The Rise Of Funny Money

A much loved and admired uncle of mine who became very successful trading industrial optics, started his entrepreneurial career in pyjamas.  Yep, that’s right – pyjamas.  After the war, the government sold off vast amounts of the kit no longer required by soldiers and military personnel.  My uncle would go to the government's auctions and buy these items to sell on in civvy street.  After a few weeks he noticed thousands of pyjamas appearing separately as tops and bottoms.  So he started buying up all the auction lots of either pyjama shirts or trousers for next to nothing and then waiting for the matching halves to appear.  Obviously the reacquainted items were worth a lot more together than apart, so he could then sell them on to retailers and their thrifty post-war customers for a healthy profit.  This was a widely told story in my family and one that seemed to illustrate the reasons for my uncle’s success.  He had a knack of creating cash from nowhere.  Sort of funny money I always thought to myself, while admiring my uncle's counter intuitive nouse.  One aspect of the web that has sparked my interest in recent weeks has been the ever growing examples of such 'funny money'.  Where significant flows of cash or profitable trading environments appear from unlikely origins.  Part of my interest is because the web is now such a noisy place, it’s becoming increasingly difficult to sort...

...the wheat from the chaff.  And, at the risk of stating the obvious, following the money is a good way to see what people are really interested in, as they vote with their wallets.  Particularly during these challenging economic times.

Craig’s List has always struck me as a good example of funny money.  The company is private so no one really knows how much the business makes.  However, last week it was estimated that the website creates revenues of approximately $100m.  Not bad for a company with 30 staff that continues to infuriate the traditional big bucks analysts by talking about its own lack of vision and aversion to profit maximisation.  Ask Craig Newmark where the money comes from and he says, ‘listening, listening and then more listening.’  Sucking up America’s classified advertising industry along the way didn’t hurt, but you can't question the man's contrarian views.

Another area of funny money is virtual gifting, where people pay to send tiny pieces of software to one another on social networks.  And if you thought the reassembling of pyjamas was an unusual way to make a living then think again.  In the world of virtual gifting almost anything goes.  Why not send a friend a picture of a broken old shopping trolley?  Or a clip-on tie?  Or some rhubarb & custard 80s Retro sweets?  Not real ones you understand.  Just tiny digital images.  But more remarkable than the randomness of the gifts is the growing value of the market that has emerged.  As much as $50m on Facebook alone.  And a lot more across the web.

And then there’s Apple’s iPhone Appstore where almost 50k applications have been downloaded more than one billion times to create a market that might be making Steve Jobs as much as $100m per year.  As AppSherpa notes, 'There are currently 45458 apps available in the iTunes store, which if you were to purchase all of them would cost $108,863.32.'  All very much funny money for the developers, even if the AppStore’s main function for Apple remains selling iPhones and iPod Touches.

But why stop there?  The ultimate version of funny money is to create your own currency.  Virtual currencies aren’t particularly new.  Just think about those little Monopoly notes we have all played with at some point.  However, when Second Life’s Linden Dollar was linked to the $USD a few years ago, allowing people to trade in and out of the game with hard cash, often for virtual property, a new threshold was crossed.  Today, a healthy shadow market exists for World of Warcraft gold, for people who can’t be bothered with all that dragon slaying and guild battling.  Now they can get ahead by buying cheap WoW currency with their credit cards.  All of which has led to rather wonderful web pages such as this where real and virtual currency exchange rates sit alongside one another.  Thai Baht anyone?  How about Star Wars Galaxies credit then?  Indian rupees?  Or City of Heroes Influence maybe?

However, Second Life with its crazy sex markets and WoW with its fantasy focus have always been seen as ‘just-for-geeks’.  Innovations and ideas that appear from such places as a result are often dismissed, whatever their value or interest.  Which makes the recent appearance of currency systems on mainstream social networks all the more interesting.  Facebook is just about to expand its Credits system, mainly to allow it to take a share of its own booming apps market, but possibly also for general online retail.  While Hi5 also launched its own currency, called Coins, earlier this year, but has now gone one step further by making it available across the web as an OpenSocial 'Virtual Currency API'.

In a recent Scoble interview, web financier Fred Wilson talking about the coming web suggests that, "We could maybe start getting accounts in these social (media) systems that, maybe get some value, (creating) accretion from what we do in the system and allowing us to use them as accounts to move money around. Much in the way that people already do in Second Life - people will start doing it in Facebook.  Which they already do in Facebook games."  Such dynamics could amount to an exchange rate between whuffie and the $USD.  Social currencies anyone?

A while back I wrote that my shorthand for conversations about web-o-nomics was NICE, by which I meant that the web was creating New Infrastructure, Culture and Economics.  More than two years on, the changes in all three areas just keep on coming.  But having established vast new social Infrastructures (Facebook now has a population as big as most countries in the world), and sweeping Cultural changes, such as that signified by the Pirate Party winning a seat in the European Parliament, it may be the case that Economics begins to see similar shifts.  An explosion of Funny Money possibly?

This may all sound like a load of futuristic digital gobble-de-gook but the remarkable point is that most of the above is happening today.  There will be plenty of twists along the way, many of which will leave people scratching their heads.  But there's no doubt many unlikely opportunities will also emerge for those who are watching closely.  Just as they did for my Uncle in those government auction rooms many years ago.

Comments

[Jim Boulton]

Sounds like your uncle had it right, working both the monetary and social currency markets. Of course the two have always been linked, but as our behaviour is increasingly transparent and our reputations only a Google search away, a decent dose of Whuffie is a pre-requisite to successful business. And hallelujah to that.

PS You're going to find yourself spending 13 years in the pawn shop unit if you carry on "following the money" - watch yourself, you feel me?

[James Cherkoff]

Mos def.

[Mark Downson]

This is one of the most amazing stories I have ever known regarding an Uncle started his entrepreneurial career in pyjamas.

Kepp blogging man^^

Appreciate!

[James Cherkoff]

Thanks Mark! ;-)

Good stuff, It might just work, although it seems easier when you have a plan.
I discovered your homepage by coincidence.