Rodvik: Virtual Goods and LL’s Profitability

Rod Humble discusses virtual goods and virtual worlds in a brief Bloomberg interview. What are most interesting to note are the comments towards the end of the piece, regarding Linden Lab’s current profitability:

Emily Chang: The Tech IPO bandwagon is filling up. Is that something that you guys would consider or [are] considering?

Rod Humble:  We’re not looking for any further investment right now. We’re profitable, we’ve got [a] very good cash balance… So from our perspective, if we were to be able to deliver a large and measurable long-term return on new investment, then we’d certainly look at it. We’ve got a long runway of features that I want to put in place with our current very healthy cash and profitable business first, though.

Should this story be picked up, it is these words that are probably going to be the focus of attention – particularly among those who seem anxious to sink the Second Life boat, who will probably interpret Humble’s words as, “We’re not really attractive enough for IPO, and we’ve got to blow money to get there, ‘cos we have to make ourselves attractive somehow.”

Personally, I see his statement in a more positive light: LL are reasonably cash stable and are profitable, something I’ve commented on previously. Furthermore, there is a continuing upswing in sign-ups (still running at around 16K per day), which appears to be translating into a rise in user concurrency, which would indicate that new users are actually sticking around for longer and potentially getting more involved. Both of which are healthy signs.

What is key about Humble’s words, however, is the sheer pragmatism they carry, even in such a relatively lightweight interview. He recognises that while Second Life indeed “has legs”, and can, on current form, continue pretty much as is as a private company generating sufficient profits to demonstrate (presumably) a return reasonable enough to keep the original investors happy, it also has the potential to go much further in time. Thus, while IPO is definitely not on the cards right now, this may not be the case in the future, should things develop in that direction.

This is pragmatic on two counts. Firstly, it is allowing the company a degree of freedom in tackling the issues it currently faces – technical and otherwise – and solidifying its position without any ulterior needs or requirements overshadowing things. Given the company has undergone significant pain when ulterior motives have been the driving force behind matters in the past (e.g. the drive to convert SL into some form of “real world” business and applications platform), this is a wise move. Secondly, as Emily Chang states – the technology IPO bandwagon is fast filling up, but if we’re all absolutely honest, we’ve no idea where it is going. As such, not leaping onto it with everyone else is also something of a potentially wise move; especially if the wheels do come off the wagon, as LL get to avoid the resultant crash. However, if the bandwagon proves it can roll and roll, then LL could ideally be well-placed to pick-up on all those investors who might otherwise be kicking themselves from not being “in” on things from the start.

Taking this perspective and being willing to acknowledge both sides of the coin, so to speak, again demonstrates to me that Rod Humble is very much the right man in the right place at Linden Lab – and he’s hopefully carrying the board with him on this.