Weblo is the latest Internet invention to make a ton of money selling only virtual goods

By Danny Bradbury

For sale: one capital city. No previous owners. Price: US$295. Who could refuse? Certainly not Vincent Lamanna, a 22-yearold McGill graduate and software programmer at Electronic Arts in Montreal. Lamanna, currently working on video games for the Nintendo Wii, is also the virtual mayor of Toronto. He purchased the city from Weblo.com, the latest Web 2.0 startup to stake an online claim.

Staking a claim is what Weblo is all about. The company lets participants buy virtual property to call their own. The focus is on geographical locations; you can register an address anywhere in the world and build a Web site and a community around it.

Property owners can host forums, upload pictures and videos, and even host advertising related to the location. Property is categorized into three types, said Weblo CEO Rocky Mirza, who co-founded the site in 2002 and shepherded it through four years of development before its official launch. Regular property includes any geographical address. You could buy a house in Saskatoon or snap up the CN Tower. Famous properties and obscure personal addresses cost a dollar, but people buy them for different reasons, Mirza said. “No one will buy your house or mine, other than for friends and family members,” he said, although people may purchase old family addresses for sentimental reasons or to build communities around them.

However, “people are buying famous properties to make money,” Mirza said. The hope is that by snapping up the Statue of Liberty for a buck, you might be able to sell it to someone for much more in the future.

Cities, the second property category, generate revenue. A city gives its owner a 1.5 per cent cut of all properties initially purchased within it, along with one per cent of the membership fees from all Weblo members within its boundaries. The mayor also makes two per cent of all advertising revenues and 0.5 per cent of every transaction that takes place in that city.

The third property type, a state or region, yields five per cent of all initial property purchase values. Every major city in the world has been purchased, Mirza said, and people are now buying domain names. These domains may already be registered on the Internet at large; users can buy a Weblo-exclusive version that can only be viewed within Weblo, or the site can redirect the viewer to an external Web site.

So CocaCola.com or Disney.com could have been yours, within Weblo.

“The domain names all start at the same price and then people buy them and put their own prices on them,” Mirza said.

Finally, participants can host fan sites for celebrities (but only one fan site for each celebrity can exist). This was a tricky one for Mirza. His legal team said he would be on shaky ground selling celebrities’ names. Instead, “we’ll give people celebrity fan sites on a first-come, first-served basis for free,” he said. “We still place pay-per-click ads on the sites, and part of the revenue goes to the fan site owner.”

Mirza’s business model is based heavily on speculation, and mirrors speculation in the physical world. Domain name speculation is such big business that cameras.com sold for US$1.5 million at auction last year. By creating a virtual version of such speculative activities in his own site, Mirza is trying to build a liquid market, as Weblo takes a commission on all property sales. Advertising revenue will eventually comprise 15 to 20 per cent of total revenues, he predicted.

Revenue from the Web
But even in the virtual world, commerce relies on traditional notions of supply and demand, said Joshua Fairfield, associate professor of law at Indiana University School of Law. “Scarcity creates value, so sometimes it’s valuable to create scarcity,” he said. “There’s nothing new under the sun here as far as this particular issue is concerned. From IPOs to baseball cards, we’ve been creating artificial scarcity for years.”

What is it about an online economy that enables people to pull dollars out of thin air? In 2005, U.K. student Alex Tew came up with a novel idea to pay off his university debt. He created the Million Dollar Homepage (www.milliondollarhomepage.com), a single Web page with a million pixels, and invited people to buy them in 100-pixel blocks at $1 per dot. He sold them all—resulting in a page full of logos— leaving many people to wonder why they hadn’t thought of it first. In the Internet economy, making a million dollars from a novel idea has never been easier. The Weblo model seems to be working for some, albeit more modestly. The company claims its highest earner has made $7,500.

Lamanna chose to hold on to his virtual Toronto. “I have made about US$15 from taxes and ads. I am really confident that within the first year I will be able to recover my investment and also make profit,” he said. Still, Toronto has proved to be a big draw—he was offered US$15,000 within a few days of his purchase, which would have represented a 5,000 per cent profit.

Let users do the work
But to make money in a marketplace for speculators, you need liquidity. For that you need volume, which in turn requires the generation of participant interest. It’s just like selling space in a new shopping mall development, Fairfield said. “The more interest I drum up, the more other people are interested in becoming tenants at the shopping centre. The trick isn’t creating value out of nothing. The trick is coordinating interest so that it’s not just blind prospecting.”

What’s the best way to generate interest? Make your customer base part of the marketing effort. This is what Web 2.0 is largely about; the interactive Web asks a site’s user base to co-produce the product. Flickr was built from its users’ photographs. MySpace (whose former chair, Richard Rosenblatt, is helping bankroll Weblo) would be nothing without its participants’ pages. Weblo relies on its mayors and governors to create communities around their Web pages, and some payments are conditional upon the ranking given to a site by its community.

Weblo also runs an open-source branding initiative, which invites users to create logos, slogans and advertisements.

Mirza will pay “a small fee” for any marketing collateral used on the site, thus bringing Weblo two benefits: an increased sense of involvement among customers, along with cheap design and copywriting services.

Is this marketing buzz enough to generate business? Dan Goldberg was interested enough to get in on day one. He purchased Weblo’s virtual Vancouver for US$116 and sold it for US$500 some time later. “I don’t really know how users who didn’t get in on the first day will make money,” he said. “It seems to me that the value sweet spot in Weblo’s offerings is at the city level, and I was fortunate enough to capitalize.”

The success of speculative sites like Weblo depends on how effective they are at building communities, Fairfield said. “They’re going to have to come up with some really neat tools that can only be used within their own ’net-in-a-’net in order to stop the best content from just rising out of their subnet into the Internet proper,” he said. “If they just become a glorified ISP, there isn’t going to be much new. If their intra-community tools are good enough, however, they may end up another MySpace.”

Weblo is certainly doing its best to innovate. It already runs an auction system for property, and is now planning virtual elections with the resulting presidents able to define foreign policy and collect taxes from transactions within their country.

SIDEBARS

Pronunciation
Weblo, despite how it might look, is pronounced Web-low. Any other pronunciation, though humourous, is incorrect.

Growing pains?
The Weblo.com model is based on scarcity: if you grab a great property first, good for you, because there is only one. But that isn’t always true. As a quick test, we searched the site for “CN Tower” and found three of them ranging in resale price from $2,000 to $500,000. Such duplication is the exception rather than the rule, executives told us, but it hardly does much to support the first-come business model.