A Difficult Year for Second Life

2007 was a difficult year for Second Life. 2008 is not looking much better.

The establishment of anonymous accounts in June 2006 opened the doors to underage players. This resulted in international legal scrutiny, increased exposure to legal liability and damaging media coverage. Linden Lab responded by intruding into residents’ sexual relationships and expelling two consenting adults for underage roleplay – even though no underage players were involved.

Refusal to close the anonymous accounts and dogged insistence on an ineffective and unsound ID-based age verification system cost Linden Lab considerable political capital with no benefit. ID-based age verification is no better at screening underage players than credit-card verification, nor is it more ‘fair’. It rarely works for residents outside their home jurisdictions and, in many countries, it may not even be legal.

While anonymous accounts may have launched Second Life’s dramatic growth phase (October 2006 to June 2007), failure to formulate a land management strategy resulted in a speculative bubble as Linden Lab first starved and then flooded the mainland market. Islands ceased to be an attractive alternative when LL raised tier charges from $195 to $295 early in the cycle. Worst affected were the very residents who comprised the growth phase. The unexpected policy reversal on gambling in July further undermined Linden Lab’s credibility. Growth stopped. Premium accounts and total hours remained flat throughout the second half of 2007.

The overnight imposition of VAT (15-25% sales tax) on European residents (40% of SL’s population) in September not only trashed European landowners, but it caused considerable friction between European and North American residents as Linden Lab, a supposedly global company, began charging based on regional factor prices. It also led to the crazy situation whereby European landowners (some owning dozens of islands) who shifted their tier to North American business partners lost access to Live Chat support.

Longstanding problems of asset management, grid instability and poor customer service have undermined residents’ confidence in Second Life’s entire technological and managerial infrastructure. While organic development was the correct approach to building Second Life, expectations of success amplified perceptions of failure. The year ended with the resignation of CTO Cory Ondrejka due to “irreconcilable differences” with CEO Philip Rosedale.

Just days into 2008, without consultation or discrimination, Linden Lab banned all banks, regardless of their history, reputation, structure or business practices. In a matter of minutes, SL’s evolving financial system was demolished as sound and responsible banks closed their doors in the ensuing panic. More residents lost money because of LL’s clumsy intervention than from all bank frauds combined. Good businesses were crippled and good people hurt – not so much by scammers as by Linden Lab itself!

So, what went wrong?

Philip Rosedale and the Board of Directors are highly skilled engineers with little or no knowledge of economics, economic history, strategic planning or customer relations. As Second Life grows from a technological startup to a mature business, they are out of their depth. They are making serious mistakes. They are destroying the wealth and confidence of the entrepreneurial class who risked enormous time and money to build Second Life in the first place. More importantly, they have lost sight of their original vision.

Second Life was about user-generated content, remember? It was about “your world, your imagination”. That was the business plan and founding principle: to create a world that was VIRTUAL, VOLUNTARY and ADULT – framed by the philosophy of individual liberty and responsibility. Second Life was not intended to be a pale imitation of real life. It was not meant to be a playground for Republicans and Democrats to ‘govern’. It was not about majority rule through public opinion. Yet this is what has leaked into Second Life since 2007, drip, drip, drip. The sad irony is that now, out of ignorance and a naive desire to ‘do good’, Linden Lab is poisoning the very world they created and seek to protect.

How do we fix it?

Linden Lab is a private company, so they can do with Second Life what they wish. We ‘residents’ have the choice of being here or not. At the moment, there is no viable alternative to SL as a comprehensive virtual world. Therefore, Linden Lab still has time to prevent Second Life from becoming the ‘Lotus 123’ or ‘WordPerfect’ of the virtual universe.

1) Regain integrity of the system. Announce the closure of all anonymous accounts on 1 March 2008. ‘Anonymous’ accounts may now be described as accounts without payment information on file or have not been age verified through the ID scheme. Keep the ID scheme during the transition process, but consider phasing it out by the end of the year and returning to credit card verification.

2) Stabilize the financial system. Lift the ban on banks. Present the following message on the login screen: “Rate of return (interest or profit) on any investment is proportional to the amount invested, the length of time invested and the risk of nonpayment.” Give residents information, not regulation, and the system will evolve in a healthy and productive way. Reputable businesses providing good customer service will always prevail against fly-by-night operations.

3) Reassert the founding principles of individual liberty and individual responsibility. Resist the temptation to sanitize Second Life. The road to hell is paved with good intentions; the desire to protect residents from themselves will only lead to a downward spiral of regulations to offset the harmful effects of other regulations. Also, Second Life is not real life. It is not a nation-state. Second Life is virtual, voluntary and adult. We are here by choice precisely to escape the restrictions of real life – and there is no Berlin Wall to prevent us from leaving. As for those who want SL to become more like Disneyland, well, Disneyland already exists. We don’t need another one.

Publication history:

SL Newspaper, 23 January 2008

The Alphaville Herald, 23 February 2008

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