9 rules of grid competition

As OpenSim grows bigger and bigger, some grids might think that an easy way to gain customers would be to bash other grids.

For example, AviWorlds grid owner Alexsandro Pomposelli said in a recent comment, “For me a competitor is my mortal enemy.”

Now, I’m all in favor of competition and yes, drama, since that brings in readers which means more people learn about OpenSim in general, which means that the platform keeps growing.

But there are two kinds of competition, and the bad kind actually hurts the grids who are doing it, in addition to driving users away from the platform as a whole.

Here’s how to do competition right.

1. Don’t piss off your potential customers

Let say that you notice — to pick a random example — that InWorldz has a lot of users. You, you greedy grid you, you want some of those users.

So you start bashing InWorldz.

What happens? InWorldz residents get really pissed at you. They’re on InWorldz because they love it there. If they didn’t like that grid, they wouldn’t stay. They’d have left for one of the 200-plus other grids.

Now say you come out and say some nice things about InWorldz, instead. Now all those residents are paying attention — because you’re agreeing with something they believe in. They’ll be more likely to believe the next thing you tell them, such as, say, that you’re having a fun party on Saturday night. Or a must-see fashion show.

2. People won’t switch if you try to make them

Everybody has a grid that’s best for them. There’s no argument you can possibly make that will convince people to abandon their homes, their friends, their stuff, and the grid they love in order to come to your grid.

People can tell which grid suits them and which one doesn’t.

It’s like favorite foods or colors. You can’t argue about stuff like that.

But … there is something you can do: you can market people into trying something new.

OpenSim folks love to explore. If you have something fun to offer, they might stop by and check it out — out of curiosity if nothing else. And they might make friends. And get stuff. And, eventually, come to see your grid as their home, and get some land and settle in.

But you can’t force it. Have you tried to force someone to like a food? You can’t do it. All you parents out there are saying — right on!

But you can let people try a bit of yours, then try it again, and — on average, after 10 to 15 tastes — they’ll have a acquired a taste for it. Sure, some people will like something new the first time they try it, but most will need quite a few tries.

This is similar to the “rule of seven” of sales — an average customer will need seven points of contact before they buy. That means they’ll say “no” six times before they say “yes.” If you try to bully someone into saying “yes” the first time, when they’re not ready, their sales resistance will kick in and they might walk away forever.

All you can do is make sure your potential customers have lots of opportunities to see your grid in its best light. Deciding whether your grid is a good fit for them, that’s something totally up to them.

3. Don’t piss off your potential partners

AviWorlds came back from its most recent near-death experience with the help of SkyLife Grid.

Kitely recently donated $250 to help OSgrid recover from its outage.

You never know ahead of time who’s going to stretch out a helping hand.

Plus, other grids are your potential partners for events, for fundraisers, for tours, for hunts. An event happening on several grids will attract a lot more attention than an event happening on just one grid, and will encourage traffic between the participating grids. Not to mention inbound traffic from the general hypergrid community.

Say you’re having a fashion show, and designers from five different grids are coming. That will be a much bigger draw than one with just your local designers.

It helps to be friends with other grid owners to get these kind of events going, and to promote them effectively across all the participating grids.

That grid that you’re feeling the most competitive with? That’s probably also the same grid that would make the best partner. So don’t bite that hand. It might be feeding you soon.

4. Compete on the positives

Points 1, 2 and 3 above don’t mean that you have to roll over and be a lapdog while other grids walk all over you.

Go ahead and compete — but compete on the high ground, not in the muck.

Compete on having cool new features.

Compete on having excellent service.

Compete on having must-visit builds.

Compete on having the best events.

And you get way more bang for your buck this way.

Say you’re focusing your marketing on saying that some competitor has bad support. Sure, some of their potential customers might see that, and come to you instead. Or they might go to any of the other grids out there.

There’s only so much attention your potential customers have to spend on you. You’re wasting it by pointing out shortcomings of other grids. You’re only getting a small percentage of the potential results.  By pointing out stuff that you do well, instead, you’re maximizing the impact because the obvious reaction if folks believe you is to check out your grid, not any of the others. You’re getting 100 percent of the potential results.

5. Competition proves a market

If you are running the only zombie-themed grid out there, and somebody else opens up a zombie themed grid, that’s not a bad thing. It means that there’s a viable market of zombie lovers out there.

It shows that zombies are in.

And it gives your customers a choice.

Think of it this way. You and your friends are going out to dinner and are choosing between two equidistant towns. One has one restaurant in it. The other has ten. You’re more likely to go to the town that has the ten restaurants. In fact, that’s why some types of businesses tend to cluster together near their competitors — it actually increases business for all of them.

Competition attracts merchants. Makers of zombie avatars and accessories will know that there’s a market for their stuff on OpenSim.

Competition attracts event organizers. They can do their event on the larger grid, or pick the smaller grid in return for better support from the owners.

Most of all, it means that dissatisfied zombie-loving users will stay in OpenSim — if they’re unhappy with one of the zombie grids, they can just go to the other. Which means that they can come back again much more easily than if they found a completely different, non-OpenSim outlet for their zombie addiction.

Which reminds me — why don’t we have any zombie grids? I want a zombie grid!

Walkers in Episode 1, Season 5 of The Walking Dead. (Image courtesy Gene Page and AMC.)

Walkers in Episode 1, Season 5 of The Walking Dead. (Image courtesy Gene Page and AMC.)

6. There are more potential customers outside of OpenSim

If you are, say, starting a zombie grid, where are you going to look for users? On other OpenSim grids? Sure, there might be a handful of zombie fans out there. Or you could go to the thousands — millions? — of other types online communities that that specifically focus on zombies, who would love to be part of a zombie-themed world that they help create.

Partner up with some of those communities. Give free land to some of their most influential members, so that they can evangelize to all their friends. Take them by the hand and walk them through the initial setup process.

Post tutorials and how-to videos for those communities to learn from.

There are millions of people out there who could benefit from OpenSim and enjoy it, if they only knew about it.

By not reaching out to them, you’re actually doing harm to these people, since they’re stuck in their boring, drab, non-OpenSim lives.

Plus, you’re leaving them out of the opportunity to get a headstart on the metaverse. They could have become famous zombie accessory creators and become millionaires when the Oculus Rift and similar devices finally hit the consumer market. The window of opportunity for early entrants is about to start shrinking quickly.

By not telling folks about OpenSim, you’re denying them the opportunity to learn the technology early enough to become one of the initial winners.

Don’t forget — OpenSim is currently the only platform that supports the Oculus Rift, that allows user-created content, that has over 150 grids people can travel to via the hypergrid without having to create new accounts, that has multiple vendors competing to drive down hosting prices, that has marketplaces full of content ready to go, and even compete regions files ready to be uploaded to new grids. Plus, you can run a virtual world at home, or on your own servers, completely for free.

7. When a grid brings in new customers from the outside, all grids benefit

Say you’re running ads and articles and tutorials on all the zombie-loving communities on the Web. People hear about your grid, do some research, and find out that there are several zombie grids.

As per point number 5, this will make them more likely to try out your grid. After all, if they download the viewer, and log into your grid, and learn how to use the controls, and then find out that they don’t like it — all their effort isn’t wasted. They can visit the other grids and see if they like them better.

Plan ahead for this and use it to your advantage. Team up with the other grids to reach out to the online communities. Make it clear that OpenSim is where the zombie action is.

And if you’re one of the grids sitting out on the sidelines, don’t get mad that these grids are running successful campaigns.

Because a new user to any OpenSim grid is a new user, potentially, for all OpenSim grids. Once they have a viewer, once they’ve learned how to get around, people will start visiting other grids. After all, a man or woman can’t live on zombies alone. You want to try other stuff, too. Some days, you feel like a zombie. Other days — like a delicate flower fairy.

Which reminds me, where is our delicate flower fairy grid?

8. Yes, wars can help sales

The Coke-Pepsi wars prodded customers to choose a side. Are they with Pepsi, the choice of a new generation? Or do they prefer Coke, the real thing? I’m a Coke girl, myself. Specifically, Diet Coke. If I can see the label on the can, I can’t even drink Diet Pepsi it’s so foul. Of course, in a plain glass, I can’t taste the difference, so I know it’s all in my head. But that doesn’t mean that I would ever buy Pepsi.

I have few other brand allegiances — I don’t care about ginger ale brands, for example, and happily buy the generic version.

Pizza restaurants do this too. Two restaurants in the same town will declare war on one another, and run lots of ads and other marketing outreach trash talking the other guy, and watch both of their sales go up while the other guys lose sales. In real life, of course, they’re friends and masterminded the whole thing together.

For this to work, though, the war never has to get so negative as to drive people away from pizza altogether. The ads have to proclaim each restaurant as better than the other one, instead of worse than the other one. Once a war like this goes negative, what happens is that customers will leave both restaurants in favor of the other guys in town.

An ad like “our pizza is made with fresh ingredients!” will bring in customers. An ad like “they use stale vegetables and rotting meat” will drive customers away from the other one — without necessarily bringing them to yours. Especially if they retaliate by saying that your cooks spit on the food.

Abraham Ford in Episode 1, Season 5 of The Walking Dead. (Image courtesy Gene Page of AMC.)

Abraham Ford in Episode 1, Season 5 of The Walking Dead. (Image courtesy Gene Page of AMC.)

Which brings us to point 9…

9. If one grid suffers, all grids suffer

If your negative marketing drives a grid out of business, or just annoys the owners enough that they give up and close up shop, then everybody suffers.

First, their residents are going to hold a grudge against you for destroying their favorite grid, so they’re not going to come to you, anyway.
Next, some of their customers are likely to leave OpenSim altogether. That hurts everybody.

And would-be grid owners are less likely to come to OpenSim, seeing that there’s a negative climate waiting for them.

That means fewer choices for everybody. Fewer things for OpenSim residents to do. Fewer places for them to visit. Less content for them to enjoy. Less reason for them to stay and to invite their friends over.

I don’t have an Internet connection just to visit one website. I go online because there’s a lot of stuff that I want out there.

For small, hypergrid-enabled grids in particular, taking down competitors is a lose-lose-lose proposition.

Related Posts


Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China. Follow me on Twitter @MariaKorolov.

38 Responses

  1. arpholdings@gmail.com' AviWorlds says:

    Nice article Maria. Competition is good. It keeps us in our toes. It generates better quality products and also scales down prices. So yes competition is good for the consumer of that final product.
    When I say mortal enemy I meant that a competitor is there to take a market share that Im after and yes that makes it more difficult for my business because now there are more cows eating from the same pasture.
    I do not approve of hurting my competition in an unfair way. Never.
    But I do enjoy beatting them with my ideas and my marketing strategies.

    • The problem is the phrase “more cows eating from the same pasture.” That’s the wrong mindset to be in.

      Instead, think of it as an outdoor market. The more stalls and the bigger the market, the more people will come to shop there. Who wants to drive all the way to come to some dinky little parking lot with a couple of half-empty stalls?

      You want to come to a place that’s busy, and fun, and has lots of different things for everybody.

      Would you go to an amusement park with just a couple of rides? A video store with only a handful of movies? A World Wide Web with only a couple of sites?

      Sure, if you’re the only store in the mall, all of the mall’s customers will come to you. But how many people will bother driving to that mall in the first place?

      You gotta remember that trying OpenSim for the first time is hard and scary. The more grids there are on the platform, the more stuff to do, the more people will be willing to take the risk and spend the time and effort to learn how to get here.

      Okay, porn will help, too.

      So if you’re competing against grids — at least, for all our sakes, leave the porn grids alone!

      • arpholdings@gmail.com' AviWorlds says:

        Ok let me put it this way.

        If a company helps another company in a very large way these two companies will probably merge. They become what we call SYNERGY. As one and at the same time they are separate.

        An Amusement park creates SYNERGY among all the rides. Each ride helps the whole park make money and the park helps each ride make money.

        it is different when a grid says YEAH I will help you but at the same time the same grid is competing with your grid and hoping your grid closes. I call that COLD SYNERGY.

        The example you named SKYLIFEGRID and AVIWORLDS. Josh came in and helped me in a big way so what happened after that? SYNERGY. The result of another company helping another in a big way usually ends in SYNERGY. The two companies usually end up connected.

        • You’re way off, Alex. In a shopping mall, none of the stores are related to each other, and don’t help each other out in any kind of business sense (though they may do joint promotions other events) — they’re just located in the same place. The Orange Julius isn’t about to merge with Sears. But having Orange Julius right there means that when people get thirsty after shopping at Sears, they know where to go.

          Having different, totally distinct grids located near each other means that folks can hop from one to another to get stuff on one grid that they can’t get on another. It means that a grid doesn’t have to be everything. It just has to do a couple of things really well. It can be a Sears and let someone else be the Orange Julius.

          One grid can specialize in nude beaches, another in fashion fairs, another in book readings.

          This is how the Web works. This is how shopping malls work.

          No grid should be hoping that another grid closes. If ANY grids close, OpenSim suffers. It doesn’t mean that other grids get more customers. It means that some people will leave OpenSim forever.

          Or, think of it another way. In a year, the Oculus Rift will hit the market. People will be looking around for platforms to create virtual worlds on. Today, OpenSim is the most attractive of any of the open source platforms. Every new grid we add before now and then, every new content creator that comes in, every new scripter who creates cool stuff — that will make OpenSim even that much more appealing.

          You’re creating a virtual reality experience. Do you want to join a community with 20 grids? Or 200 grids? Or one with 2,000 grids? Or 20,000 grids?

          You want to set up a new hosting company. The more grids OpenSim has, the more of an obvious market we are.

          You want to create a virtual home somewhere. Do you want to put it on a grid where you can hypergrid teleport to hundreds or thousands of other grids? Or on a platform with hardly anywhere else to visit at all?

          This should be a NO BRAINER. We’ve got a year’s worth of a window of opportunity here, maybe two, before everyone and his brother rushes in with a competing platform.

          Sure, plenty of those other platforms will be too centralized, or too proprietary, or too limiting, or too far ahead of their time.

          But I think OpenSim has an excellent chance of coming out on top, so that these other platforms will have to be compatible with us. Our viewers can already show mesh — there’s nothing stopping our viewers from visiting other platforms, and getting everyone on the hypergrid. And the new GameFace viewer, they say, will support OpenSim, SL *and* High Fidelity. Are they going to bother with us if our grids are being driven out of business by negative competition?

          By going negative, you’re only hurting yourself.

          • arpholdings@gmail.com' AviWorlds says:

            No Maria. ,actually in a shopping mall the stores do help each other out because they are creating VARIETY. People will go to the shopping mall because they can find everything they want there. Plus is warm in the winter, they have food courts etc. So yes they are creating SYNERGY. Yes they do help each other in an indirect and direct way.
            There is no nice in the business world. The fact is that even in that same MALL you are talking about; if there are two stores selling the same product you bet they wish they were the only store in that mall selling that product. But at the same time they are part of a group of stores that sell different products that ATTRACT more people just because of that.
            I myself would never place a store in a sidewalk here in NY. Unless it was in Manhattan which is in itself a GIANT mall.
            Like I said it is ok that a business helps the other business and it will be in a very small way. If the help gets to be too big then the two business will probably merge.

          • Alex —

            Business clustering is a really, really common thing that happens. Bars cluster in college towns. They’re competing with one another, sure, cooperating other times, rarely merging. In Shanghai, I remember one street just full of hairdressing supply stores. You’d wander from store to store looking for what you needed, and many stores carried similar products. A few blocks away, there was a street of stationary and office supply merchants.

            In the Middle East, you get spice markets, rug markets. Vegetable and meat markets. In the US, we have Wall Street, and Silicon Valley, and Hollywood. Competitors often cluster together. It attracts customers, it attracts employees, and it attracts investment.

            OpenSim benefits in the same way. The more grids we have, the more we attract customers. The more we attract potential employees. And the more likely we are to attract investment.

            It doesn’t have to be either extreme of a merger on one end and all-out war on the other. The optimal strategy for business success is friendly coopetition.

          • lmpierce@alcancemas.com' lmpierce says:

            I just have to say the most obvious example of that I can think of are auto dealerships. They always cluster. We have several examples in Los Angeles. In one place, if memory serves, there is even a city sign that says “Auto Row”. I wondered about this years ago, but as it turns out, auto dealers understand that when people are out shopping for a car, they have not (usually) made a final decision when they first arrive, so being near a competitor means the strong possibility of picking up a customer. It’s also known that people like to go out to a single location where they can shop among competitors.

            It’s also interesting that a single dealership will sell competing makes of auto, so we have Keyes Honda and Keyes Toyota and Keyes Chevrolet. Now, Keyes Toyota is not out to outcompete Keyes Chevrolet – this is a rather obvious case of implicit cooperation. What’s interesting is that the competing auto makers see value in this, or they wouldn’t allow it.

            I’m sure everyone would agree that the market for automobiles is very competitive, and for most people, a car is the second most expensive purchase they will ever make, after a home. So, again, this principle of clustering clearly has merit.

        • wintersilversmith@yahoo.ca' Winter Silversmith says:

          LOL yeah Synergy. I watched that Romantic Comedy “In Good Company” where all the time they were trying to sell ‘synergy’ when in fact it was just BS to keep people from asking the real questions. Fact is competition is good and I’m not certain how “For me a competitor is my mortal enemy” can be misinterpreted. To me that sounds like you hate your competition and will do everything to kill them off, not exactly a good thing. Competition is about polishing your skills and offering more to the consumer, not attacking your neighbours. In RL I/we did this. I worked for a convenience store, with a competitor directly across the street from us. We spent our efforts making our store better, cleaner, more selection, better service. It wasn’t about smashing the neighbours, it was about showing the consumer we could and would do better. In under 6 months our competitor didn’t “get it” and instead of trying to improve too they just closed their doors. I agree with Maria, if you think you are all ‘cows grazing in the same pasture’ then your marketing skills need some work. The internet pasture is the size of the planet, we limit ourselves to thinking it is the same as an RL shopping mall or single city. And when two companies merge it isn’t called “synergy” it’s called a “merger”. Synergy, which can be performed by a single umbrella company can take the smaller companies beneath it and have them work together. The goal is that the smaller companies make more money for the umbrella company. Like in the romantic comedy movie “In Good Company” they can put magazine sports statistics on a cereal box which suggestively sells the magazine to consumers and makes ad sales for the cereal company. But also like in the movie someone reading a sports magazine doesn’t want to see an ad for computers. The stores collect in a mall because it is warm and dry and humans like to be warm and dry while they shop. It has nothing to do with the stores “working together”. They all collect there because that’s where the people are and it’s a lot cheaper to lease a space than to build and promote a free-standing store. If anything, as Maria said somewhat, the Orange Julius exploits the fact that people who are shopping at Sears will be thirsty and they take advantage of it. Sears and Orange Julius didn’t conspire together to get customers. The idea of having specialized grids, one for nude beaches, fashion fairs and book readings is one direction that OS should be heading, with Hypergrid connecting them all together. In fact, we should take a lesson from RL. When you go to the city you find, for example, an ABC Convenience Store on every other corner. While this captures the market it also saturates it. Instead of one ABC store making huge revenues now it must compete against itself. In the metaverse you only have to have one location promoted correctly. In RL we have to travel minutes if not hours from place to place, in metaverse we can do it in seconds. You can only have so many stores, you can only have so many residences. Focus on the one or two things you excel at and that people want, then compete to ensure that the product or service delivered is the very best it can be.

          • arpholdings@gmail.com' AviWorlds says:

            I guess you did not read my post where I say competition is good and all the bla bla you say here and you are putting words in my pen. I did not say I hate my competitors.
            DO I wish there was only my grid and SL? Yes!
            The NICE is not in my vocabulary when it comes to competing against my direct competitor. That does not mean I hate them. Do I want to destroy them with my ideas and strategies ? YES. I am being honest. All this NICE NICE yeah I love my competitor is not real.
            Yes it does create better quality and better prices when there is competition. BUT the word in itself COMPETITION. Means you are competing and by competing you are naturally trying to BEAT someone else at the samething you do. Can be playing tennis, soccer, etc…

          • Thanks for putting that in CAPS. I don’t think I would have been able to read it otherwise.

          • lmpierce@alcancemas.com' lmpierce says:

            In this instance I see the use of all caps for a single paragraph of two sentences as just a way to highlight the core point being made.

          • lmpierce@alcancemas.com' lmpierce says:

            Well, you did say your competitor is your ‘mortal enemy’, so it’s understandable if that comes across as implying ‘hatred’ of your competitors.

          • Frank Corsi says:

            Alex…. they are going to beat you down now matter what you say now. They are focused on the one line you said and not anything else. I do see your point!

  2. lmpierce@alcancemas.com' lmpierce says:

    Hi Anonymous,

    As moderator I appreciate your concerns about the discussions.

    One way to be proactive is to participate in accordance with our guidelines, which includes two options for readers to participate in moderation. One way is to flag inappropriate comments. The other is to email me at: [email protected].

    I think it’s fair to say that it’s human nature to squabble and criticize and praise and call into question the representations made here, both in the articles and in the comments. Our aim has been to encourage lively debates and discussions. There have been occasions since moderation began when comments have been deleted precisely because they stepped over a line that correlates with your concerns about fighting and excessive sqabbling. The line is not arbitrary, however, we do have discussion guidelines that inform our decisions.

    I would only add that were people go, whether in person, or as avatars, there will always be moments of drama. Precisely because OpenSim is entirely democratic, there is no central control to ensure ‘good behavior’, so I would expect to see a full range of expressions in this venue. What we hope to do at Hypergrid Business is provide a rich forum that contributes to the Metaverse (however that is defined). And, as noted, if you have further concerns, please feel free to contact me.

  3. “7 rules of grid competition” yet i count 9, just sayin xD
    Also, thanks for this Maria, learned alot on how i can help improve ZetaWorlds.

  4. trrlynn73@gmail.com' Minethere says:

    Maria says; “By not reaching out to them, you’re actually doing harm to these people, since they’re stuck in their boring, drab, non-OpenSim lives.

    Plus, you’re leaving them out of the opportunity to get a headstart on the metaverse. They could have become famous zombie accessory creators and become millionaires when the Oculus Rift and similar devices finally hit the consumer market. The window of opportunity for early entrants is about to start shrinking quickly.

    By not telling folks about OpenSim, you’re denying them the opportunity to learn the technology early enough to become one of the initial winners.”

    While I agree with this in principle, the fact of the matter is that there is still a very small gene-pool to draw from, and of those there are some who are two-faced and spread disinformation.

    It is all well and good for intelligent people to want to see the good that can come of this, but, people being people, there is tons of different perceptions on “what truly matters”…combine this with those who speak out of both sides of their mouths completely apposing comments and thinking, this presents the greater Meta with the true problems.

    And there is simply no way to convince those types, in truth, to think otherwise.

    So to accomplish some of this there must needs be a tipping point of truth, eye-opening, bald-faced truth…because the fact is that when something is over-hyped, people go there, they see for themselves the truth of the matter, they leave, either back to SL or to some other “thing” on the net.

    In other words, don’t tell people you have tons of events without also saying that at these events it is typical there are usually only a handful of people attending, and half of those are the hosts/promoters/staff/NPCs [lol on the NPCs].

    The over-hyping, imo, is one of the top problems going on now, and those who do it do it for very smallish and typically selfish reasons, which, de-facto are NOT in the best interests of the Open Meta.

    There also needs to be more people promoting what others are doing. I see this all the time in the Meta. Of course, humans being humans the largest percentage of people hype their own things they are doing, and that’s fine, self-promotion is necessary, but we need more to help spread the word of “what other people are doing”.

    For example, the Seanchai people in Kitely are very good at self-promoting, imo, but hardly any people attend their very nice voice storytelling events…and they are really missing out.

    And there are numerous other events more often than not getting very little participation…I see it all the time and I only attend one event a day now at most.

    Perhaps with all this talk of working together someone needs to hire some actual experienced marketing person[s] who are grid agnostic ][I mean, really truly grid agnostic, not just mouthing the words] to promote all things they can, in as many places as they can.

    For hypergated places, of course-)))

  5. Frank Corsi says:

    Does virtual currency received by an independent contractor such as a DJ in a virtual world cub, for performing services constitute self-employment income?

    • When it’s cashed out, yes. If it stays virtual — it’s a gray area of law.

      So, for example, if I go on Kitely and host a party and get paid in KC (a purely virtual currency, no way to cash it out) and then use that currency to pay for my virtual land then, in effect, I’m bartering my DJ services for land. Technically, that is taxable. Barter transactions are still transactions.

      In practice, however, it is an almost impossible thing to enforce.

      If, however, I DJ in Second Life, and am able to withdraw more than $400 a year in cash, I need to pay self-employment taxes: http://www.irs.gov/taxtopics/tc554.html

      • Frank Corsi says:

        Answer is “Yes”. Generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. Consequently, the fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to the self-employment tax. See FS-2007-18, April 2007, Business or Hobby? Answer Has Implications for Deductions, for information on determining whether an activity is a business or a hobby.

      • Frank Corsi says:

        Here is an easy one for you!

        Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?

        • Frank Corsi says:

          Answer is “Yes”. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency,measured in U.S. dollars, as of the date that the virtual currency was received.

        • wintersilversmith@yahoo.ca' Winter Silversmith says:

          so that means this new Bitcoin currency is taxable? as it is a virtual currency also.

          • Frank Corsi says:

            Great observation!

          • Frank Corsi says:

            Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?

          • Frank Corsi says:

            Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income.

          • Frank Corsi says:

            Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities?

      • Frank Corsi says:

        Remember this is for virtual currency.. your link was not for virtual currency law.

      • Frank Corsi says:

        Here is another one for you! I got a big list of these.. but…

        Is money from sold by Podex considered as Foreign Virtual Currency?
        And will that be subjected to the same law as using say UK Pounds in your US based virtual world?

        • Frank Corsi says:

          LOL… Guess what… according to the IRS… it is a foreign virtual currency and it has more regulation than virtual currency created in the US…

      • Frank Corsi says:

        Does virtual currency paid by an employer as remuneration for services constitute wages for employment tax purposes?

        • Frank Corsi says:

          Yes. Generally, the medium in which remuneration for services is paid is immaterial to the determination of whether the remuneration constitutes wages for employment tax purposes. Consequently, the fair market value of virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement. See Publication 15 (Circular E), Employer’s Tax Guide, for information on the withholding, depositing, reporting, and paying of employment taxes.

      • Frank Corsi says:

        The IRS does not mention such “gray area of the law”.. It is very clear.

  6. Frank Corsi says:

    Will US taxpayers be subject to penalties for having treated a virtual currency transaction in a manner that is inconsistent with this notice prior to March 25, 2014? (under section 6662)

    • Frank Corsi says:

      US Taxpayers may be subject to penalties for failure to comply with tax laws.

      For example, underpayments attributable to virtual currency transactions may be subject to penalties, such as accuracy-related penalties under section 6662. In addition, failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722. However, penalty relief may be available to taxpayers and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.

  7. fernando.francisco.oliveira@gmail.com' Fernando Francisco de Oliveira says:

    Nice article Maria. What came to me in this, was your description of “bash your competitor”, just because this week we have presidential elections in Brazil, in the second turn. And the actual president and candidate for reelection is just bashing the opositor in personal ways, or any way they can to not loose the job.
    It’s a very uggly way to do business or political.
    In these days, we must to give our best to our customers to keep them happy and with you. be friend of them, even if they want to leave.

    • Frank Corsi says:

      Good reply, and even worst is to “Scare” the crap out of people with misinformation, so the customer is scared to death to do business with you. Just bad business practices in my opinion.

  8. Frank Corsi says:

    Maria may disagree with my posts on this page, but they come directly off the IRS website. http://www.irs.gov/pub/irs-drop/n-14-21.pdf