At A Crossroads: Where Does Second Life Go From Here?

July 2, 2010

Crossroads

June 2010 will mark an important month in the history of Linden Lab and Second Life.  On June 9th, the company announced a restructuring that included a 30% reduction of their staff.  On June 24th, the company announced that CEO Mark Kingdon was stepping down and named company founder Philip Rosedale its interim CEO.

Second Life is clearly at a crossroads – it will be crucial for Linden Lab to determine the best path forward.  To do so, they need to identify the right questions to ask and then determine the right answers to those questions.

What is your audience and customer segmentation?

Second Life takes quite a broad approach today – there are a wide assortment of communities [audience] (see their Destination Guide) and an equally wide assortment of land owners [customers].  Having cut 30% of staff, the question at this juncture is whether the company (and the platform) is well suited to cater to “anybody and everybody” or whether it’s better to narrow the focus.

One “focus area” may be in evolving the platform to cater to the hobbyists and loyalists who helped grow the Second Life community from the early days [consumer focus].  Another focus area, while unlikely, may be in catering to corporations for business use (I say “unlikely” because the Enterprise group was let go in the June staff reduction).

Yet another focus area may be in catering to particular categories (e.g. Music, Art, Education).  If Second Life focused their resources around building the #1 immersive music experience, would that have a larger impact than evolving the broader platform to meet everyone’s needs?

So the question really comes down to “narrow vs. broad” – by identifying narrower segments to target their service, can Second Life create a more rewarding and enjoyable experience for both residents and land owners?

What is the revenue model?

Today, the Second Life revenue model is based around a virtual economy, whose currency is the Linden Dollar.  Residents purchase Linden Dollars with real money (e.g. US Dollars) and can then buy land (in-world) or buy virtual goods from in-world merchants.  One of the challenges inherent in this model is its dependence on others to sustain a viable audience (community).

The model works when the audience is growing and the community is thriving; however, when the audience declines and becomes less active, purveyors of virtual land find the ROI less compelling and the audience decline snowballs (since users have fewer residents to interact with each time they login).

Are you a media company or technology platform?

Second Life can go one of two ways here – they can morph into a media company (and have direct influence over the audience) or they can move to a pure-play technology platform provider, which shifts the audience generation “burden” to licensees of the platform.  As a media company, they’d be similar to Facebook, Zynga, IMVU and Slide, with revenue being a mix of advertising, sponsorship and the sale of virtual goods.

Today, I’d say that Second Life is somewhere in between – they’re a technology platform that has no explicit and associated “force” to drive audience (like a media company does).  Resolving this “grey area” will be important.

Where do you take the technology?

To some degree, the technology vision was shared in the June 2010 restructuring announcement – the company will migrate Second Life to a web-based experience, with no software download – and, they’d look to integrate popular social networks to be more accessible and relevant.  Of course, there’s a delicate balance to manage here, since a core component of the Second Life community uses the service for the immersive experience that a downloaded client can deliver.

Here, Second Life can take a page out of OnLive’s book – if OnLive can deliver immersive, action-rich, multi-player video games from the cloud, then one would imagine that a 3D immersive virtual worlds can move to the cloud as well (though, of course, it’s not trivial to achieve).  Second Life needs to think beyond the web as well and determine the viability for apps running on iPad/iPhone, Android and related mobile operating systems.

My Answers (Recommendations)

These are obviously complex questions that require a lot of analysis – in addition, there may be other questions that need to be asked.  The answers to these questions are interrelated and need to be answered together, not individually.  Here are my high level answers / recommendations:

  1. Audience and customer segmentation: Go narrow – you’ll lose segments of your user base, but the core segments you choose to focus on will see solutions and experiences that are more targeted and relevant.  Build upon these small successes and grow outward again.
  2. Revenue model: Move to a SaaS licensing model (priced in US Dollars) – keep the Linden Dollar currency system in place for the purchase of in-world virtual goods.
  3. Media company or technology platform: Become a pure-play technology platform that partners with media companies as a sales channel.  Give media companies incentives and easy-to-use tools that foster growth in virtual real estate – encourage them to be your sales champions and bring their audiences into the community.
  4. Technology evolution: Complete the transition to a 100% web-based offering (no small task!) – and, on the journey there, have plans in place for iPad and Android apps.

Times of turmoil give companies the opportunity to throw convention out the window and reinvent themselves.  Consider another company whose original founder returned to transform them from a “has been” to the most valuable technology company on the planet:

Apple Computer.

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Philip Rosedale On Building A Business: Practice Extreme Transparency

April 2, 2009

Source: Linden Lab

Source: Linden Lab

At the Web 2.0 Expo in San Francisco, Philip Rosedale (Founder and Chairman of Linden Lab) gave a fascinating presentation titled “Extreme Transparency: Virtual Worlds, the Love Machine, and Other Practical Things That Actually Work in a 300 Person Company“.  Rosedale spoke of his methodology for growing Linden Lab (creators of the virtual world Second Life) from a small team working out of a warehouse on Linden Alley (in San Francisco) to a 320-person, profitable company with multiple locations across the globe.

Instead of a top-down approach to building the business – which starts with a grand vision and then trickles down to all the details that allow that vision to unfold – Rosedale decided to take a bottom-up approach.  An Engineer (and physicist) by trade, Rosedale was very hands-on during the early days – code that he wrote back then still resides in the Second Life software today.

Rosedale’s concept of extreme transparency means that each individual knows what every other individual is working on, accomplishing, doing, etc.  His analogy is one of a sports team (where transparency comes in the form of player statistics).  That’s not to say that Rosedale believes employees should be represented by numerical scores – rather, information should flow freely regarding each and everyone.  When that occurs, Rosedale belives that traditional management (of people) is simplified – and you end up spending much less time managing and more time doing.

Rosedale spoke of an interesting internal application called The Love Machine – an internally developed web site that allows employees to send a message of thanks to another employee.  The web site lists “Sender”, “Recipient”, “Description”, “Time Posted” and scrolls in real-time as new Love is posted.  A posting of Love autogenerates an email, such that if Rosedale entered a posting, the recipient would receive an email with a Subject heading of “Love from Philip”.

I think the point here is that “thanks” is such an easy thing to say, but how often is it really done in a business setting?  Not enough – that is, unless you have a tool (like Love Machine) to foster and facilitate it.  Rosedale noted that transparency needs to be granular – and these love posts are as granular as it gets.  Linden Lab has a data and metrics-driven culture – so of course, Rosedale presented a slide that plotted average love received per employee – to show that the trend line goes up (as more people use the tool to give thanks).

Rosedale next spoke about a Linden profit sharing plan – a certain amount of the company’s profits are divided equally among all employees – everyone from Rosedale down to individual contributors receives the same amount.  But then, employees are asked to distribute their shares to colleagues whom they feel deserving of it.  Rosedale found that profits were shared equally across functional roles (so as an example, Development did not receive an unfair share of the profits compared to another department).  This goes against conventional wisdom, which might say that certain groups would receive more favor than others.

A neat side effect of this plan is that executives get to uncover the hidden heroes of your business – those who did not have full exposure to senior management, but are highly appreciated by the masses.  The result is that their visibility in the organization is heightened – and those heroes become better appreciated.

With regard to data – Rosedale suggests that companies define the metrics that are important to the business.  Then, visualize them and keep them constantly updated.  Linden Lab leverages flat panel displays in many of their offices to display key metrics (via real-time charts).  Total simultaneous users is an important chart – if the count suddenly drops, everyone stops what they’re doing!  Linden Lab provides each employee with a personalized dashboard tool, where metrics can be dragged and dropped in – so, each employee watches (in real-time) data that’s important to them.

On measuring engagement within Second Life, metrics of importance to Linden Lab include average session length, number of Linden dollars spent and retention (since 85% of new sign-ups are gone within the first month).  Of course, a natural platform for transparency within Linden Lab is Second Life itself – and Rosedale spoke of its use for internal meetings.  Rosedale did a demo of the famed Virtual Isabel conference room, which is an in-world representation of a physical conference room at Linden’s headquarters.  A video stream of the physical conference is piped in-world and in the physical conference room, folks can go in-world from their laptops.

One audience member asked how Rosedale handles the media hype cycle – with media coverage today not as positive regarding Second Life compared to a year or two ago.  Rosedale pointed back to his key metrics – and noted that those metrics (e.g. total hours, total Linden dollars spent, etc.) continue to maintain a steady and healthy trend upward.  And that’s what matters most to him (and not what the media thinks).  Rosedale then made a casual reference to the open source movement, in which he’s become more involved of late.

For more info on the culture of Linden, their web site has a page focused on The Tao of Linden.


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