Business in Virtual Worlds, Second Life

XStreet and OnRez Buy-Out by Linden Lab, OpenSim and Trust, and Elevating Content

Prokofy Neva reported that both the Electric Sheep’s OnRez and XStreet are both being bought out by Linden Lab, now confirmed.

The Lab reports that in addition to bringing both systems under their banner, it opens the door to other improvements:

“There is also potential to evolve the shopping experience with new tools (sharable wish lists, anyone? Gifting to non-Residents? Scheduled deliveries?) and capabilities. But like Amazon or Ebay, the core of the experience will always be about efficiency. Kitting out your avatar, buying a house/castle/skybox, or getting your inworld business off of the ground can be done in minutes. The range of offerings is both impressive and accessible and the goods are delivered inworld quickly. And because the shopping experience is browser-based, it’s easy to shop from work (on your lunch hour, naturally!):

The purchases give the Lab pretty much a lock on the current content sales sites related to Second Life. Both OnRez and Xstreet allow residents to sell content through both Web sites and in-world vendors. This move means that the Lab will own a significant chunk of the commercial marketing channels for user-generated content.

The move isn’t surprising, and I agree with Prok’s assessment that this mitigates against the inevitable lowering of profit from sim sales. The Lab has been going on and on over the past months about how important content creators are to the success of the platform. Without user-generated content, Second Life has no value. As server space becomes increasingly difficult to defend at high prices against far cheaper alternatives elsewhere, the Lab needed to make a move to create new revenue streams for itself that might have cross-platform opportunities.

With a currency system in place, and now two established “retail channels”, the Lab is putting itself in the services game, with the option to both siphon off a lot of pennies from OnRez/XStreet transactions in both Second Life and perhaps on openSim.

OpenSim and Trust
It strikes me that it will be ironic that some of the main drivers of value in virtual worlds – the ability to create content, sell it, a currency to support those transactions, and trusted sources to facilitate those things – are the very things that the developers of openSim choose to “leave until later”.

Over time, as Hypergrid and scatter-shot approaches to currency and markets erode the overall trust by users in “those openSim worlds”, it will be brands like the Linden currency and XStreet vending systems that may benefit – bringing “trusted brands” to grids that have deferred trust decisions until later.

The Lab will be able to cover its bets. Now that it has a suite of products, it can reopen the discussions of interoperability within the context of a suite of services and products that “trusted partners” can buy into. The model will be in services and content, not in hosting. The Lab recognizes this long-term strategy.

The Elevation of Content
But there’s perhaps a deeper play at work here. I’ve blogged numerous times that the folks who can solve a few key challenges will be winners as the virtual world industry evolves.

One of these challenges is search. And the reality is that XStreet is a far more effective search engine than anything the Lab has come up with. Shopping for content in Second Life is plodding, clunky, and ineffective. I’m probably not the only one who either starts and finishes a purchase on the Web (say, need a quick chair or a plant or whatever), or starts a search on the Web and links to a store or mall through the SLURL in an ad.

XStreet gives the Lab a “built” search engine that WORKS. People use it. It saves time. It makes vendors money. Residents are happy. OnRez just completes the picture – taking a competitor out of the market (and sure, it has a few nice features of its own).

But if XStreet works for object search why can’t it work for other types as well? I mean, people sell land there. I’ve even seen business services offered.

But even past search, value is being accrued at ever higher “levels of meaning.” For example, one time if you were setting up a virtual office, you’d go to a furniture store, a building sim – you’d buy the OBJECTS. Increasingly, with schools rolling in or enterprise, you’ll see content aggregated at increasingly higher levels of value. The best example of this is Immersive Workspaces – it’s a prepackaged build, really, with the best technology aggregated, some new stuff built (Web-side stuff in particular), and consulting services tacked on for good measure. Rivers Run Red isn’t selling desks, they’re selling packages that aggregate value. (They also have the advantage of a firewall, but one day we’ll all have access to that as well).

The problem has been that the Lab had no easy place to point people. Sure, there’s the preferred partner list or whatever it is. But that’s not the same as a telling a teacher that you can buy a “classroom in a box on the Linden Lab-owned content exchange”. The Lab doesn’t even need to make that much MONEY from those sales – what they earn is the ability to control an important communication tool to content creators and to guide the proper packaging of their content into things that are useful to specific segments.

The sale doesn’t just give them pennies, it gives them a whole new platform for building bridges between resident content creators and market segments.

Maybe there WILL be an upside to residents. Prok would argue that they’re co-opting success: buying out success and, in a way, killing innovation. I’d argue that there may be a larger objective, which is to take a role in helping residents to package their work for specific segments, to build out the ability to search and find it, and sure, to make a few bucks off the top, while also building services that they can port to other platforms.

But then again – we’ll just have to see. Because a lot of it would end up in the execution. And as we’ve seen lately, execution can be a tricky business.


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