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”.
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.