Second Life Reinventing Themselves?

Some days ago SL announced they were firing 100 people. They said it was because a restructuration of their business. Some said that this has to do with their strategy, some time announced, to integrate with social sites like Facebook and integrate SL inside web pages. The companies asserts that this has nothing to do with economical problems.

At the same time, they have lowered the exchange value of the Linden Dollar. This can have a double meaning: it can be a sign of weakness, or a wise move to reduce their vulnerability.

I decided to publish this some days later because at this time everybody knows this, and to have more time to think about it.

The immediate reaction is thinking that if they don't have problems, why do they fire 100 people? Well, let's accept they don't have them, and that people that lost their job have been well compensated. Then, it may be a wise move.

When I first knew about SL years ago, and heard all those news in the TV and radio, I had a very bad concept of SL, that was the unreal hype the media spread about them. I even was upset, because they image of virtual worlds that was being projected was that all in virtual worlds were a mad orgy (you know what I mean).

Later, inworld, I saw that all was just exaggeration, that SL was just like any other virtual world, even better that the majority. The application was not hard to use at all, the worlds were so many... There is an enormous creativity and beauty inside Second Life, and lots of creative people, that make music, movies, build worlds, create avatars... much more than in any other virtual world. You only find the negative side if you are looking for it, if you aren't, you don't even see it, just like in Google or the Internet in general. The good and bad is inside you, just like in this first life.

Photo by rafeejewell

I said long time ago that SL has a pyramidal structure, based on their hype. Now that the hype has ceased, they need to decrease their size, become smaller. Their costs must approach zero, because they don't charge their members to belong to SL, like Active Worlds does from the beginning.

Funding through advertising is hard, because people tend to be more blind to ads as time passes and they become used to them.

It's difficult for virtual worlds that don't charge a monthly or yearly fee (or have stopped charging) to start or return to charge for membership. They usually loose most of their members. Specially if it the difference between paid accounts and free accounts doesn't exist, or is minimal.

Another critical aspect is that SL charges big quantities of money to people that own land based on that they have an huge traffic and influence on people and in the media. If SL becomes smaller, this influence, hype, and traffic will be smaller too, and may not have this effect.

Virtual money. It was the base of part of that hype. Some virtual worlds try to get real money that they need in exchange for virtual goods. Piracy and excess of free content are the enemies of this politics. Limit the amount of free content uses to be unpopular, but maybe is just a matter of controlling what is genuine free content, and not pirated content or content of unknown sources.

Worlds that are not big enough, or didn't generate much hype, live from the fees that their members pay. If there are free accounts, there must be premium accounts that provide attractive features that  make people embrace them. SL should create or restrict these features and accounts.

The problem with restriction is that make people angry because what was free now isn't, and no one likes that. On the other side, free accounts in SL are so full of features that no one in the world would want to pay for anything else.


Photo by rafeejewell

One solution may be to popularize building. Instead of having to pay a high fee for land and building privileges, make building more affordable even for those with less resources, give them more for less. The counterpart is that crappy content that make the whole virtual world look ugly may proliferate more. In addition, the fee for builder accounts must be high enough to pay the storage and generated costs of what is built.

To summarize, SL may be trying to be smaller, and this is good to survive. They may be trying to stop being a dinosaur, and start being a small sized predator, to avoid being a prey.

To avoid this, they are facing the same old decisions and alternatives as every virtual world, some things that every virtual world should decide before even starting their activity.

Their virtual citizens must understand that it's better changing than dying, and we've seen many virtual worlds die in the last times. Some of them we had suspected (

Second Life, as many other big Intenet businesses and even persons, are coming to the point of realizing that "everything for free" is not sustainable. But we will talk about this another day.

-Jordi R. Cardona-

© by Jordi R. Cardona. Link to this post without copying the text.

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Simon Newstead said...

Thanks for this good analysis. I agree with importance of defining the right free vs paid model for virtual worlds :)

mcfly said...

Good articel. Second life is free to visit, but not to build. I dont like Second Life: it just makes me uncomfortable. :)
Are there worlds that are open for building? I personally like the random nature of worlds open for building.

Jordi R Cardona said...

@McFly Yes, that's why some people moved to OpenSim. Anyway, everything has a cost, even for that person that is hosting his own small server in his home, and P2P or home server solutions have the lag problem more frequently, and are more easily hacked than an enterprise server.
But I understand what you say. I have been one of the Outers and understand the attractive and freedom feeling of spontaneus unorganized communities, like a big family that one can't know where exactly they are but they are there, and entering new undiscovered worlds each time one connects, worlds that maybe won't be there another day unless you save the link.

@Simon Thank you. I think people should be educated into the though that everything has a cost. If they don't pay a fee, they may finance through virtual goods and ads, like in Facebook. But this way of funding needs a high traffic: many people must visit the site, because most of them won't pay for anything, never. Free attracts people that don't want to pay, we should always remember this.
On the other side, people should be educated into thinking that if they like something, they may help its success spending. If I like a magazine I buy it, if I like a music band I buy their album. In virtual worlds it's the same, someone that is a user may be happy to pay because they support the world they like. AW got that, but it's harder each day, people are simply used to get everyrthing free on the Internet.

Pier said...

Good Analysis Jordi. Probably you're right when you say that virtual worlds need to be smaller (and then, the companies must follow the same path, too)
Indeed, it seems that during the M Linden management Linden lab tried to make Second Life more consumers oriented, mostly on the revenue source side. They bring XstreetSL under their own brand. Started a consumer marketing oriented activity, and so on.

The problem, I think, is that Second Life is a "land" based company. They must allocate huge tech resources in order to keep the "lands" alive and functioning for the sim owners. They have huge costs to keep the region alive. In order to cover such costs, they have to sell lands at rates that are not exacly "consumers-friendly".

So, the new-consumers wave make some sense on one side, it's high risky on the other. Because consumers (even if you have a good ratio of premium to free members) can't efford the cost of lands.

At the same time, regions and sims are at the core of the Second Life experience.

IMVU from this perspective has a more solid business model. Freemium and virtual purchases offer a complete reliable model and source of revenue. Second Life instead must look both at the consumers and at other revenues sources (enterprice, organizations, etc)

I want to say, that it's very complex to manage so different angles of the problem and find the correct balance to make Second Life prosper and the community thrive.

Jordi R Cardona said...

@Pier I could not have said better, I think you're 100% right. I would add that the problem SL is facing now is derived from what you say: with the economical crisis and the loss of mass hype about how good is for a company to have land in Second Life, many business land owners may have left SL. Then they are in the need to get more "consumer" members, depend less on business members (although as you say, they both are consumers of SL goods).
This is the main danger now, to be destroyed or damaged with the adaptation to the new situation. I think the right moment is now, specially if it's true, as they say, that they got record revenue this year. They must not wait until the situation becomes risky.

This makes me think about the first news I heard about SL. As I already knew about old virtual worlds platforms, it all sound attractive but exaggerated for me. I am sure that brands get a friendly public image when they settle in SL or another world, but saying it was a key to success or that will generate enormous revenue for them was clearly an exaggeration. In some way many business acted like fools, now they realized and while in an optimistical situation they may stay because it gives them publicity and good branding, in an economical crisis it's obvious that they will leave SL.

In the good side, if SL wins resistance against low revenue from enterprise customers, when the crisis goes away they will get a bigger success than before.

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