How does Linden Lab, creators of the most popular non-game virtual world, Second Life, make their money?
Easy: land and a cut of the marketplace.
How are they going to ensure that they continue to have this revenue stream?
Easy: Stick their fingers in their ears and pretend its competitors don't exist.
Losing Education and Corporate Focus
Virtual tradeshows? Business meetings spaces with integrated file sharing software? Okay, let's face it - Second Life was never great at them, and any focus they wanted to have they abandoned with canceling SLEnterprise, a sturdy, behind-firewall corporate solution, and laying off 1/3 of their company earlier this year, which including canning everyone on their enterprise team, with the exception of literally one or two people. I'm still waiting to hear from Linden Lab that they weren't meeting sales figures on SLE, but I digress.
Now education is a shocker - Second Life is a natural place for collaborative educational space, for simulations of science and history, and for social experimentation in a safe environment. Maybe Linden Lab figured they didn't need to spend money on convincing colleges and universities to come play, when they fired off anyone who marginally had any relationship with helping educators in Second Life? Then they canceled the Teen Grid, which puts a halt on secondary school level projects.
OpenSim and Direct Competitors
I recently have gotten the chance to work with OpenSim directly, and also with ReactionGrid's implementation of OpenSim. While these are both easy to work with, the HyperGrid that connects many OpenSims lacks two key things Linden Lab provides in Second Life:
- A central economy with IP protection for content creators.
- A large existing community.
For all intents and purposes, OpenSim is the same as Second Life otherwise. Sure, OpenSims tend to be a bit less stable, but nothing worse than where Second Life was in 2005 or 2006. OpenSim has a couple of features that don't work right - like groups - but then again, groups in Second Life is pretty much broken anyway. Who needs a limit of 25, and have chat routinely break, and no way of controlling group invites as spam, etc?
But with the two advantages that Second Life has, it should be obvious that these are not advantages for long. A economy for virtual goods is not a Linden monopoly; as the number of people grows, so does the potential for money-making, and there will naturally be companies that step in to fill the need for handling micro-transactions. A large community is only about where people are, and people are mobile. Time and time again, people will upgrade to new technology as it becomes available. And so only in the availability of new and cool features can Linden Lab expect to keep communities in Second Life.
Linden Lab Gives Away Features
I love the fact that full collada-compatible mesh support is coming to OpenSim soon after it hits Second Life. And I love the open source initiative that Linden Lab promotes. Second Life would have been stale and buggy and passed by a competitor if it hadn't initiated this back in 2006. However, if Linden Lab gives away all of Second Life's features, what advantage does it have in this respect? Up-time? Better machines?
Nice Things About OpenSim
- - All of the controls land owners have begged Linden Lab to implement in Second Life since 2005? Control? Back-up? Changing settings like prim count? Create whatever avatars you want and control who accesses them? Done.
- - Can run on almost any machine you want.
- - Run on a decent machine, can outperform Second Life, especially on a local network.
- - Can support different grid architectures, including Intel's latest forays into making 1000 avatars in a sim with basic load-balancing techniques.
- Can be customized by developers to run custom applications directly with the software.
- - Entry price is cheaper per sim.
- - No licensing fees.
- - Roadmap for developing features shared with the community, rather than a black-box need-to-know methodology as Linden Lab takes.
Marketing!
Yes, Linden Lab has money. It can market Second Life better, right? Well, they just lost their main marketing person. (Who, as word on the street goes, was good, but always had her hands tied.) And their strategy for marketing over the past year has basically been 100% escapist. I mean, besides the fact that "Second Life" as a title screams "fantasy world" flavor of gameplay, they've done promotions this year including, "Go be a vampire in Second Life". Seriously?
So, if Linden Lab wants to promote itself as a game, it enters the big, BIG leagues. EA and Blizzard and Activision and 2k - game companies with far bigger revenue streams. They can outresearch, outdevelop, and outmarket Second Life in far shorter release cycles. Linden Lab taking on the entertainment space is a mistake. They should stick to what they do best, and what legitimately is better than other platforms - Second Life has the most diverse set of communities.
Go The Facebook Route?
Linden Lab could build on community-making as a platform. Where Metaplace failed because of an immature economy and a lack of 3-D immersion, Second Life can shine.
Unfortunately, Linden Lab seems intent on killing this, as well, as they just shut down AvatarsUnited, which was a multi-virtual-world avatar social network.
Let me say this a different way.
Rather than try and corner the market on avatar communities, while companies like Facebook enact official policies banning using avatars as primary identities, Linden Lab decided to wall themselves off and shut down their one resource that could help them branch out to more communities.
So What Is Their Business Model?
I can't see it. Anyone have any ideas?
I'm a fan of Second Life. I've heavily promoted the platform for years. And when Linden Lab makes smart decisions - and they do make a fair number of them - I do praise the decisions. So I'll be clear - I want Second Life to succeed as a platform.
As it currently seems to me, while the platform will survive, and Linden Lab will need to rethink its strategy - or pull something from up its sleeve that they've been hiding - if they want to survive.
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15 comments:
If Solo Mornington ran Second Life:
1) Develop for the HyperGrid project. That is, publish an open standard for inter-grid teleportation, that honors IP restrictions for SL content.
2) Implement HyperGrid on SL.
3) Put a meter on it. Such that if you have Premium - or some form of scaled payment per asset perhaps - you can bring your goodies to a faraway land.
The service of SL itself is no more or less valuable than that of OpenSim grids. The value SL provides is the vast collections of assets that the users have (and have paid for).
If your skin is no-trans, it doesn't come with you. But the rest of your stuff, the stuff you've already built or own... All that just wanders wherever you want to go. No need to export it to LLSD or HPA or some kind of copybot gray area.
I mention this because it's a service I'd love to have, and would pay for.
If they do have a plan they are keeping it pretty well hidden.
You've done a pretty good job of outlining the weaknesses and skimming over the strengths (I know, the weaknesses are just SO many!). As Solo points out the large existing community you mention also has access to a big swathe of existing content that is not matched by other vw's yet. Existing ties, relationships and groups are also a strength.
It's hard to find an avatar in another virtual world who hasn't migrated there from Second Life, so there's another strength - SL gets the newcomers. How they can keep them is another story.
Solo- Content creators in Second Life do not by default hand their IP over to LL to allow you to take it to other grids. A whole new set of perms would have to be established. You might 'own' or 'have paid' fo content in SL but that doesn't give you the right to have it anywhere else. This would need to be tested in court perhaps - a BIG can of worms.
As Ron has pointed out, SL provides some (not much) IP protection for its creators. Setting up the sort of system you are talking about negates that protection, since some other vw's have little regard for or are unwilling or unable to police IP issues.LL could find itself responsible for IP rights on other grids?
Also if the big mass of content is one of their greatest strengths then they'd be mad to let it all go outside SL. Why would they commit such suicide?
I do not think they have a clue what to do. The server structure is no good for games. LSL is not very good for scripting games or objects. Land is the most expensive server space on the internet. Community services are terrible.
How many partys can you go to and what are there to do in SL after that. I love to build and develop land but now i have my own island on the OSgrid so i can build as much as i want.
If Linden lab do not want to go back to sex and gambling (that works everywhere). Maybe they should build on the Linden dollar. Thats as system that works very well.
I suspect they have an interesting mix of competing ideas inside the Lab, and at least a provisional consensus on how they are proceeding for the time being. We don't imho have nearly enough visibility into their revenues and plans to say that they don't have any.
They may not have an *apparent* business plan, but then it's not necessarily in their interest to make their business plan apparent. Remember, they aren't a public company with stockholders to inform; I imagine their private investors get quite a bit more information than we do. :)
The "how can they compete with OpenSim" question continues to amuse me; the answers are so obvious. First, they have a *vast* amount of existing content and users and people with time and energy and money invested in their world. For more comments on that, see "http://daleinnis.wordpress.com/2010/08/03/the-value-of-dirt-in-tokyo/". If all you want to do is build for yourself, and don't care if anyone else ever sees it, great; but I don't think that's a really huge market...
And second (and third and fourth), as much as we love to complain about it, Second Life the platform is *vastly* higher function and higher quality than any OpenSim-based world I've tried. OpenSim is great, but it's built and maintained by amateurs, based on what they feel like working on at the time, and it's usable only if you're willing to put up with crashes and anomalies and boundary-crossing disasters that make SL look like a paragon of stability.
That's my impression, anyway. :)
Another strong VW competitor in the edu/collab space is http://openwonderland.org.
Today it already supports COLLADA and SketchUp mesh models, shared browsing surfaces, as well as shared instances of XWindows apps, VNC- and snapshot-based desktop sharing. Avatar and object scripting. Immersive, high-quality spatial audio/voice chat, with support for dialing-in from external VoIP and the public telephone network.
100% open-source Java.
And no, the project did not die when Oracle cut them loose last winter; it's more active than ever.
Some very brief observations, and not terribly original ones, I'm afraid, but this is what I think:
1. "No apparent business plan" is not the same as "no business plan".
2. What SL has is community. A *vast* community. And if some people - even quite a lot of people - drift off to a multitude of other virtual environments of the OpenSim variety, the number of people in each alternative world will still be tiny. The *big* community will still be in SL.
3. I'm all in favour of OpenSim. However, as you've said, it's still SL in 2005-6, and I remember thinking the same about it a year ago. SL has come a *long* way since then.
Fundamentally, however, the appeal of a virtual world is not technology: it's the answer to the question "Why should I go there?" In the case of Heritage Key, say, it's to explore amazing aspects of the ancient world and learn cool new things in cool interactive environments. In SL, it's the enormous number of providers of extraordinarily high quality virtual goods from hair to castles, and the enormous community that buys those goods, hangs out together and co-creates. You need lots of people in the same place to do that, and nobody else has got loads of people. And lots of so-so alternatives won't get everyone moving over wholesale.
Perhaps at some point, when OpenSim has caught up (I liked the Apache analogy) in areas like reliability (yes, honest), which might not be that far away, perhaps then some alternative environment might either suddenly or over time seduce all those people away. Or LL might go bust and we'll all have to find somewhere else or do something different. But as it stands currently, we have relatively small numbers of people going off to relatively large numbers of places. That does not build an alternative virtual community - even if there's a hypergrid.
Hiro --
There are already three multi-grid payment systems for the hypergrid -- OMC, G$, and PayPal Micropayments.
And, yes, individually, no OpenSim grid compares to SL for community, content or features, and most are run on a shoestring.
However, for companies and educators, you can pay around $90 a month for an SL-quality stable region from folks like SimHost and DreamLand Universe and ReactionGrid.
I've been running mini-grids for a year now (hypergrid-enabled) and haven't seen any stability problems. And megaregions make border crossings a non-issue. :-)
The thing is, cheap land and full control is an attractive proposition.OpenSim is free if you have a spare computer to host it on, and low-use regions start at just $10 a month. Artists and non-profits benefit the most -- they have their own user communities that they can bring with them. Then private companies looking for fully private grids. Once they're on the hypergrid, the general public will follow, to see what they're doing. A virtual gentrification, if you will.
I agree with Hiro - SL can get on the bandwagon and make plans for a hypergrid future. Or it can stick its fingers in its ears and hope it goes away.
-- Maria
Thanks for commenting, folks.
@Solo: Worst case, Linden Lab extends their life by leveraging a large content library. Best case, Linden Lab positions itself as a central player in the hypergrid.
If the latter is the goal, what moves would / ought we expect to see from the Lab?
@Juanita: Why? Because Philip Rosedale seems to love the open source efforts, is already rich, and is building a legacy. Kapor's also interested in legacy-building, and I imagine other investors, as well. You don't spend 10 years investing in a Metaverse company because you expect an immediate return.
@cyberserenity: RE - sex and gambling. What makes you think Linden Lab has abandoned this? They have an adult continent and gambling enforcement was basically a 1-year experiment, forcing users to discover loopholes to satisfy legal requirements. I suppose Linden Lab could initiate their own sponsored gambling experience - that certainly would be an interesting move.
@Dale: RE: leveraging content
1. With mesh, there's an ENORMOUS amount of 3-D content available online, and the number of available 3-D artists skyrockets.
2. Content can be moved. We can expect what happens on the Internet - people will copy things for personal use, and enforcement of copyright will be done against people who try and resell / exploit for commercial gain.
No, I don't think content is a long-term strategy for LL.
RE: Higher function. Agreed, as I mentioned in my article, but SL didn't stop growing in 2005 because it wasn't high-function. It's a matter of time.
@MaggieL: Wonderland may have uses, but I don't see it as a competitor to Second Life at all. I don't see the ability to form communities, and it lacks ability for easy object manipulation. It's really essentially no different than VRML of yesteryear.
@Elrik:
1. No doubt. Hence my comment in my conclusion about Linden Lab needing to pull something from up their sleeve.
2. They said that about MySpace, and now Facebook is king. Community doesn't live *ON* or *IN* a platform. They *USE* a platform. It's different because communities have high amounts of mobility. It's also different because communities don't exist on *one* space, they live in the Metaverse - which is a cross-boundary collection of virtual worlds, social and mobile web, and personal communications mediums.
3. SL has come a long way, but as I pointed out in my article, Linden Lab is giving away its new features - which helps bridge that gap for OpenSim.
@Maria:
RE: Microtransactions - you are correct. I glossed over that for my readers because none of them are really ubiquitous. But one of them - or a new player - will be.
RE: Your comments about stability. 100% agree. In the same way Second Life's content is judged as "amateurish" (in the same way MySpace pages are/were), it helps to keep perspective. Just because lots of people are experimenting with low-end setups, doesn't indicate the capabilities of the platform in general. Well explained, Maria!
Linden Research _does_ have a business plan, but that plan is vague enough that it was fulfilled by the time Second Life went public in 2003.
To be more specific, there are actually a surprising number of departmental business plans (some really good ones), but the upper level management types that left the company couldn't make up their minds on which to execute.
Seriously. Developers on some teams were told to switch projects as often as daily, but every week or so was the norm. This was even in the face of very loud protest by developers, project managers, and even QA, who tended to have more business sense than those giving the orders. I hope that's changed since the layoff, but I can't say I have high hopes.
What exactly does SL do for an "ability to form communities"? They did so well at that they bought (and discarded) Avatars United.
And have you used group chat lately? SL's unique contribution to "forming communities" is "look for the green dots". And we know how well that works now.
As for "manipulating objects", we'll see how much mesh manipulation you can do in-world in SL.
Open Wonderland excels in collaboration and education use cases, which is what I was referring to. Communities form just fine *outside* the VW. just like they do everywhere on the Internet and then can come in-world to interact and collaborate.
Never forget: VWs are not outside the real world, rather they are contained within it.
@MaggieL:
"Never forget: VWs are not outside the real world, rather they are contained within it. "
I like to say, "It's all real life"
So much of what has happened with Linden Lab reminds of Robert X Cringely's "Acciental Empires" about the computing industry.
They don't seem to understand their users, or they do understand them but they're not comfortable about that.
They have something up their sleeve on groups, I suggested to Jack months ago that Avatars United could be pushed as an alternative to the inadequate group system, with a view to somehow incorporating it inworld and he dismissed the suggestion and asked me why I didn't think they were working on a new group system.....well several years of waiting for improvements was the reason I didn't believe they were working on a new group system, but that's an aside.
Second Life was ahead of its time, but like many things ahead of its time, the problems snowball, as outlined above, it's not good for games, it's not good for large gatherings, it's not good for social networking and the rise of portable computing has hit them hard on developing improved graphic capabilities.
The concept remains wonderful, but they need to paddle a lot harder now to keep their heads above water.
nicely written! i would add that OpenSim's stability is heavily dependent on it's servers. i was in Reaction Grid with a "dedicated" server and 16 sims for nearly a year. now i have been with SimHost for a little less cost but 5 times the resources for 16 sims and it is a night and day difference
i feel i can speak well to its performnace compared to Second Life because i had 19 sims in Second Life
my current grid runs a bit more smoothly than Second Life - but i have mongo resources
the issue with lack of content is valid as is a central economy (i think PayPal does just fine, but that's me and i don't care about anonymity)
your post is spot on though and very well thought out!
This is not really about Second Life because it has to be taken in the greater context of Second Life compatible grids.
Here are the facts:
* SL makes it's money from renting land and taking a cut of items sold in world.
* Opensim is greater than 90% compatible with SL content
* Opensim is somewhere from free to host your own region to much cheaper than SL.
* SL has hundreds of thousands of users with between 50,000 and 100,000 users online at any time.
* Opensim has a fraction of that
* SL has a stable central bank and monetary system enabling grid-wide commerce
* Opensim has no central bank and monetary implementations are sparse.
So what can we deduce from that?
1. No matter what SL does the laws of economics mean that it's going to continue to lose land-rent market-share to opensim
2. Content will continue to leak to opensim no matter what happens
3. Content will continue to be sold in SL (even if it's not made by land-owning creators) because MONEY CAN BE MADE THERE.
So LL obviously sees the trends.
This leads to the question:
How could they make money if their greatest source of revenue is land-rent? I'd say that ultimately that source of revenue is going to dry up.
So the question really is this: how much do they make off of content creation compared with land rent?
Anyways the point is moot. They could make money by becoming consultants in the metaverse like IBM are in RL. They are the biggest most knowledgeable and experienced player in the SL compatible metaverse.
There is also a gaping hole in opensim with the lack of a monetary system. Virwox is trying to step into that space but Linden Lab could do it relatively easily because THEY ARE TRUSTED and they are the owners of one of the most common currency systems. Heck it's pretty common to do OSGRID transactions by both parties logging into SL and doing a LL$ transfer. They could grab that.
In any event, it's not LL I'm worried about, it's opensim. Without a monetary system if LL goes down then opensim isn't really an alternative and the ONE BIG THING that makes SL and Opensim great is SL content. Note that SL content. If LL goes down because of bad management decisions and failure to grasp the metaverse opportunities then opensim will go down with it if there is no viable monetary system to entice the huge volumes of creators to continue to create.
bodzette
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