Linden Lab’s acquisition: sundry thoughts & speculation

via lawdonut.co.uk

It’s been a week since the news broken that Linden Lab is in the process of being acquired by new owners (see Linden Lab announces it is to be acquired, July 9th, 2020). Since then there has been a lot of  ranging from the entirely positive to the inevitable “we’re doomed! / the sky is falling!”

Some have raised concerns that neither J. Randall Waterfield nor Brad Oberwager have experience with running games companies. However, having hands-on experience in running the type of company in which you’re investing isn’t actually a prerequisite for funding / representing / guiding it. Rather, what’s important is having the ability to understand the company, appreciate its value proposition and being able to contribute to its continued growth; and both Mr. Oberwager and Mr. Waterfield appear to have these abilities. In particular, J. Randall Waterfield, as CEO of the Waterfield Group, comes from an environment where long-term investment in companies to ensure their growth is very much the raison d’etre.

Waterfield buys and builds well-run American businesses.
We prefer basic businesses with a few years of proven, conservative growth. We avoid companies that are growing too fast. We believe slow and steady makes the race… We strive to be a good partner to existing management, are passive with regards to general managerial issues, and work hard to help our CEOs and their families’ realize their vision.
Waterfield’s investment timeframe is forever. We work to grow book value at a reasonable pace with no exit in mind.

– from the About / Investment Criteria page of Waterfield

Now, to be clear, it’s not the Waterfield Group that is investing in Linden Research, but rather a venture between Mr. Waterfield and Mr. Oberwager; but given Mr. Waterfield’s pedigree with long-term investment, is hard not to see him taking the same approach in his other ventures.

Nor should the fact that Mr. Oberwager has sold off three of the businesses he’s built be seen as a negative. Building a company from the ground up is a different matter to investing in an established, profitable entity, and selling the former in order to repeat the cycle isn’t automatically indicative of a intent to buy-in to an existing company simply to sell it on without a longer-term commitment.

Which is not to say a buy-out like this isn’t without risk; with the best will in the world on the part of incoming investors to a company, things don’t always go as planned or turn out as hoped – but planning for failure isn’t generally how investors set about acquiring profitable companies.

A further point to remember is that acquiring a company isn’t something that happens overnight; it can actually take multiple months or even years to progress from an initial decision to sell, through reaching an agreement in principal, to that final closure.

Due Diligence means investors are rarely unaware of the business they are about to invest in

One big part of this process is due diligence, a process designed to make potential investors precisely aware of what they are getting themselves into – things that might alter the deal, such as revealing unwanted risks or unwelcome financial exposure that they might wish to see properly mitigated prior to proceeding further. This means that incoming investors are rarely coming into a company flying blind or are suddenly going to find themselves facing an unwelcome wake-up call that might leave them re-evaluating their desire to retain the company.

On a more interesting – to me at least – level is that given the length of time an acquisition can take – even if measured over months, rather than years – is how closely the decision to sell Sansar might have been tied to the decision to offer Linden Research up for acquisition.

Simply put and despite the effort already put into Sansar, it still has a long way to go before it is likely to establish a sold income-generating business model, and therefore represents a significant revenue sink hole of unknown depth. As such, it would make sense for the Lab to divest itself of Sansar prior to putting itself up for acquisition; doing to removes the uncertainty around that platform whilst leaving the company with a demonstratively profitable product (Second Life) and a second that is just starting to show its potential (Tilia Inc.). Depending on the time frames of the two events, the sale of Sansar might even have been a pre-requisite put in place by the new investors to limit potential risk raised through the due diligence process.

Following the acquisition announcement, there were questions asked through the forums, etc., on why would a profitable company be put up for sale, and statements (such as can be seen in comments on this blog) that you “don’t sell a profitable company”.

Well the fact is that profitable private companies are routinely sold for a variety of reasons, and none of them are “bad” or “negative”. For example, and leaving aside the point that the fact a company is profitable obviously makes it more attractive, a sale can be because the current owners wish to exit the company entirely to pursue other opportunities; or they may simply want reduce their overall holdings in the company as part of a general change in lifestyle, whilst leaving the company with the ability to continue operating successfully (and in the case of the latter, still have their experience / expertise available, should it be needed).

I’m not about to try to second guess what reasoning is at work in the case of Linden Research, but  I am curious as to the shape of the board once the acquisition has been finalised. Will it be just the two new investors (which seems likely), or will one or two of the remaining board remain?

Obviously, how things pan out will only become clear over time, but overall (and such is my nature as a “glass half full” person) I lean towards the feeling that the coming change for Linden Research will prove to be positive.

Linden Homes: recent expansions, future thoughts

Welcome to Bellisseria

Since their introduction in April 2019, Linden Lab have released more than 10,000 new Linden Homes across Bellisseria, including the southern extension to the continent and southwards towards the Mainland continent of Jeogeot. They represent an extensive mix of themes: “traditional” homes, houseboats, campers & trailers and Victorian, all of which have proven very popular – as evidenced by the speed with which releases have tended to be snapped up.

The more recent updates have seen the southern section of Bellisseria that arrived with the release of the Victorian type of home directly connected with the northern, and additional off-shore expansions that place Linden Homes in the waters off the north-west coast of Jeogeot. The latter do so by offering what might be seen as the first “cookie cutter” element of the new Linden Homes, duplicating as it does the original houseboat expansion, together with a couple of the sand bar layouts from elsewhere around the continent.

Victorian Houses and the railway in the southern extension to Bellisseria

These extensions fulfil Patch’s promise that the new continent for Linden Homes would directly connect Jeogeot with Sansara to the north, providing water access (including the coastal waters of Bellisseria) between the two, and which goes well beyond the narrow corridor of water originally linking Jeogeot to Bellisseria.

In addition, the extensions close to Jeogeot also encompass one of the earliest Mole builds – Pyri Peaks. It was designed to offer anearly attempt at an interactive adventure involving a storyline, a fun fair and a network of underground tunnels and chambers. It is a setting I wrote about in 2013  with Pyri Peaks: the mystery of the lost Moles (2013), and whilst it is perhaps a little long in the tooth by today’s building / design standards, it is good to see it folded-in to the new Linden Homes in a move that might encourage interest in this part of SL history.

Pyri Peaks: home of the Pyri Fun Fair and now within sight / reach of Linden Homes

Whilst there are still houses within Bellisseria yet to be released, just where any future new locations for the homes might go raises an interesting point to ponder. One doesn’t have to look too far west of Bellisseria to note the number of private regions lying in that direction, together with the likes of the recently-arrived SS Galaxy, the QA versions of the Shop’n’Hop regions as well as the actual shopping event regions.

While these latter regions might be relocated to provide a little more western room to expansion, it would seem the the eastern side offers a far better opportunity, although this runs the risk of sliding into the open space to the east of Jeogeot, which might eventually lead to that continent looking crowded-in and limit expansion somewhat. So, might the Linden seek to offer a new continent elsewhere at some point in 2020? If so, will it see further home types?

Campers and Trailers in the Linden Homes regions extension just off the coast of Jeogeot

Offering new styles of Linden Home certainly helps maintain interest – but it comes with a potential risk: new houses could encourage those with Linden Homes to vacate and rotate from type to type, making it difficult  / frustrating for others who have yet to claim a home and who want to get one of the newer styles (something that has already been the case).

That said, were I to be asked, and given the potential for a more “offshore” style development alongside Bellisseria, I’d love to see something along the lines of houses built along a network of canals, with each house having a modest boat house or mooring space within the parcel and suitable for a small boat or two. Admittedly, it would require careful design to provide a mix of houses, waterways and footpaths (rather than roads) to connect everything together (and likely require a fair number of bridges), but such a design could generate interest and provide something more unique in terms of layout and options.

There are still regions in Bellisseria awaiting release to user, such as this area of Traditional Homes, sitting in the hills overlooking the southern extension to the continent

I’m pretty sure others have ideas for what they’d like to see, if there are to be further Linden Home types – feel free to comment with ideas! I’m also sure the Lab has plans of their own in terms of house types, if more are to be offered. In the meantime, as noted, there are still numerous regions in Bellisseria and the southern extension still to be finished, and the LDPW are once again back at work to get them finished and available as part of the weekly release cycles.

A decade (+) of blogging: thoughts on Second Life

On the occasions of my 13th SL rezday, Erik Mondrian reminded me that 2019 marks my 10th year of blogging via WordPress (I’d used another platform for a couple of years prior to that). With his reminder, Erik presented me with a challenge:

A slightly belated Happy Rez Day, Inara! And, if I may, perhaps a challenge? Not that you’re short of things to write about, but if you have time: In the last 10 years, what do you feel has been one of the best changes/additions to SL? And what are your hopes for the next 5?

– Erik Mondrian, via Twitter

As I stated in my reply to that tweet, I’m note sure I could pin thoughts down to any one thing in terms of what has positively happened to Second Life; there are simply too many – and some tend to be interconnected in some ways. However, I’ve been cogitating Erik’s challenge, and here is (slightly later than planned) an abbreviated list of some of the things that I believe have either benefited SL or had a positive impact on it over the last decade or so, and which I’ve particularly appreciated during my time using the platform.

Communications with the Lab: the relationship between the Lab and SL users has tended to be a complex one. At the time I moved to blogging via WordPress, things were at a low ebb. There had been the Homestead region situation, together with the drive to make SL a more “business oriented” platform (vis: Mitch Kapor’s SL5B crossing the chasm address that appeared to suggest SL’s early adopters were interfering with trying to reach an early majority audience; suggestions that parts of the Mainland should be made “business only”; the (ill-fated) Second Life Enterprise (SLE) product development; lectures from form Lab employees on how users should dress their avatars “for business”, etc), all of which left a lot of SL users felling pretty disenfranchised.

However, starting with Rod Humble and particularly with Ebbe Altberg, the Lab has sought to strongly re-engage with its users and embrace them. Things haven’t always worked out in their entirety (communications did go a little backwards towards the end of Humble’s tenure); but there is no denying the improvements seen through activities such regular Town Hall / Lab Chat / Meet the Lindens events plus the likes of VWBPE addresses and Designing Worlds interviews, and the simple expedient of allowing LL staff to once again openly engage with users whilst using their “official” accounts.

Windlight: although it was originally introduced in 2007, Windlight had a profound effect on the appearance of Second Life that’s hard to overlook. Originally a third-party product Linden Lab acquired and which didn’t see all of its potential capabilities implemented (for whatever reason), the overall impact of Windlight shouldn’t be trivialised.  If you need an idea of how SL looked pre-Windlight  – with the exception of the old particle clouds – just disable the Basic Shaders in the viewer.

Open sourcing the viewer code: also introduced in 2007 and not without its share of hiccups / controversies (the Emerald viewer situation, for example), the open-source project has undoubtedly served SL well. It has allowed third-party viewers to thrive within a reasonable framework, and both exposing features hidden with the viewer’s debug settings and allowing developers to add their own options, allowing users a greater choice of client options. It has also provided the means for users to contribute potential improvements to the viewer back the the Lab, generating a a largely positive synergy between developers and the Lab.

Mesh model import: admittedly, the impact of mesh modelling in Second life cuts both ways: positive and negative. Leaving aside what might be regarded as its negative aspects, it has helped to improve SL’s look and feel, potentially made region design more accessible / attractive, and helped bring improvements to the avatar we might otherwise not have seen, or which may have not have been implemented until later in the platform’s life (e.g. Bento and Animesh).

Performance improvements: over the last decade, LL has worked extensively “under the hood” with Second Life to try to improve overall improvements, such as the long-term Project Shining. Running for some 2 years with the aim of improving object and avatar performance, it was followed by further projects and efforts to help improve performance in assorted areas. Some have had mixed initial impact, but all of which have, overall, helped to improve things for most users, even if only incrementally in some cases.

Materials, Bento and Animesh: all three have helped improve the look and feel of Second Life, making it more attractive to users old and new.

Looking to the next 5 years, there is much that might happen or which many would like to see happen – from technical aspects such as further improvements in simulator performance (e.g. script and physics performance, region crossing management), through to more esoteric aspects such as audience growth / user retention, fee balancing, etc. However, I’ll restrict my thoughts for the future to one topic: the transition to the cloud.

This work has already eaten into the Lab’s engineering and operating time over the two years, and will doubtless continue to be a significant focus for 2020. However, it is a leap into the unknown for Linden Lab and Second Life, both technically and in terms of operating outlay / revenue generation (e.g. capping the cost of having cloud servers running 24/7 in a manner that doesn’t require uncomfortable fee increases).

On the technical side, it’s more than likely that the focus on moving to the cloud has a higher priority that developing significant new features for SL – and perhaps even curtailed implementing updates that might be seen as having a limited lifespan, such as infrastructure changes that could be rendered obsolete following the cloud uplift, but which are nevertheless causing a lot of teeth grinding amongst users.

Even when the uplift itself is completed, it is likely that the transition will still require a significant among of settling-in and adjustments that will continue to occupy the operations and engineering teams. So there is a lot hinging on this move that will continue into the next couple of years, and that is important to the overall future of the platform.

Name Changes: poll update

In Name Changes: $40 per change(?), some thoughts and a poll (December 17th, 2019), I offered some thoughts on the proposed US $40.00 fee for name changes, together with a (very) rough-and-ready poll on how people feel about the capability and the fee (so rough-and-ready that on reflection, I should have structured it a little differently and  used Google Forms for the poll for greater flexibility rather than the tools provided by Automattic for WordPress.com users, which are perhaps a little too basic).

As I noted in that piece, since last names were eliminated in 2010 in favour of “Resident” and the use of Display Names, there have been frequent calls for them to be “returned” to SL. These calls started almost immediately after “Resident” was introduced, through both forum threads and via Jira feature requests. Such was the demand, that by late 2011, LL were actively looking into bringing last names back, although ultimately they gave up on that attempt.

However, I also noted that the fee itself might be a limiting factor (together with the fact that the option will be limited to Premium members), and whilst admittedly a small sampling, the results of my very straw man poll would seem to support this. Just under 61.5% of respondents indicated that they probably won’t use the service, whilst over 80% of those responding the the question on the fee indicated that they felt it was too high.

Results from my (very) rough-and-ready Name Changes poll

Given that most people will naturally be opposed to paying almost any kind of fee for anything (even the L$10 upload fee for textures / sounds / animations is a source of grumbles), then opposition to the Name Change fee is to be expected. But the volume of negative responses, together with the level of disinterest expressed in the capability, would seem to point to the fact that  – again allowing for the fact it is limited to Premium members, and the responses to the poll likely came from Basic members as well – the $39.99 fee may will be a limiting factor for users after Name Changes go live beyond the natural pause LL hope it will provide against too-frequent changes that might otherwise impact services – and might in time prove counter to the degree of effort LL have had to put into implementing the service.

Fee aside, comments that followed my December 17th article and made through the likes of Twitter and direct IM, suggest that Premium members who are eligible for the service may well be put off from using it due to what they perceive as a another potential shortfall: the inability to re-use last names previously made available by LL. Those who wish to take their partner’s last name, for example, are effectively unable to do so except by continuing to use Display Names, while those who have a favourite last name that has previously been offered by by the Lab will similarly be out of luck.

Sample comments on how the lack of the re-use of “old” last names is seen as a limiting aspect of Name Changes

Again, this is only a small sampling, and one that uses a very basic poll to gather feedback. Nevertheless, it does suggest that Name Changes may well face a very mixed reaction once deployed, the former interest among users to have a last names make a return to SL notwithstanding.

Name Changes: $40 per change(?), some thoughts and a poll

Name Changes  – the ability for Premium members to change their first and last names, with the first name being free-form, and the last being selected from a list – is due to be launched around January / February 2020.

As has been previously announced, Name Changes will be offered for a US dollars fee, and there has been some speculation over the last couple of months as to the the size of that fee (one prominent rumour surfaced at some User Group meetings has claimed the fee will be US $20.00, for example – see here).

However, with the announcement of the Name Changes contest (see Name Changes Contest is Upon Us! from Linden Lab and my own blog post Linden Lab launches SL Name Changes contest), we now have a prominent indicator as to what the fee will likely be, and it comes to us via the contest rules:

5. PRIZE.

A. Description of Prizes. One free Last Names change (estimated value at US$39.99 plus $11.99 to represent the value of a month of Premium Membership) on an account of Winner’s choice.

B. Estimated Total Prize package value: US$51.98. Exact value dependent on account status.

(Emphasis mine.)

Of course, the fee still has yet to be finally confirmed, but it’s fairly safe to assume that it is likely to be the  $39.99¹ mentioned in the contest rules. This raises some interesting thoughts about the capability and its potential uptake.

On the one hand, a fee is to be expected, if for no other reason that that re-introduction of names changes has required extensive changes to many of the back-end systems and services that support Second Life (hence the time taken for the capability to be introduced). Also, given the impact of making a name change will have an extensive impact on those systems, the Lab needs to limit how frequently such changes might be made to avoid unintended impact.

There’s also the the fact that in order to meet demands from users for the Lab to reduce land tier (which they’ve tried to address over the last few years through the likes of the 2016 buy-down offer and the reductions to mainland (March 2018) and private region (June 2018) tier), there need to be ways in which the revenue can be made up (see Thoughts on Second Life fees, tier and revenue ) and Name Changes is one more option by which this might – in time – be achieved.

BUT … the potential for revenue generation needs to be balanced against the level of the fee: if it is set too high (and leaving aside the inevitable shouts about “gouging”, etc., from some quarters), then it could be self-defeating. Simply put: if users feel the fee is too high, they’re not going to run with it, particularly given Display Names will remain available. As such, there is something of a risk that Name Changes may take a good deal of time to recoup the costs of implementation – if it can.

There’s also the overall level of interest in the capability: while a lot of noise was made following the removal of last names in favour of “Resident”, the fact is that those who have been around long enough to have a last name (like myself) may well be so attached to it, so changing it may hold little interest. Even those partnering or with the “Resident” last name might prefer to stay with using Display Names rather than forking out for a Name Change.

Time will tell on both of these latter points – and there will likely be much debate on the fee as well as the capability in general. As such, I thought I’d try a straw poll of feedback on the subject from readers – make sure you vote in each box; once for interest, the other for the fee.

Update, December 28th: this poll is now closed.

Related Articles

  1. Note that Linden Lab has indicated the fee will be lower for Premium Plus once it has been launched. However, Premium Plus pricing has yet to be confirmed, and the option will not be launched until some time after the release of Name Changes.

Thoughts on Second Life fees, tier and revenue

via: thebluediamondgallery.com

Monday, December 2nd saw the introduction of the new Marketplace (MP) commission fee of 10%, as announced in the Lab’s November 21st blog post The Return of Last Names and Changes to Marketplace, Events & Premium.

The announcement of the fee change unsurprisingly caused some upset, with a couple of forum threads popping-up on the subject (see: MP fees raising to 10% per sale. Thoughts? and Second Life® is still a world of opportunities). Various points are raised in both threads, some fair, some perhaps not-so-fair. While I’m the first to note that I’m not in any way, shape or size a “merchant” or “commercial creator” in SL I thought I’d try to step back and try to take a broader look at fees and tier, etc., in general.

The first point to note is that in making the claim that the increase to the MP transaction fees still leaves them “significantly lower than most digital content commissions across the industry” while citing Apple and Google as examples, the Lab did so with a certain amount of spin.

The 30% charged by Apple, for example, incorporates payment clearing, fraud, indemnity, insurance, and dunning; local tax law enforcement & reporting; service provisioning and distribution, etc. Due to the nature of Second Life these fees are incurred separately to the MP – but they are still incurred by many merchants using the MP, and when taken into consideration, they amount to somewhat more than 10%, a point Cat Hunter makes in this comment.

Also in their blog post, the Lab note that that fee change is to help offset costs incurred at the Lab due to investing in new Marketplace features and improvements. This is fair enough; however, given that the first of these changes is apparently within weeks of being deployed (improved MP search filtering), it might have been an idea to perhaps to wait until these changes had been introduced  before announcing the fee increase – and then to champion them alongside the improvements that have been made over the last 12-18 months, such as the much-requested Store Manager capability and the notifications and redelivery capabilities and wishlists and favourites¹.

However, there is a more intrinsic reason for fee increases – be they with transaction fees or anything else (such as the recent increases in Premium subscriptions), and it is one the Lab perhaps doesn’t communicate clearly: and that’s trying to reduce virtual land tier.

While tier has contributed to the loss of regions in SL, including places such as Venexia (above) and its sister region, Goatswood, lowering it without increasing fees elsewhere would always hurt Linden Lab more than help users

This is something that users have (rightly or wrongly – there are actually arguments on both sides of the coin) been demanding for at least the last decade. And since the start 2018, Linden Lab’s CEO, Ebbe Altberg, has repeatedly stated the company would like to reduce land tier – but would only be able to do so if the resultant loss of revenue the company would suffer as a result could be compensated for through other means².

In fact, the Lab have taken steps to reduce tier: in 2016 there was the private region buy-down offer³ (the interim boost to LL’s revenue as a result of the fees payable likely long since having passed), and in July 2018 reduced private region tier from US $295 to US $249 for Full regions (that now stand at US $229), and Homesteads from US $125 to US $1094.

While it is hard to accurately quantify, given the various factors involved (e.g number of grandfathered, skill and educational regions, the more recent slight increases in region count, etc.), it is – with the help of Tyche Shepherd’s Grid Survey and the Internet Wayback machine – possible to reasonably (conservatively?) estimate the impact of the July 2018 tier reductions at around a LS $300,000 a month fall in the Lab’s land revenue. This may not sound a lot – but it is something LL would likely want to recoup – and it can only be done through increases in other fees, as Altberg noted in his comments on the matter.

This should not be taken to mean the transaction fee is wholly associated with compensating for the tier reduction, but it’s not unreasonable to assume it might nevertheless help, either now or in the future. More to the point, and regardless of where the revenue from the MP fee increase is used, it wouldn’t hurt for the Lab to remind people of the strategy to pivot revenue away from land tier and to other options when making similar fee adjustments elsewhere (or indeed, the introduction of new fees, even it they may also help offset the cost of implementing new options and capabilities).

There are two final points that come to mind when looking at the MP transaction fee change. The first is that of all the fee changes thus far introduced, it is the one that merchants can most directly compensate for, as some in the forum threads have noted. Merchants can raise their MP prices, for example, whilst keeping their in-world prices lower (which is allowed5); or those with in-world stores might focus more on sales through that channel, with associated group advertising.

The second point comes back to the timing of the announcement. It would seem that the increase has been made so that the Lab can benefit from the likely increase in MP sales during the run-up, and indeed over, the holiday season. There’s nothing wrong with this per se; but given the increase has likely been on the cards for a while, it would have perhaps have been preferable had LL given more of a lead time on its implementation so allow merchants more time to prepare for it, and so help them in compensating in what might come across as a reduction in their own ability to generate revenue through the same holiday period.

Related Links

  1. See:
  2. See (all with audio comments by Ebbe Altberg):
  3. Lab: get grandfathered tier in 6-month buy-down offer (April 2016).
  4. Linden Lab announces major SL private region pricing restructure (June 2018) and Looking at the new private region and L$ fees (July 2018).
  5. Web Team Springs some Deploys on you, April 2018.