143 of the T1 General Return.

It's too bad, I know, that you have to pay taxes on this income, especially when in many cases, you could hide all of it in Linden dollars. And sure, you could probably get away with it, since Linden Lab isn't reporting your earnings to any government--at least not yet. But, better safe than sorry, I think.

There is one other thing worth mentioning here, however.

Some small-scale Second Life entrepreneurs have found it possible to side-step the taxation issue by doing under US$500 worth of work for each individual client. That's because, as I understand it, it's not necessary to report income unless you've made more than US$500 in a year from a client. As with any tax-related advice, don't take it as gospel unless you've consulted an accountant.

You can find a more complete discussion of this and many other business practicalities in Chapter 2 of my book, The Entrepreneur's Guide to Second Life, which will be in stores by Nov. 5, but which you can pre-order right now.

Armani comes to SL, fashion designers shouldn't fear

I read this morning, courtesy of Reuters, that Armani has opened a store in Second Life.

Under normal circumstances, I would say that means trouble for whichever designers the fashion maestro is going to be going up against. This is Giorgio Armani, after all.

But, this is Second Life, not the real world, and one of the points I make in the fashion chapter of my book, The Entrepreneur's Guide to Second Life, is that even if big-time designers decide to set up shop in the virtual world, they have no built-in advantage just because of who they are.

In fact, they are at somewhat of a disadvantage, I would say. That's because they come in not knowing much about SL or its community, they haven't developed a loyal customer base and more importantly, they're going up against a well-established collection of SL designers who have been around the block and who have got tons of customers who live and die by when they come out with new products.

The point is, if you're getting started in the SL fashion business--or any segment of the business, for that matter--you don't need to concern yourself with the arrival of big-name real-world competitors. You just have to stick to your guns, make sure you do everything you can to market yourself and deliver great products and, if you do, you'll be fine.

Here's a first: A press release for an in-world product

As a reporter for CNET News.com, if there's one thing I get a lot, it's press releases. And since about mid-2006, if there's one major subset of those that I get the most, it's probably something related to Second Life.

But tonight, something entirely new: A press release for an in-world item, in this case a new kind of personal transport vehicle called a cubePOD.

I can report that I actually did go and get one, and it's kind of fun. I may use it a lot, I may not. That's not really the point of this post.



The point is about the strategy of sending a press release to mainstream journalists --who, without saying are better or worse, I would say are a specifically different category of writer than bloggers--about a product that is entirely in-world, aimed at individual residents and seemingly offered by an individual or, at the very least, a small outfit.

I have a chapter in the book on marketing, and this is not something I addressed because, frankly, I hadn't seen it before.

Now I've seen it, and I'm trying to decide what I think about it as a way of getting customers.

On the one hand, it's free. All it costs--like so many other forms of SL marketing--is a little time and ingenuity. You write the press release, and then you send it off to the recipients.

On the other, I'm not sure how many mainstream journalists are likely to (a) buy the product themselves or (b) write about it. I suppose that the maker of the cubePOD is hoping that it will get coverage because he thinks it is a groundbreaking item that will change how SL residents get around. I'm not going to go into whether I think the cubePOD is, in fact, such an innovation; that's for other sites to consider.

My role is to evaluate the efficacy of the marketing method.

And so here's where I come down on the matter.

If a product really is going to change the behavior of a significant number of SL users, then I think it actually could be a smart move to send press releases to not just SL bloggers but to mainstream journalists who cover SL. And since it's free, costing only the time to figure out the email addresses of a few reporters, what have you got to lose.

If your product, however, isn't going to change the (virtual) world, and especially if you know that, then please don't send these kind of press releases to journalists, because you'll come off as amateurish.

But I am intrigued. Definitely. That's why I blogged this. It's a first of a kind, and as a journalist, that's what interests me.

Now we'll let the market decide whether the cubePOD is all that, or not.

I'd definitely be interested in hearing what you all think about this as a way of getting word out about a new product.

Residents Speak: Adam Zaius of Azure Islands

Way back, last December, when I was still doing the research for my book proposal, I talked to Adam Zaius and Nexus Nash, the co-owners of Azure Islands, one of the very-biggest land estates in Second Life.

I didn't even have a book contract at that point, but I did have a pretty good idea of what I wanted to write about, and Adam and Nexus were very gracious with their time.

We talked for quite awhile, and they shared a great deal of insight into how to make money in the SL land business, and both were available for follow-up conversations in the months that followed as I discovered, oh, yeah, I had just one more question.

The fruits of their expertise, therefore, help round out the chapter in my book, The Entrepreneur's Guide to Second Life, that is devoted to that segment of the SL economy.

And so, you know, I'm not going to give it all away. But I will share a few bullet points Adam offered on things to be sure to keep in mind if you want to go into the SL land business:

• Look for niche markets—such as those that cater to Second Life subcommunities like Furries, elves, or vampires—where you can charge premium fees that will help cover higher tier costs.
• Make sure you are teamed up with at least one other person. Having a business partner can be invaluable because he can fill in when you are unable to focus on the business and because together you can cover a large number of time zones.
• Adding value to your land is important and is becoming the chief differentiator in the land business as Second Life goes through its exponential growth period. This is vital, as you will be competing with others on features, not price.
• Be prepared to work insane hours. This means being around after grid updates to make sure that your content is still intact, as well as being sure you or someone from your outfit is available as often as possible to tend to customers' needs.

Over the course of the next few weeks and months, I'll be posting many similarly-sized snippets of expertise from successful SL business owners like Adam. Please stay tuned for them and all my other observations.

Worlds in Motion blogs The Entrepreneur's Guide to SL

Thanks to CMP's virtual worlds blog, Worlds in Motion, for writing up The Entrepreneur's Guide to Second Life today, and for linking to this site. I really appreciate it.

Worlds in Motion is a cool site, devoted to online games and virtual worlds, and it's pretty well plugged in. Today alone, the site had stories on the tenth anniversary of Ultima Online; about the question of counterfeited branded items in Second Life and elsewhere; the decision by Chinese MMO publisher Shanda to freeze the accounts of male players who choose to express themselves by being female avatars; and about SceneCaster, an innovative company who visited me at CNET News.com last week to talk about their new 3D "scene" technology.

Meanwhile, it's been a good week for attention for my book, with articles referencing it in SmartMoney and Linux Insider, and a post on it on the OnRez blog.

It's really starting to pick up steam, and I'm very excited. I found out today that the book will actually begin hitting store shelves in late October, maybe as early as Oct. 22. But, of course, you don't need to wait that long. You can pre-order it right now.

Congrats to Philip (Linden) Rosedale

This is off-topic, at least as far as entrepreneurship in SL goes, but I wanted to wish my heartfelt congratulations to Linden Lab CEO Philip (Linden) Rosedale for being named to Business Week's list of the "25 Most Influential People on the Web."

From the package:

"Long the subject of futuristic novels like Neal Stephenson's Snow Crash, such virtual worlds as Second Life were generally viewed as entertainment vehicles once they were brought online. But Rosedale saw an opportunity to create a virtual economy where users-and advertisers who want to reach them-would spend real money....It's too soon to tell whether Second Life can make a meaningful bottom-line impact for companies like IBM, but the technology it popularized is already transforming how people communicate online and, in the future, may shape the look and feel of the Web."

Business Week, of course, has long been a Second Life supporter, having put Anshe Chung on the cover of the magazine all the way back in May, 2006. And, in fact, in addition to putting Rosedale on its list of important Web people, the publication also put Second Life on its short list of the most important virtual worlds.

But, as I've already written, it's nice to see a mainstream publication being willing to be optimistic about SL right now, even as some other publications have turned against it.

Either way, congrats to Philip, who I've known since 2003 and who never ceases to say things that remind me what a visionary he is.

Residents Speak: The expert sources for the book

One of the regular features of this blog will be snippets of wisdom culled from the many, many hours of interviews I conducted in the course of researching and writing The Entrepreneur's Guide to Second Life.

These nuggets of expertise will, of course, be mixed in with original observations related to the latest developments in SL entrepreneurship, and all kinds of other things.

But before I get started with these, I wanted to let you know whose collective knowledge and help provided the basis for the book, and for whose help I will always be grateful.

To wit, the names--many of whom, you will see, are just about household names to anyone who knows about SL:

Alliez Mysterio, Adam Zauis, Nexus Nash, Dana Bergson, Sol Columbia, Laura Sachs, Sabrina Dent, Zee Linden, Hiro Pendragon, Moopf Murray, Twiddler Thereian, Munchflower Zauis, Hyasynth Tiramisu, Starley Thereian, Fallingwater Cellardoor, Jennyfur Peregrine, Professor Sadovnycha, Shiryu Musashi, Zabitan Assia, Chip Midnight, Kim Anubis, Neil Protagonist, Foolish Frost, Insky Jedburgh, Aimee Weber, Amethyst Rosencrans, Baccara Rhodes, Genevieve Hutchence, Nyteshade Vesperia, Stroker Serpentine, Giff Forsetti, Andrea Faulkner, Keiki Lemieux, Claudia Linden, Bambam Sachertorte, Francis Chung, Caroline Apollo, Wynx Whiplash, Trinity Cole, Katt Kongo, Ham Rambler, Jenna Fairplay, Deede Debs, Kelly Czarnecki, Nexeus Fatale, Kermitt Quick, Kaeman Demar, Aesop Thatch, Ming Chen, Anna Normandy, Cory Ondrejka, Qarl Linden, Sibley Verbeck and Jerry Paffendorf.

If it weren't for the generosity of these wonderful people, this project would never have gotten off the ground.

I'll be the guest speaker at Giff Constable's SL Entrepreneurs Gather on Oct. 4

Thanks to the Electric Sheep's Giff Constable for inviting me to come and talk to his SL Entrepreneurs club gathering on Oct. 4.

I'm not entirely sure how this will play out, but I'll be coming to talk about the things I learned in the process of researching and writing my book, The Entrepreneur's Guide to Second Life: Making Money in the Metaverse, which will be published on Nov. 5.

This is an exciting opportunity, because there are few people as well-respected in the SL universe as Giff. So I'm very honored to be invited and to be able to share what I've learned with the audience.

If you're reading this and have any kind of similar gatherings that you're organizing, I'd be equally honored to come and talk with your group. Please just let me know.

"Entrepreneur's Guide to SL" cited in SmartMoney

So, it's still about six weeks or so before my book, The Entrepreneur's Guide to Second Life is published, but the media mentions are picking up steam.

Today, SmartMoney has a piece on virtual world entrepreneurship, and I am one of the first people quoted, and the book is mentioned very prominently.

This is, of course, great news, and I'm very happy about it.

In fact, in recent weeks, the subject of entrepreneurship in SL has been getting a great deal of attention, what with the SmartMoney article and one that preceded it in the New York Times. I was also quoted in that article as author of the book.

In today's article, by SmartMoney's Diana Ransom, she looks at the trend of entrepreneurship. It's not a particularly ground-breaking article, but it's nice to see more and more media taking notice of this important element of the larger Second Life economy.

This is particularly true since there is growing skepticism of the idea of large companies moving in-world and being able to make a go of it.

The truth is, of course, that big companies setting up shop in SL and individual entrepreneurs making a living there are two totally different things. The former is still very much an unproven venture, at least as far as making money is concerned. The latter is very much proven, as my book demonstrates.

But what's nice, from my perspective, is that even in light of media skepticism of big companies being in-world--which, let's be honest, is probably what got the Second Life hype maching rolling in the first place--there is still plenty of interest in focusing on where the real money is being made.

And, to be honest, as someone who's about to publish a book on the subject, this is very good news.

I love this photo

This book is full of all kinds of information. And photos! And interviews. And, well...I'll be giving a much better view into the book in the coming days. But take a look at this great photo of a gorgeous ball gown by Paper Couture. This, by the way, is a photo that is on the back cover of the book.

Here I am!

I know...I've been remiss. I launched this blog (to moderate fanfare) in May, heralding the beginning of the promotional period for my book, The Entrepreneur's Guide to Second Life, and then....Well, and then I didn't return.

But here I am. I'm ready to get this thing going, to get you excited, and to begin making this book--which is scheduled to hit store shelves in just weeks--a known quantity.

I intend to ramp this up pretty quick. It will be a collection of original observations, images and snippets from the book. There are also likely to be entirely new interviews with successful SL entrepreneurs, as well as the occasional musing by others associated with this economy.

So! Onward and upward. I hope you will stop back at least as often as I post. And I hope you will consider pulling over at the tube stop for your local Amazon.com to buy a copy (or 100).

Thanks, and welcome back. To you and to me.

Daniel