Business in Virtual Worlds, Second Life

Silicon Valley’s Sleeper Sensation: Linden Lab Takes a Rocket Launcher to Social Media

Linden Lab’s product road map, presented this week at the Second Life Community Convention, amounts to nothing less than a bullet fired into the business plans of many Silicon Valley Web 2.0 companies and, if it succeeds, puts the Lab on the path to a possible liquidity event that could be the surprise success story of the decade.

That at least is one optimistic interpretation of how far Linden Lab has come in articulating a vision for the Second Life brand, and while there are hurdles and hungry competitors in the wings (can you say Google, or Cisco, or who knows, maybe even Amazon), no one said life in California was easy, except maybe when it is, like when you’re surfing with a Blackberry in one hand and a chai latte in the other.

Now, I’m a starry-eyed optimist about virtual worlds. And I’ve looked at almost all of them - Forterra and Icarus and so on for corporate stuff, and Blue Mars and Metaplace on the consumer side, and game platforms and Web-based ones, and while it’s easy to come away from what amounted to a Linden Lab product launch meeting (jammed in between a bunch of user workshops) with that glowy feel-good thing you get when you see shiny new things, I’m going to stick with a premise for a bit (and get into the more fine-grained critique tomorrow maybe):

Linden Lab set out to change how people interacted on-line. After a period of unwarranted hype, they got lost in the Twitter/Facebook/Ning/Web 2.0 wave. Having been written off, or at least consigned to the “cute but hardly Netscape” category on the radar screen, they’ve regrouped, they’ve beefed up their senior executive team, and they’re doing stuff which, if well-executed, could be a global game changer because, if they succeed, they will have created an alternate (yet integrated) version of the Internet.

Consider: the Lab’s new strategy for Second Life doesn’t simply use the tools of social media to increase platform penetration, it co-opts those tools entirely. First, they have launched a strategy that will begin to provide multiple access points to the Second Life experience for different user types. Second, they will launch a series of viral social media initiatives that generate network-effect growth by leveraging the current highly passionate user base. This can easily lead to a rapid global expansion of its user base. This network effect could quickly see Second Life exceed the user base of all the other MMOs/virtual worlds, and start to trend towards Twitter or Facebook-level user numbers.

OK - so…yeah, crazy, I drank the Kool-Aid, or too much Starbucks…whatever…and my premise here isn’t that they WILL pull it off, my premise instead is that if they do, Linden Lab will have done something that seems at first glance unthinkable: they will have created a viable (yet integrated) alternative to the Web itself.

But let’s run with this - at least for today. A kind of mental exercise (or fantasy) if you will. Because it’s interesting, at least, to ask whether what the Lab showed us could BE game-changing, and they were things that I think were partly obscured in the last few day’s reviews of Web sites and viewers and the shiny graphic stuff.

Second Life is NOT a World
Linden Lab’s main product, Second Life, is perceived as a walled garden, a game, a “heavy” application that will have a narrow audience amongst a few geek gamer types, a bunch of educators, and maybe some business types who want to save money on meetings, or do some interesting stuff with sales force training.

But the Lab’s new product road map and hints they dropped over the past few days suggest that the Second Life brand of next year will be significantly different from the brand we’ve come to know, love, (and hate).

The shift to “Second Life 2.0″ is based on a few things they need to get right first: the fundamental “must win/cost-of-entry” propositions:

- They MUST make the technology more stable. (Or at least as stable as Twitter?) And they’ve made great progress on this front but still have tons of work to do.
- They need to make the system scalable - and behind the scenes they are deploying a new architecture to push content into clusters and to decouple the interlinked systems which are bottle-necks to billion-user level scalability.
- They must improve the churn rate for new users.

But it’s this latter point where the Lab has turned things on their head. Because churn rate has usually been focused on the “first hour” and making Second Life easier to get into and easier to learn.

I picture a brainstorming session where Mark Kingdon pushes the team to come up with ways to help people learn faster, and the answers are things like the viewer (a new one’s coming), and a better registration portal (coming), and search (getting there). And then he asks the question: “OK, that’s all fine, we’ve gone from maybe 1 hour to 30 minutes - but what would it take to get it down to FIVE minutes.”

And that’s the key to understanding that the Lab now has a different view of what “getting in world” means. It’s a game changing shift in thinking: instead of worrying about the first hour IN WORLD, worry instead about being able to engage new users in the Second Life brand within MINUTES.

The Lab may well succeed in turning the tables on the new user experience because they have turned the tables on their own thinking: it’s not the first hour in Second Life that matters, it’s delivering value in whatever way you need to, on whatever platform makes sense, so that you can have a meaningful experience under the Second Life brand whether that’s from the Web, your iPhone, or, sure, in world.

While mum on the specific plans for some of this, consider that the Lab announced (or strongly hinted) that:

- You should be able to experience Second Life events FROM THE WEB
- You should be able to have meaningful interactions through your cell phone
- The number of voice minutes used in Second Life is roughly 1/3rd that of Skype and the second largest in the world. Voice is a winning application whether you’re in world or not.

This suggests that the Second Life brand will no longer be solely about a world, but rather represent a rich tool set of communication, social media and immersion applications that allow you to seamlessly shift from 2D to 3D experiences and back again, to tap into your social network through your phone, to have a voice chat in a 3D environment or from an “Avaline” mini-app.

The Game Changers
OK - so all that’s fine, but at the heart of it is still a 3D world, and it’s one that competes with games, say, or Blue Mars, or 3D-in-the-browser. And the world is looking a little creaky maybe.

So a few of the game changers include allowing mesh imports, which serves a few goals:

- It opens up Second Life to a new wave of content developers who are currently creating 3D content in external applications (Blender etc)
- It makes the world LOOK better
- It lets the Grid plug into standard game and 3D development pipelines, running side-by-side with in-world building.

Another game changer is rendering, with a shift over time to shadows and light and maybe even Cryengine (Tom showed rendered shadows and mentioned they would be available for PC only, which hints at Cryengine perhaps).

And finally, the ability to browse the Web from within Second Life itself or what has traditionally been called HTML-on-a-prim. Other platforms do the same, of course, such as Sun’s Wonderland or Croquet or other open source virtual environments.

But the ability to browse the Web while in world does something else: it closes a loop wherein content can be streamed in world, and interactions in world can be sent “out” in order to enact Web-based changes, which can push content in-world to 3D objects.

It’s not simply about browsing Google, it’s about creating the full value chain from Web-based services to in-world 3D content to Web site to in-world browsers.

The implications of that for things like e-commerce are fairly stunning.

Why Investors Would Be Bullish on Second Life
Look - venture capital is a weird animal. Business plans in Silicon Valley are often untethered from reality. In this case, the problem with Second Life might be that it HAS a reality…not some sort of vague back-of-the-napkin Twitter-type proposition.

And venture capital guys like big gutsy numbers. So with this in mind, here’s how I’d pitch Second Life and Linden Lab to the VC guys:

- We have (perhaps) the largest virtual goods markets in the world. We will retain this, grow it, and better monetize it.
- We have the highest level of user engagement - higher even than Facebook in terms of hours. Our goal is to be a global “engagement” leader - in terms of both users and hours interacting with the SL brand.
- We will grow to 100 million regular monthly users within 4 years. We’ve built the social media infrastructure to support this, because users will be able to “log in” to Second Life experiences from anywhere.
- We will redefine Web-based content, because we have one of the most prolific user-generated content communities in the world today. With the addition of embedded Web content we will redefine engagement with social media and with information.
- Upon or before a liquidity event, we will open source our servers. We are currently “clustering” servers so that with open source servers, anyone can host “mini Grids” and we will sustain our business through identity management, a full e-commerce/economy functionality, and virtual goods markets.
- Based on this, we will scale to a billion users within 5-7 years.

In order to achieve this, your venture money will be used to:

- Put a lock on virtual goods by buying out existing 3D content aggregators such as Renderosity or Content Paradise.
- Purchase or merge with compatible partners in Asia, either in the virtual world or the social media space.
- Massively expand our advertising and marketing efforts, using social media networks as the primary drivers for attracting significant numbers of new users.
- Buy out Vivox, a Vivox competitor, or otherwise get a voice infrastructure of our own so that we can effectively own a leading global position in voice-to-voice chat.
- Create cross-platform and other partnership opportunities with media or game companies in order to leverage the fact that people come to Second Life to “play”, thus building on the move to casual game experiences.
- Create cross-platform opportunities in movies, music and other broadcast entertainment, leveraging the ability to share experiences in the consumption of media using our 2D and 3D engagement space.
- Launch a “Second Life in a box” product through major retail outlets such as Best Buy.
- And finally, being a Lab, we will aggressively explore new interfaces including haptics, hands-free cameras, tablets, mobile devices and surface computing.

Now, the nice thing about this proposition is that you can have a relatively high burn rate on investment, because the platform is otherwise paying for itself. So let’s say - hmmm, $50 - $75M to make the above happen? With a ‘liquidity event’ probably in the several billion range if all goes according to plan.

Crazy? Maybe. And probably tomorrow I’ll post a whole different view of this (there’s a massive and unanswered question, which is: “What happens if you lose your current users because they don’t like where you’re headed” but, again, that’s for another day).

So…what do you think? If I had a few hundred shares in Linden Lab to sell - are you buying? Or you going to keep your funds in Lindens instead?


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