A Strategic Assessment of Second Life – Part 2

What is Second Life? Why was it created? On the eve of its seventh birthday, what is the condition of Second Life? What is its future?

First, one must say a few things about Linden Lab. Linden Research Inc. is a private limited company with its headquarters in San Francisco, California. Linden Research Inc. is not a public limited company. Its shares are privately owned; they are not traded on a public stock exchange. Because Linden Research Inc. is a private limited company, it does not have to report (Form 10-K) to the SEC. Nor is it subject to the Sarbanes-Oxley Act. In general, a private limited company is much less regulated than a public limited company. It is subject to fewer laws than a public limited company.

Why is this information relevant? Two reasons. First, because it needs to be understood that not all companies are subject to the same laws. Not only are there different laws affecting public and private companies, but there are different state, national and international laws. Thus, Linden Research is subject to a different set of laws than a small company incorporated in Delaware whose products are sold only in the United States and a multinational corporation based in Singapore whose products are sold around the world. There is also a difference in applicable law based on the types of goods and services a company produces. Pharmaceutical companies are subject to different laws than automobile companies or film studios. So, while Linden Research Inc. is subject to ‘the law’, one must ask, which laws within which jurisdictions under what circumstances? Second, it needs to be remembered that Second Life was not set up by UNESCO to be a global virtual world with universal access under the auspices of the UNHRC. Nor is Linden Research Inc. a legally registered charity.

Linden Lab pressroom 2002-02-11

Bloomberg-Businessweek research

So, what is Second Life? What combined package of characteristics define Second Life uniquely? What, in total, does Second Life have which exists nowhere else? Why is Second Life special?

Second Life is a self-projecting metaphorical interface with a user-generated economy based on a sophisticated private property rights structure.

By ‘self-projecting’, I mean the following. In RL, we all seek to project certain symbols to other people by the clothes we wear or the car we drive or our house or furniture etc. Yet there are many characteristics we are born with that cannot be easily changed, if at all: physical appearance, race, sex, family history, etc. Nor in RL can we easily mask our education, employment, family relationships, health etc. Needless to say, almost all of our RL characteristics vanish when we create an avatar. As avatars, everything about us must be chosen, self-selected (including whether to be default avatars or not). In this way, we become 100% self-projecting.

By ‘metaphorical’, I mean the following. Log on to Second Life then stand up and look at the back of your computer screen. You will see some plastic panels and wires. Everything you see in Second Life, therefore, is a symbol that represents something in RL or in the mind of a content creator (or even sometimes solely in the mind of the perceiver). Second Life is a world of symbols, a world of metaphors. The blouse you buy for your avatar is not a real blouse (you can’t pluck it out of your screen and wear it to a RL cocktail party). Real blouses are bought in RL stores and have to be washed to remove RL sweat. Virtual blouses are only symbols; they are a metaphor of RL blouses.

By ‘interface’, I mean a real-time transactional environment, a place where avatars meet each other, project symbols to each other, communicate and transact with each other.

By ‘user-generated economy’, I mean an economy in which the price mechanism is employed to allocate goods and services between producers and consumers.

By ‘sophisticated’, I mean subtle and complex. Land and objects can be owned by one person, many people or groups. Land can be divided into parcels to be sold, leased, rented and sublet. The group structure for a big mall is quite complicated. Objects can be composed of sub-objects, each with different permissions.

By ‘private property rights structure’, I mean that land and objects can be owned by an individual and traded between individuals. A ‘common property rights structure’ is one in which a central authority owns land and objects on behalf of a community.

When I say ‘land and objects’, I mean metaphorical land and objects. The multi-million dollar SL economy is one in which symbols are created, bought and sold. In this way, the SL economy is similar to the art market or the fashion and luxury goods industries. There is nothing to eat in Second Life.

A Virtual Country Separate from RL or an IT Platform within RL?

Facebook is an IT platform within RL. Facebook is a nexus of RL personal information – a centralized location for email, photos, conversation, contact lists, etc. The biggest problem with Facebook (and other such RL social networks) is privacy and personal safety.

A primary characteristic of Second Life, on the other hand, is privacy and personal safety. Second Life provides not only the opportunity to distance oneself from RL, but it enables people to escape from the unchangeable physical constraints we are born with in RL and most of the political and social constraints we are surrounded by in RL.

  • physical appearance and/or physical disabilities
  • race / ethnicity
  • sex / gender / marital status
  • class (dress codes, social clubs, spoken accent)
  • geography / nationality
  • level of formal education
  • legal and financial circumstances
  • professional qualifications and associations

Our RL resumes put us into boxes that restrict our personal and professional growth. In Second Life, it does not matter if you graduated from high school or went to Harvard; it doesn’t matter if you belong to the American Institute of Architects or have connections in LVMH. Don’t have five years’ experience in fashion design? No problem. Got kids and want to work from home? No problem. Overweight? Skin problem? In a wheelchair? No problem. Living in the Ukraine? Can’t travel? No problem. The only things that matter in Second Life are your talents, skills, ambitions and enthusiasm. Anyone can be a designer or programmer or entrepreneur – no questions asked. Facebook and Linkedin are great for getting ahead in RL, but Second Life offers the unique opportunity to bypass RL entirely – to create a new, ‘second’, life independent of the first.

A New Economy

As mentioned earlier, Second Life is unique in that it has a user-generated economy. That economy is possible because of a private property rights structure that enables economic agents to own their creations and trade with others. It is because of this virtual economy that people can bypass the RL economy in search of opportunities. Many people joined Second Life in 2006 and 2007 specifically for that reason.

A New Society

As a new, ‘virtual country’, Second Life attracted many ‘immigrants’ from a wide range of RL countries. Why? Because Second Life offered an opportunity for people to escape from the social and political constraints of their RL countries, cultures and societies. The guiding philosophy of Second Life was individual freedom and responsibility. Second Life was pluralistic. There were too many people from different countries and cultures for Linden Lab to impose blanket moral and behavioral standards over the whole grid.

“[W]e cannot play the role of arbitrating personal grievances or defining behavioral standards. This is particularly important as Linden Lab becomes more international. We don’t want to force a California-centric set of rules on the virtual world.”Linden Lab, December 2006

A New Method of Personal Growth

“Peter Yellowlees, a professor of psychiatry at the University of California, Davis, has been teaching about schizophrenia for 20 years, but says that he was never really able to explain to his students just how their patients suffer. So he went online, downloaded some free software and entered Second Life… For about $300 a month, he leases an island in Second Life, where he has built a clinic that looks exactly like the real one in Sacramento where many of his students practise. He gives his students “avatars”, or online personas, so they can attend his lectures inside Second Life and then experience hallucinations. “It’s so powerful that some get quite upset,” says Mr Yellowlees.” – Living a Second Life, The Economist, 28 September 2006

Residents who have been in Second Life for a year or more have witnessed a personal progression – within themselves and among their friends – from initial drama and/or sexual gluttony to calm maturity as RL frustration is sated by SL roleplay. It is nothing less than a social revolution with far-ranging consequences for mental health. I wonder how many RL rapes have been prevented because fantasies were unleashed in SL rather than RL. How much RL domestic violence has been reduced by membership in SL society? How many marriages have been saved instead of ruined by virtual rather than real mistresses?

Second Life represents a unique opportunity for many people to revisit childhood memories, to overcome teenage frustrations and live fantasies that were either blocked or suppressed growing up in RL. In my opinion, Second Life is one of the best forms of therapy and self-help available anywhere in the world.

To quote Zoe Llewelyn, “I myself, am a child abuse survivor as I have mentioned here before. Though Zoe is short compared to the 8 foot amazons running about SL, she is not a child avatar…but I do have a child avie alt. Like many grown adults who choose to play a child avie at times, SL allowed me to try to experience an innocent, carefree renewal of a childhood that for me was very violent and horrific at times. playing my child alt was liberating, safe, comfortable and very therapeutic. It allowed me to create a new childhood for myself that replaced the one I never had.”

What Went Wrong 2007-2010?

In 2006, Second Life was a pluralistic, international, ‘New World’ ‘virtual country’ with its own user-generated economy. It was separate from RL – independent – a parallel universe of privacy and opportunity. Linden Research Inc. was subject to various RL legal regimes, but Second Life itself was a new legal entity, arms length, protected by RL resident account information and its own legal vagueness as a virtual world.

I believe Linden Lab made one crucial mistake that changed the direction of Second Life: anonymous accounts. To quote from an article I wrote in 2008:

“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.”

Then came the policy reversal on gambling, the policy reversal on VAT, the ban on banks and the policy reversal on social behavior leading to Zindra. In none of these cases did Linden Lab quote definitive legal arguments. To this day, the relationship between Second Life and RL legal regimes remains vague. With respect to VAT, that too was a policy decision: to sacrifice long-run revenue for short-term cost savings. None of these decisions were imposed upon Linden Lab from outside; all were formulated internally.

COGS in the Vat Machine

Linden Lab gambling policy

Linden Lab banking policy

Linden Lab sexual policy

The future of second life mainland 2008-08-06

What am I saying? I am saying that from 2007-2010, Linden Lab sought to reduce the freedoms and risks associated with a pluralistic, international, ‘New World’ ‘virtual country’ in order to make Second Life more “predictable” and thereby more appealing to RL organizations and the mass market. I believe this was a strategic error that undermined Second Life’s core strengths and made it less predictable, resulting in a loss of confidence in the inworld economy and generating a battle between residents to determine how best to ‘reform’ Second Life to match their own RL ideologies. The founding principles of “Your World, Your Imagination” and caveat emptor in an adult virtual world were replaced by a new principle of inworld loco parentis in an increasingly infantilized sandbox.

There were other problems resulting from the push to RL. SL Enterprise was a spork, useful for neither fish nor fowl. It could not compete with specialized secure corporate multimedia networks nor could it provide the density and depth of a virtual economy. The new viewer too was a spork, designed in secret for the mass market, but serving neither the mass market nor the existing userbase. Moreover, it was unnecessary considering there were several excellent third-party viewers available based on LL’s own open source policy. I have no doubt that most of the money saved on VAT went down the sinkholes of SL Enterprise and Viewer 2. Avatar United is cute, but what good is it? A virtual Facebook? What’s the point when SL is the ultimate virtual world in the first place?

Rediscovering the Roots of Success

Mark Kingdon has resigned as CEO. Linden Lab is laying off 30% of its workforce. Philip is back in charge. I therefore implore Linden Lab at this critical time to think carefully about why Second Life was created and why it was initially successful. I believe the attempt to blend SL with RL has failed on all fronts, commercially, economically, politically and socially. I believe there remains a window of opportunity to correct the mistakes of the past three years and build on SL’s core strengths. Above all, I ask Linden Lab to think five years ahead of the curve rather than five years behind it – to prepare for an esthetics economy in which metaphor, like the giant stone currency of Yap, has enormous monetary value. On the eve of its seventh birthday, I believe Second Life has a second chance.

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5 Responses to A Strategic Assessment of Second Life – Part 2

  1. This is more than merely an article, Deltango; this is an essay worth publishing on a scientific magazine! Congratulations on the excellent summary 🙂

    It’s clear from your writing that you’re an immersionist and that Linden Lab somehow lost the unique chance of creating an “immersionist utopia”, or the closest you can get to that. As you so well put it, Linden Lab was always very vague in citing concrete laws when changing their policies; they mostly dealt with potential lawsuits, not existing ones; the interesting bit is that the few lawsuits that actually are running against Linden Lab have to do with property issues. While a few Puritan groups (in Germany and the US) were quoted as “threatening to sue”, we never heard if those threats actually were carried out; LL sort of avoided them by introducing policies that would “please” the Puritans, without much discussion.

    It’s also clear that it’s far “safer” to run a child-safe environment than an adult one, but it’s mostly due to public perception. Ironically again, by kicking out businesses and academia from Second Life, LL could (if they wish) pretty much ignore media exposure once more. But they’re targeting the consumer/residential market, and for some reason they think that it should be better served by dropping (or restraining) the immersionist culture (because it’s a niche market). My own feelings is that niche markets is what LL should be aiming at: Second Life is too unique and appeals to a very small profile of potential users. Instead of addressing the “mass market” like Facebook, they would be far better off concentrating on the niche markets instead. These have proven for the past 7 years or so to be profitable; everything else has just been speculative. For instance, teens, in general, have no use for a virtual world where you cannot “win” or “compete” by “playing a game”; they have too short attention spans. There are obviously exceptions: a few hundreds will certainly enjoy it (if I were a teen, I would be part of those few hundreds; but I’m aware I’m an exception, not the rule!). Changing the whole of SL to accommodate the “mainstream teenager” is, IMHO, a very silly thing to do: SL as a “family-safe playground” simply doesn’t make any sense at all. There are not enough people in the world interested in that to turn it into a profitable business.

    Then again, I shouldn’t be surprised 🙂 LL is very bad at doing market analysis, if they do it at all…

  2. Linden Lab’s key problem has been a failure to understand the core nature of its own product.

    – while Second Life is a place to have fun, it is not a game
    – while Second Life is a great place to meet people, it is not a chatroom
    – while Second Life is useful for education, it is not a school
    – while Second Life is universal, it is not a charity

    Second Life is an immersive, pluralistic, international, New World virtual country. As such, it is 10 years ahead of the market. Think Windows 3.0 or Netscape Navigator or even cellphones. All were considered niche products when they first came out.

    Because Linden Lab cannot grasp this concept, the company has been trying to convert Second Life into a 3D Facebook, a virtual Disneyland, a corporate conferencing system, a virtual schoolroom and now a teen chatroom. All attempts to turn an apple into an orange have failed. The apple is now starting to rot.

    To Rod Humble: as newly appointed CEO, your job is hands-on, heads-down, day-to-day management, but raise your eyes to the horizon and see the first glimmers of a new dawn in the ongoing Information Revolution. Be one of those cool people who saw the future and grabbed it with both hands.

  3. dkirsch77 says:

    I love this article because you totally capture what I have been feeling over the years. As so many others wrote in the LL blog announcing the arrival of Rod Humble as new CEO of LL, I expressed my hope he would learn what SL was, and restore it, save it. But I doubt that Mr. Humble will change anything in a way we would like to see it change. He was brought in to accomplish one goal, make SL the MMORPG they can sell to the likes of EA. I have actually seen this from the inside with a networking equipment manufacturer I worked for. The Board of Directors decided that they wanted to sell the company. They brought in a CEO who as a VP in his last position demonstrated an ability to lead development of entire internal organizations into a marketable entity. Mr. Humble is someone who knows the market LL wants to sell to and he knows how to develop products to make them attractive to those potential buyers. How will you know if this is true, write the company and ask. The more profusely the refute this, the more they confirm it.

  4. Two months later I have the opportunity and the joy to read your article again, which I had completely forgotten. Everything you describe still applies beautifully to what Second Life ought to be. Two months — and seven after you wrote it — hasn’t been enough to convince me that your proposed directions of what Linden Lab should aim Second Life at are still 100% correct. I hope Rod Humble has an opportunity to read your article and think deeply about its message — now that he has spent some time in-world learning about this fantastic “New World”.

    Perhaps to emphasise my own former comment, I have the distinct impression that at some point Linden Lab was “ashamed” of having a product that appeals to a niche market of immersionists keenly engaged in a “self-projecting metaphorical interface” (I love that expression and your explanation of it). Somehow, someone got the idea that LL should be doing “mainstream” 3D social virtual worlds, but we have seen how those work: either they’re severely restricted, abolish user-generated content (by introducing developer-approved content instead), and are strictly Puritan, or they simply fail to capture enough momentum to survive (Blue Mars being the last example). It’s no “shame” to have discovered a niche market that is incredibly profitable so long as a few basic assumptions remain valid (many of which have sadly been abandoned in the past); so many companies out there would have loved to reach the kind of market with faithful customers that LL has managed to attract and maintain over almost a decade.

    With the drive back to residential users, journalists mostly ignoring SL (Facebook provides so much more drama!), and the focus on “Fast, Easy, & Fun”, and no more need to bow to corporate or academic pressures, maybe Rod Humble can rethink the whole strategy, do a 180º-turn, and head back into 2006 again at full force — with the advantage of having (almost) a million active residents (and not just a million registered ones like in 2006), a far larger landmass, and a thoroughly more stable and performant platform.

    We can only cross our fingers and hope for common sense (and good business know-how!) to triumph.

  5. … I obviously meant “Two months — and seven after you wrote it — hasn’t been enough to convince me that your proposed directions of what Linden Lab should aim Second Life at are anything but correct.” Argh on double negatives on long sentences!

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