Naysayers and the Doom of Second Life

The world is full of naysayers; the virtual world doubly so. It seems we cannot get through a single week without someone raising a cry that Second Life is either dying, dead, or en route to the hospital while undergoing CPR.

This isn’t a new phenomenon; the doom of Second Life has been oft-predicted over the years, with a notable increase following the “boom” period of 06/07; the cry frequently being heard from both users and mainstream sources. More recently, self-styled virtual worlds /social media pundit Hamlet Au (Wagner James Au), rarely misses an opportunity to pronounce SL as having entered a phase of terminal decline (damn you, pesky users!).

The Chicken Little Syndrome

It cannot be denied that apart from the odd blip, Second Life has plateaued, concurrency remains fairly flat, and while we’ve been seeing a recent upturn in new user sign-ups, it’s unclear as to whether the sign-ups are new users (and if so, whether they are being retained), or whether they are existing users trying out the new sign-up process and creating alts for other purposes. On top of this, the economical stats, despite all the fiddling and tweaking that has gone on around them on-and-off for over a year new, remain relatively level outside of the SL Marketplace.

But, a lack of highly visible growth doesn’t actually equate to the platform “dying” in any way. As mentioned above, it’s very easy to take things out of context or be highly selective in which data you use to make a point. Take Hamlet Au’s recent “deathwatch” claim. On the surface it makes worrying reading: the grid is losing large number of sims (74 in one month!) representing large amounts of income for LL ($250,000!), all of which is “extremely significant” (i.e. “ominously bad”) for SL.

Except that as I pointed out, Hamlet arrives at this sensationalist viewpoint through a bad case of selective reading. The very source he quotes goes a long way towards undermining his position:  end-of-month sim losses tending to be countered by new sim leases the following month; the figures for March 2011 actually showing LL’s sim revenues increased by 1%, and so on.

Another thing somewhat taken out of context and used to paint a black picture of Linden Lab were last year’s layoffs. When announced, people preferred to pooh-pooh the Lab’s official line that the layoffs were part of a strategic restructuring, and instead sagely pronounced they were “proof” that the company was in deep financial do-doos. However, in doing so they tended to overlook the Lab’s history in the two years prior to the lay-offs.

Up until 2008, Linden Lab had, staff-wise, expanded at a pace which matched the growth of Second Life, to reach around 250 when Mark Kingdon joined the company as the new CEO. At that time, Philip Rosedale was, somewhat prematurely, talking in teems of massive expansion:

“We’re looking for someone who has experience with and a passion for growing this type of company — a software platform company — from 250 people to thousands of people, which is where we think it’s going,”

Sure enough, following Kingdon’s appointment, the company did start hiring at an impressive rate, taking on around 100 staff between March 2008 and June 2010 – a figure well ahead of any matching upturn in the take-up / use of Second Life in any market sector. While there was much ado during that period about the SL Enterprise product and Linden Lab trying to transform Second Life into a viable corporate business platform, it was questionable as to whether all the hires made during that period were actually required and sustainable.

History now shows us that the answer to that question has been “no”. Second Life has failed to come anywhere near being a credible business platform in the terms the LL themselves touted; the Second Life Enterprise product has been scrapped. As such – and while undoubtedly traumatic for those involved – the lay-offs do appear to have been driven by a strategic decision to refocus on the company’s core business and bring staffing levels back in line with the needs of the platform rather than any knee-jerk reaction to a financial “crisis”.

Money Talks

On the subject of finances, and while LL aren’t in the habit of giving out financial data, let’s again look at recent history. Back in 2008, and before his view of Second Life soured, Hamlet himself estimated Linden Lab could well be clearing between $40 and $50 million profit a year, based on an income stream of around $96 million.

Of course, since then, we’ve had a global financial crisis, the Lab itself has (see above) made unwise investments and tried to shift its focus in to unfounded markets which ultimately failed to pay off, and so on. By mid-2009, Mark Kingdon was candid enough to admit that while the figure wasn’t as high as Hamlet’s estimate, the company was still in good health, financially. Indeed, in that year, NeXt Up was estimating the Lab’s revenues could hit the $100 million mark. So while the company was undoubtedly suffering from increased overheads, a massive upswing in expenditure (staff increases, foreign offices, etc.) – is it really credible that by 2010, things had reached a state where the company was teetering on the edge?

I have a hard time accepting that. Even if profits were halved between 2008 and 2010, that still leaves Linden Lab generating a modestly-healthy $22 million a year, and that’s without taking into consideration the growth of the Grid itself (some 11,000 regions added), which helped generate entirely fresh income for Linden Lab. Indeed, in what was to be one of his last official statements for Linden Lab, Mark Kingdon went on record in June 2010, stating:

“The fact is our underlying financial health is very strong. We’re on pace this year for record revenue, record user numbers and record user-to-user transactions – among other positive indicators [my emphasis].

Now, “record revenue” may not automatically translate to “record profits”, but by the same measure, it also doesn’t mean the company has been losing money hand-over-fist. The truth is going to be somewhere in the middle, and liable to be the case that while profits were reduced during that period, LL nevertheless remained as healthy and as viable as it had ever been – which is again a long way short of falling off the cliff in terms of solvency.

Of course, this doesn’t mean everything is rosy in the garden of Second Life. People – the Lab’s Board included – have been expecting stellar things from the platform, and these clearly have yet to materialise – if indeed they ever will. There are issues that need to be sorted with regards to the scalability, stability and usability of the platform; there are equally valid questions around how LL can constructively engage with its user community and draw in and retain new users. There are even bigger questions to be asked as to whether or not Second Life and its ilk really do have a truly “mass market” appeal.

But none of these are indicative of a company that is teetering on the edge of financial disaster, and commentators who constantly try to slant things in that direction really aren’t doing themselves any favours.

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15 thoughts on “Naysayers and the Doom of Second Life

  1. Excellent point, Inara! I totally agree with you. Unfortunately, the most vocal naysayers — and naysayers have been historically counted among the most vocal SL residents ever — think in a parochial sense: “Me and my friends are suffering, so LL must be in dire straits, and SL is failing”. This is a complete non-sequitur and a fallacy of just looking with a very narrow scope to reality.

    I applaud your decision to include some numbers and make appropriate extrapolations and include quotes from LL. Aye, I agree that LL has not been literally swimming in money, and obviously revenue is not profit. But Facebook, until 2008, operated at a loss. In 2009, if I’m not mistaken, they made a tiny profit — less than Linden Lab! I joked a lot about that. 2010 will be the first year where Facebook actually surpasses Linden Lab in profitability. YouTube still operates at a loss (like every other business area at Google). So, well, if everybody is drooling about Facebook, YouTube and all those thousands of high-visibility social networking thingies, most of them operating at a loss or barely making tiny profits, why does Linden Lab, who operates for a profit (albeit small) since at least 2006, has so many negative opinions and hordes of naysayers and doom-prophets all over the place?

    I guess that I will never understand that!

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  2. Because doom and gloom gets people riled up, flowers and butterflies put people to sleep. Getting them riled up drives them to whatever website or forum of the moment is hosting the battle. This is why I look askance at anything Mr. Au writes (if I look at all, which is seldom) because he is just shepherding the flocks through is blog and past his click-these-so-I-get-money buttons. That’s one motivation for the naysaying.

    Another is that there are some people who are just contrary by nature. They enjoy poking to get a reaction because when people respond they feel their existence gets a validation. There are some (3-4, and most of us who are long-time SL’rs know who they are — and no, I’m not talking about Prok) who have been raving against Linden Lab and/or SL users, or whatever, for years at every opportunity (LiveJournal, Plurk, Twitter, blogs, et al.). And they are still at it, sometimes with fresh motivations (like the discovery of a new audience who isn’t familiar with their endless boy-who-cried-wolf rantings) and renewed “threats” to leave (which they don’t, of course, do). That’s another motivation — they’re just drama queens.

    But by far I find that the doomsayers and kneejerk spewers of vitrol are merely butt-hurt from something that happened to them in SL and now they are on an endless emotional campaign to get revenge (such as it is). They have no credibility at all. They blurt out irrelevant negative comments, or post what they think are elegant analyses of the complete incompetence of the Lab or the patheticness of SL users, not because they think Second Life is actually failing but entirely because *they WANT it to fail* and are trying to get a mob together to agree with them. You see them everywhere, wherever there is an article about Second Life. Regardless of whether or not their comment has any relevance to the article or blog post they will pipe up with some caustic remark about how Second Life is doomed or SL users are all losers.

    Actually, Second Life is doing fine, and more people are discovering it daily. To the general public it’s becoming less of a quirk and more of an interesting thing to look into (I can say this with confidence having spoken to many conservative old-school business types who, when I first got involved in SL over 4-1/2 years ago, deferred to my “weirdness” with a snickering superiority but are now asking me how to log in).

    And finally, in the last analysis, why the drama, other than personal hate agenda? If one enjoys Second Life then enjoy it; if not then go do something else. Eventually someday SL will come to an end (or morph into something else) … or you will. In the case of either life, enjoy it while it lasts, I say.

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    1. Yes, it’s a sad fact the doom & gloom – and over-the-top sensationalism get people worked up. A lot of people also go with your analysis of Hamlet’s motives; others are kinder and suggest he’s trying to encourage debate. The cynic in most of us probably leans towards the former, and who is to say it isn’t right in doing so?

      This is where the old adage “there’s no such thing as bad publicity” comes unstuck; the problem with misinformed or inaccurate reporting on situations can get taken as verbatim truth, and what starts as speculation or rumour-mongering ends up become “fact” – to the detriment of all.

      Do people who are actively engaged in Second Life want it to fail? It has to be said that going on some of the comments I hear (and not to confuse negativity with valid concerns and commentary) – sometimes, it really does seem so.

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  3. I totally agree with you about sensationalist journalism, in any format. It may, in the short run, increase your readership, H…until your credibility takes such a dive that no-one bothers reading you….. I don’t anymore..

    Of the other critics there are those who do what they can to shine the torchlight on the flaws, suggest remedies and shout a lot. These people, however, would love nothing better than for Rodvik to achieve his aim of “usability” (a terrible word, I know) and just get SL to work properly.

    Very few of the latter would suggest that SL will ever die, however, knowing as they do that every day new people are experiencing the ‘WOW” that we all did in our first time on the grid.

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    1. I agree; there is always a place for constructive commentary and reasoned questions – most in LL, in all fairness, would probably concur as well. There is much about Linden Lab that needs to be questioned, and much about Second Life that should be debated.

      The sad fact is that even among the more reputable journalists, there is a appalling sloppiness when it comes to anything more than gain a thumbnail sketch on matters before going to press. The problem here, of course is that while Hamlet can be viewed a a pariah or as someone damaging naught but his own reputation by those of us involved in Second Life, there is sufficient meat on his blog as a whole, coupled with his position as an “established” writer on the subject of Second Life, that his more biased and sensationalist articles could simply be taken as the way of things and get repeated to a wider audience. That’s something we could well do without.

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  4. I’m all for shining light on the flaws, and for competition (free market is a driving force for better everything in any life).

    An aside I didn’t mention is, if people see those doomsayers and get emotional and fly into an equally defensive retort, methinks they should perhaps relax and reassess their priorities. Second Life can be a very very worthwhile pastime and hobby, or even if you are shrewd and clever, business, but it should not be the focus of all your passions. There are far more important things out there that need dealing with, and soon.

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  5. What, is The Hamster chittering again? Seems like an SLRapture deal; just keep announcing The End Of The World and perhaps, like a broken clock, you may be right some day…

    I think my Reply from the Recalcitrant posts were clear: there’s problems in Second Life but I do not expect, nor wish, it to die. My ire comes from someone who should know better, given Hamster’s supposed FIC knowledge. Given his position and readership, as you point out, he might do better than continuously slinging mud if he truly loved and believed in these worlds as we the Recalcitrant do.

    Thanks for providing some numbers to counter those OTHER numbers that get bandied about so much. Refreshing to read.

    If you need some more insight into the dark corners of the soul, you might read Interview With The Hamster; Anne Rice fans take note ^_^

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  6. RE: new users, are they really new? I help sporadically at New Citizens, Inc which is one of the ‘newbie friendly’ locations you find when you login with the Basic mode of the LL viewer. Most of the people I see coming through are definitely new to Second Life. Whether or not the percentage of accounts sticking it out for more than a trial is increasing is not obvious. Most people ‘move on’ once they find a niche in SL and rarely return to orientation locations.

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    1. Determining which incoming accounts are “new” and which are alt accounts isn’t easy. LL can most likely gain some indication through a variety of means, and it will be interesting to see if any figures are published now the new sign-up process is properly bedded-in.

      Undoubtedly, a portion of the increase in sign-ups is down to existing users giving the new sign-up process a go; but all of them? Seems unlikely, so it’s far to say there is a fair throughput of new users. However, the critical elements are really user retention and engagement in the platform – those are the factors that lead to growth both in terms of active users and in terms of the economy as a whole.

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  7. Thank You for this Inara! A great piece.
    At this time of year we are dealing with those who have cabin fever and want to get away from their computer to go outside and play. But also this past year, we have seen a huge increase in the use of smartphones, especially for social, e-mail and basic browsing. This means that SL users are not tied to their Desktops and even Laptops, so it stands to reason that people will be getting into SL less frequently.
    For my group, which is Adult, we have changed focus from relying on SL, SL Search & SL Classifieds to bring us customers. Heck, before Kim Salzer came on board, I can’t remember external advertising by Linden at all. So now, we are experimenting with Social Media, QR Tags, Custom Landing Pages, Banner Ads, Ad Words, Video, Blogs and even RL Events.
    We now point our customers to our site, then direct them to our PG SLURL, get them out of basic mode (which has no adult representation and no search BTW), adult verify them, get them to buy some lindens (maxed at 7000) and herd them to the adult sim, train them to attach the “naughty bits” and sit on poseballs then off to have some sexy fun…(sigh, yes i know…complicated).
    We use SL as our place of business (5 sims). However, my concern on the flip side is about our imminent success – being in the “people business”, we have what I call “built in failure” when we get past 40 or so people on the sim, it becomes a difficult and constant balancing act for us when it gets busy – both in terms of sim/viewer performance and communication (local chat, group chat and voice). I hope (as I do each year) that some of the “scalability, stability and usability of the platform” issues will be put to rest.

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