Linden Lab's Current Position a Little Like AOL's -- Profitable, But From Unsustainable Revenue

If you follow tech business news, you probably noticed that AOL has been on a buying spree recently, snatching up huge sites like TechCrunch and The Huffington Post, in an effort to transform itself from an Internet service provider to a content hub. That raises two questions: Why is AOL changing its business strategy, and where the hell did they get all that money to make so many pricey acquisitions? As The New Yorker explains in a recent article (subs. req.):

[AOL] still gets eighty per cent of its profits from subscribers, many of whom are older people who have cable or DSL service but don't realize that they need not pay an additional twenty-five dollars a month to get online and check their e-mail. "The dirty little secret," a former AOL executive says, "is that seventy-five per cent of the people who subscribe to AOL's dial-up service don't need it."[emph. mine]

With that in mind, it's easy to see why AOL is spending lots of money to become a content portal: The profits the company is earning from subscriptions will not last, and cannot be replenished. There's no untapped market for ISP subscriptions, because in an era of wireless broadband, the value proposition of a dial-up service is entirely outdated. Instead, this revenue is destined to continue waning, as these existing subscribers realize they no longer need it, or in the next few years, quite literally begin passing away. And while the analogy is not exact, this is very much like the position Linden Lab finds itself now:

The vast majority of its profit comes from virtual land fees, but that market is not being replenished by new customers. In an era of declining server costs where most user-generated content platforms, virtual worlds, and chat networks are free or near-free, it is difficult for Linden Lab to find a new market of customers who are willing to pay hundreds of dollars a month on their main offering. And whereas AOL still has millions of subscribers, Linden has something like a hundred thousand landowners, a much more brittle revenue base, which makes the need for a dramatic strategic shift in search of new markets and revenue streams even more pressing. (Do you think I'm an advocate of Facebook integration merely because it's trendy?) But whatever moves Linden Lab decides to make, keep this underlying reality in mind -- as with AOL, time is running out to make Second Life sustainable into the next decade.

Image credit: newyorker.com.

Comments

[Dusan Writer]

Your premise might be correct, but your conclusion doesn't necessarily follow.

I've never quite understood why you think that Facebook is the holy grail of SL. It's such a reductionist way to look at the future of technology, Linden Lab and virtual worlds - and it feels a lot like trying to skate to where the puck *is* instead of where it's going to be (hey, I'm Canadian!)

My other comment has to do with expectations - AOL could very well have been around for 30 more years - it all depends whether you need it to be the "hot" thing, or just a nice sustainable, profitable business.

There are still MUDs and MOOs around all these decades later, and my bet is the people in them are still happy and still get value - the only folks who might not like it are any investors and the press. :P

[Lili]

It should cost 9.99 US$ a month with no anonymous accounts to play Second Life. If they want to give a few free accounts to some they feel worthy, ok. But there should be no anonymous accounts (anonymous to Linden Lab, all accounts should be anonymous to other users).
So many arguments about free accounts, that people would not be able to come and that free people spend as much money. If they can afford to spend money in Second Life, they can afford to pay 9.99. Who cares if there are only 100000 people in Second Life, if it is still profitable? Griefers, copybots and freeloaders would not be there.
Linden Lab should concentrate on being a service and not trying to be everything for everybody. They host a simulator service and that is all that’s needed. If they can’t stand the thought of missing out on facebook glitz, they can start another business for that. As it is, the virtual world that is Second Life has value for a lot of people. Maybe not enough to make Linden Lab the biggest company on the internet, but important enough than many would still pay. They can actually have other business if they wish, but they really need to maintain the virtual world, as the virtual world.
Microsoft has many interests. It would be foolish of them to say it’s all one thing. So why can’t Linden Lab start new interests, if they think there is a market for it? As it is, it’s like, ‘we are bread, but they want us to have cheese and this one wants wine and this one thinks that and this one needs this thing’. So, are they to just stop being bread to be everything, and then we have no bread? Makes no sense.
If they want to survive, as is, Linden Lab has to take care of the people who are PAYING the bills.

[John]

That is just wrong. I am landlord and I constantly get new tenants that have joined SL recently. Second Life may not be growing, but it is also not shrinking. Also the Lindens have other revenue streams, like the Linden Dollar and LindEx, Marketplace, Classifieds and revenue from advertising. I recently read over at Hypergridbusiness an interesting idea. Linden Lab could licence the Linden Dollar (probably under a new name) or the marketplace for virtual goods to OpenSim grids and other virtual worlds or games. That could create a huge revenue stream.

[Hamlet Au]

"the Lindens have other revenue streams, like the Linden Dollar and LindEx, Marketplace, Classifieds and revenue from advertising"

John, last time I checked, virtual land accounted for over 80% of Linden Lab's revenue.

"There are still MUDs and MOOs around all these decades later, and my bet is the people in them are still happy and still get value"

Ultima Online is still around, and it's almost 15 years old. HOWEVER, it only costs $12.99/month for all its subscribers, not HUNDREDS OF DOLLARS a month. Even more key, it's an RPG game, so there are reasons for individuals to keep logging in beyond any shifts of community usage. Without those meta goals, SL's activity is much more brittle.

"I've never quite understood why you think that Facebook is the holy grail of SL"

I never said it's *the* holy grail, Dusan, but I do think it's an important element to SL's future. You know Facebook already gets significantly more pageviews than Google, right? Like, 1 in 4 of all US pageviews:

http://techcrunch.com/2010/11/19/hitwise-facebook-accounts-for-1-in-4-page-views-in-the-u-s/

So I'm not sure why you think Facebook isn't important to SL. Do you think Google isn't, either?

[Nalates Urriah]

@Hamlet, some good comebacks.

Facebook is interesting in several ways. It is a huge laboratory for experimenting with and quantifying people's behavior. But as an advertising platform people are learning it is not as great a promotional tool as it is hyped to be.

I like Backyard Monsters and some other games. But as the game developers experiment and one spends more time in the games it soon becomes obvious the grind is in clicks. Eventually one tires of it. I certainly am. While doing all the game clicking I'm not looking at ads.

Now Frontierville is giving players' avatars pox. It is contagious. One must jump through hoops to get ride of it. eeew, yuk.

However, the popular user features of Facebook can be applied to the social interactions of SL residents. That could help. Some measure of connection may also help. But, I'm not sure blending SL and Facebook sites will work out well for SL.

We'll see what they actually do. 3/2/11 should be interesting.

[Mitch Wagner]

How would you like to see SL integrated with Facebook? What capabilities and features would you like to see? And how can it be done given FB's police against pseudonymous accounts? And how would it help reverse SL's declining popularity and revenue problems?

[Lili]

Hamlet is correct. of course. Second Life needs to adopt facebook, drop the virtual world business and make 3-D chatrooms that can run on the iPhone. In a year or so it will be out of business and we can get out in the sunshine and be a lot happier.

I'm going out the door to break the news to my grandfather now. The old ways are all out and he needs to stop and sit in the kitchen all day. He makes and repairs shoji doors by hand. It's really silly, because machines can do it much faster and cheaper. Western doors are probably even better and wouldn't need repairing at all. He doesn't even have that many customers anymore. And even though the ones he has pay him a lot for his work, it's better that people quit loving some old fashion thing and move on. It really doesn't matter that they enjoy these things, they are just wrong and stupid headed. They will be better off with cheap western doors and no old men around to repair them. Hell, he doesn't even have a computer and hasn't any idea what facebook is, so sad he is behind the times and must go.

And I must go also. I'm tired of hearing about facebook and arguing about it just brings it up more. Facebook is blocked on our router because I hate the like buttons, so we're doomed already I think:)

[Ignatius Onomatopoeia]

@Mitch, I do not know how SL/FB integration would work, but I can say this: it took a contractor for DoD to get around FB's ban on pseudonymous accounts.

http://science.dodlive.mil/2010/07/21/the-dangers-of-friending-strangers-the-robin-sage-experiment/

For the "Robin Sage" experiment. Given the circularity of the blogosphere, however, it was probably you or Hamlet who shared that particular URL.

@Lil: right on, and I will drink a toast to your grandfather. Yesterday the backhoe on our RL farm (near, get this, Farmville, VA) just could not get the better of a systematically compacted dirt-pile I needed to move. Enter me, with shovel and a lot of energy. End result? Giant mound of packed dirt, moved, with backhoe as motorized wheel-barrow.

Your grandfather will be repairing doors when the rest of us starve, because the oil dripped dry and we can no longer get out of the Laz-Z-Boy chairs.

[Robustus Hax]

I think if you want to kill Second Life, then charging 9.99 per month for every resident will definitely do the trick.

The problem is not that Second Life is free to many (most), the problem with the price structure is that it does not take into consideration usage. A full sim that is home to a small group of people that use relatively low resources and bandwidth costs as much as say a freebie island or sex island that consistently pushes the limits of the sim. That and the fact that the mainland is just a money loser since the servers have to be on even if parcels are vacant. Sim owners are paying for the mistakes of the great land dump on 07.

I know we keep rehashing Facebook connect because of the numbers of people on Facebook, but the Lab could be connecting to Facebook right now, it's called advertising and marketing, but along with creating the entire world for the Lab, they want Facebook connect so the users can do the advertising and marketing for them too. How about a real advertising campaign?

I'm sure Facebook Connect would be cool for some people who want all their friends annoyed everytime they go to a new location or everytime they buy an object or what have you, but to spend any significant resources to make this happen or to put the success or failure of something like Second Life in the hands of the success of Facebook, I think you would just be dropping all your eggs in one basket. If your product stands up to the test, you don't need to connect to facebook to succeed, just a normal advertising campaign would be fine.

[Ann Otoole InSL]

LL can work deals with content creators. LL gets half of revenues in exchange for a certain amount of commercial land in governed commercially zoned themed shopping areas.

There are many ways LL can generate more revenue streams. But right now they need to work on making SL usable by both the existing advanced users and people that just want to drop into an event they saw on facebook and not have to learn a million things like how to manage land, use an AO, etc.

So Hamlet you do realize that LL gets a large chunk of the content business by way of tier paid from selling L$ that was acquired by selling content right? So a large chunk of what LL gets actually is sourced from content sales. Just thought I would point that out. The SL circle of life so to speak.

[Little Lost Linden]

Holy New World FaceBook!

I have to vent what I think of FaceBook.

FaceBook sucks.

http://www.cnn.com/video/#/video/tech/2011/02/16/simon.facebook.pseudonym.cnn

Most Second Life users wish to remain anonymous and should be able to do so. Facebook is probably once again on the road to another avatar purging soon, this is the opposite of SL.

What Second Life really needs is more immersion, not less.

Second Life needs to grow graphically. Virtual Reality has always been about the cutting edge and it should continue to be that way. It's science fiction becoming science fact.

SL needs to get back that cutting edge it had for a tiny moment in time.

Forget the little guy who won't upgrade a PC more than once every 5 years, Virtual Reality is for those who want to have it as a serious hobby, not as a Facebook tie-in, that is not what it's about.

We need to start with a graphics overhaul. Fix those dynamic shadows, up the resolutions, bring in more windlight style effects, fix the slowdowns, make us BELIEVE we are in this virtual world. Make the software run faster, we are tired of the bugs, fix them.

Facebook is the wrong avenue, so is mobile.

Give us full VR in eyefinity surround, that is what it is all about.

To quote a famous VR person who recently made good ribs in Sin City:

"The Lawnmower Man is in your head now Jake. There is no escape. Ever!"

[Lili]

I, for one, would welcome the rule of Little Lost Linden. We want OUR toys back, not the HERD's toys.

[Sue Baskerville]

I'm not getting a very clear idea of what "Facebook integration" means.

[Troy McConaghy]

I'm tired of the the comparison between AOL and Linden Lab. It's lazy. Linden Lab isn't an Internet Service Provider, nor are they a content-production company.

What *does* Linden Lab provide?

* Hosted online services, paid for by recurring subscription fees. Compare to Salesforce.com, Google Apps for Business, Flickr Pro, World of Warcraft

* Online "virtual" (non-physical) goods marketplace. Compare to the iTunes Store, Netflix, Steam

* A virtual currency marketplace. Compare to VirWoX, the markets for WoW gold

* Advertising sales (e.g. SL classified ads, SL Marketplace ads and promotions). Compare to Google AdWords, Amazon Affiliate Ads, Yahoo Advertising Solutions

This will be more fun.

[Linda Paine]

In my opinion one of the biggest problems for LL is their own mainland. It looks like waste, a lot of parcels are empty and no one want to have it. It costs manpower, serverpower and it's wasting money. To build the Railway doesn't help. It's a nice gag for evangelists but nothing more.
I think the business orientated Avination makes it right on long term. Learnt from this failure.

Supporting Facebook by LL may be a nice tool for naive costumers, but nothing more. I'm sure it don't bring new costumers to LL. And if, than there'e coming out of curiosity. But the most I think don't stay. We as "oldbees" all know why, and LL know it too, or should know in the meantime. Social Network of LL costumers is taking place inworld and facebook may be the outcome of this. I like Twitter as news-system for SL, the twitter-sphere show daily why.

[Hamlet Au]

"I'm tired of the the comparison between AOL and Linden Lab. It's lazy. Linden Lab isn't an Internet Service Provider"

The comparison isn't in the services each company provides. The comparison is with their main revenue streams -- both of them are out of date and cannot be replenished.

The Facebook integration question is a bit more complex than can be answered in Comments, so I'll be addressing it in various directions with several posts. But in any case, this post is not really about Facebook, because Facebook is only one part of the answer to Second Life's troubles. The point of this post is to show that fairly drastic changes ARE needed, because Second Life cannot remain profitable with its existing revenue model.

[Masami Kuramoto]

Although I don't think Facebook is the solution, I fully agree that Linden Lab's business model is expiring. And one of the reasons is OpenSim.

I am currently running a hypergrid node with 16 regions on a virtual private server. Total cost per month: €20. My regions are not isolated; they can be reached from OSGrid or any other hypergrid-enabled grid/node, very much like a private island in SL. Since each hypergrid node runs its own asset database, this model is endlessly scalable. It is quite literally a 3D world wide web in the making.

[Paisley Beebe]

Linden Lab "should" have their own Facebook type communication application within SL not outside of it! but so far they haven't hell we don't even have a Linden Lab Group!!! every new avatar or old for that matter should be in a Linden Lab Group...too big? maybe. But if we were, then when L.L wanted to talk to us they would not have to use email, twitter, or Facebook! I'd like to see how many people actually get interested in SL from Facebook before I endorse totally the Facebook integration. There is only just over 100 thousand facebook Fans on the Linden Lab page in Facebook what about all the other L.L users eh? how about getting to those, via some in world L.L group that we are all in...L.L need to be able to communicate with their own user base BETTER!

[Lili]

I think the actual reason Second Life is failing, is that Linden Lab never listens to it's paying customers. In the last year, I know of twelve multi-estate owners and at least thirty other premium members who left. These were friends of mine.

Linden Lab is so concerned with trying pleasing anonymous, non-paying accounts, that they are willing to lose their long time paying customers. Which makes more sense, taking care of good customers and meeting their needs so you can attract more like them, or ignoring your good customers and making changes to attract new customers that don't even know you exist?

It's like I have a good business selling turnips, but I throw rocks at my customers and overcharge them, then take my turnips Somalia to sell them instead. All because I wanted more business.

Linden Lab had good customers and still has many. But they are losing more every day, only to have them replaced by unpaid anonymous accounts.

As for AOL, it just makes me sad that anyone would be uninformed enough to think they had to use them.

[Wizard Gynoid]

@iggy that DoD experiment is not a good example. that account violated Facebook ToS and would be subject to deletion upon discovery. currently there are *many* SL avatars with Facebook accounts but they survive because they are under the radar. if challenged, they are likely to be deleted. there are also many pseudonymous accounts that are not SL avatars.
@lily charging a fee to all users of Second Life would effectively kill it.
@hamlet provide a platform that people won't leave and it will be sustainable. it's profitable now and will be unless people defect.

[Hitomi Tiponi]

Do you think that Hamlet is posting these 'Facebook' and other controversial link stories with inaccurate use of figures just to get more clicks and comments? Just a thought.

I just wish this blog would go back to highlighting more interesting locations, events and stories from SL. There are still some - but they seem to be getting rarer.

[Rin Tae]

I have written a blog post about this very topic some time ago. Of course I have no idea if I am even close to the truth but I do think that one of the 'drive of commerce towards the Marketplace' that has been seen and mentioned by many voices I heared over the past months, can be interpreted as LL trying to spread it's revenue stream over a broader foundation. The landmarket .. while still very profitable for LL .. is a bit of a bottleneck after all so if LL has a long term plan, they are most likely thinking about how to ensure stable profitability even in the case of unforseen events. And increasing the profit from non-land sources seems like a good thing to do. Of course no one knows if it plays out or what their exact stratey is right now. So it is guess work that I still happily engage in.

[JabbaAabye]

Facebook, like any other social media out there will have only one future. Everything that has an exponential growth, must have an rapid decay. Plenty of examples (like MySpace, Cu2 or Hyves).

When I think this decay will start for Facebook? In 1 or 2 years. So, my two pennies, don't invest in Facebook if you don't have to.

[Alun Dudek]

"In my opinion one of the biggest problems for LL is their own mainland. It looks like waste, a lot of parcels are empty and no one want to have it. It costs manpower, serverpower and it's wasting money. To build the Railway doesn't help. It's a nice gag for evangelists but nothing more."

Not sure I agree with Linda Paine on this one.

One of the problems for some of us is that we want a bit of land, but not anything like a full sim - and not just for cost reasons. For a small creator, a 512 or 1024 m2 shop may well suffice. If what one wants is just a place to leave one's avatar(s) whilst one is offline, and maybe to "entertain" a close friend, the Premium Home may suit your needs, but may not.

And "buying" (for which read leasing) land from a sim-holder doesn't work. I have seen too many sims "disappear" (some with far too little warning) because of the owners' having to abandon their sims due to RL events. At least, if I buy mainland I know it is a lot less liklely that I will lose my investment suddenly due to circumstances totally out of my control.

Mainland also allows avatars to wander around many sims one after another looking for - who knows what - something you rarely can do in owned sims as many (most?) are scattered and non-contiguous.

Which is not to say that there shouldn't be a change to the amount of mainland available. But that is a seperate issue.

Indeed, one of Avination's problems is that there is no mainland. Though personally, I think this is a minor one, compared with some of the others. But that is the subject for another comment (or maybe even a full rant :-) ).

LL does have long-term problems due to their current financial model, and they need to sort them out. But I doubt if Facebook is the answer. I'm not sure solving the software problems (lag, the Viewer 2 interface, etc.) will solve the longterm problems either, but it may well buy them a chunk of time to find the right answer.

And finding out why people - paying and non-paying - play in SL may be useful. I suspect that the answer will be, for the vast majority of players, meeting people who they wouldn't meet in RL. And I am unsure that FB does that.

Hmmm, this was supposed to be a brief comment on Mainland. Oh well, hopefully it'll will make people think. :-)

[Magnus Brody]

If SL is AOL, then FaceBook is CompuServe.

[Magnus Brody]

If SL is AOL, then FaceBook is CompuServe.

[Robustus Hax]

Alun, I agree mainland has its purposes, but the fact is there is too much of it right now, much more than exceeds demand at the moment, and vacant parcels unlike private island can't just be recycled and burns a hole in their pocket, and is there really anyway to scale down with mainland based on demand? They need to get out of the server hosting business.

[Corcosman Voom]

I popped into an acquaintance's mainland shop the other day and looked around the sim a bit and found that half of it was abandoned in three large parcels. I'm a mainland kind of guy so I see a lot of abandoned land these days. Land that does not get quickly recycled back into the revenue stream, that doesn't produce monthly revenue.

As far as mainland, I think the Lab has actually devalued it since I came here in '07. They produced too much, too quickly. The method of recycling seems cumbersome and still running on the old model that land was a somewhat rare commodity and had a value people were willing to pay a premium for on auction bidding.

I don't think the purchase price at auction is a big stream that pays the bills. The monthly tier is much more important, I would think. The faster the land is occupied by customers willing to pay monthly tier, the better for the company.

As far as adding value, making mainland more attractive to customers, LDPW did finally catch up to all the road work (I think). Remember all the roads that were useless moguls for so many years? But, beyond that....no added value for you, my friends. No ideas or execution to make mainland a more attractive proposition to keep that revenue stream flowing.

I think Linden Homes was an attempt to have another model of mainland. Glancing at the Map and looking at the green dots very rarely, I wonder if they have not, once again, established more sims than that market niche can bear?

What if the opposite were true? What if there were a waiting list for property? Would people value land more if it were a rare item?

All that being said, I have no bright ideas for solutions. A person that has been here since beta and has paid a lot of tier to the company told me recently that she felt like the life was going out of SL. That was very sad to hear. To me, SL still has a spark of magic because of the people who are here. I hope the company can make it a proposition that customers and potential customers will consider worthwhile, even valuable. Something you can't find anywhere else.

[Loraan Fierrens]

I daresay Hitomi has hit the nail on the head. ColeMarie's post about the very beautiful and very freaky and totally-impossible-on-Facebook "Parallel Worlds" build got a grand total of three (as in "three shall be the number of thy counting") comments all week. This post got 28 in one day. All Hamlet has to do to get us engaged is to mention the word Facebook; it doesn't even have to be the main thrust of his post like today. He's got us conditioned like Pavlov's dogs. Community engagement is the lifeblood of a blog, and at the moment we're engaged. It's a bickering, name-calling kind of engagement; but that is secondary.

So here's my vow: Hamlet, you're off my newsfeed. I've been doing some "housecleaning" lately, jettisoning stuff that is useless. I've deleted my Facebook account, and I just deleted my subscription to WoW last night. Time for you to go too. The rare useful post like ColeMarie's does not make up for the rest of this stuff.

I suggest the rest of you do the same. Vote with the one thing that really matters here: your feet.

[CronoCloud Creeggan]

I've said it before, but Hamlet is a sucker for Marketroid speak, which includes such things as integrating Facebook with "everything" these days.

We also have people like Lili blaming free accounts, which is kind of funny since the introduction of such accounts in 2006 is what lead to SL's growth spurt in 2006 and 2007.

I am somewhat of the opinion that SL's biggest problem is the fact that it's content creators can't market their way out of a paper bag, which lead to the current "freebie economy". If people can use Fabfree and other groups get a massive amount of top quality content for free they aint spending L$ with content creators. Then those content creators don't have the L$ for tier or to pay other content creators for goods ( say a jewllery maker who needs skin/hair for her displays, or vice versa)

SL grew in 2006 and 2007 because all those free account newbies were buying L$ and SHOPPING! They still do so. but the 2010/2011 newbies don't have as much need to spend.

Loraan, I have thought that as well, Sure I have to put up with Hamlet's Cloud/Facebook/Viewer in a browser obsession (and in the past the Blue Mars promotion) but where else can you go for interesting posts and insightful comments about SL.

But I have a white suit...and I'm willing to use it. :-)

[Opensource Obscure]

Even if it's not about services but business model, the comparison with AoL is really, really too much stretched.

Hitomi said the main result of these 'Facebook' and other controversial link stories seems to be in more clicks and comments for this blog.

Sadly, my feeling is very similar.

[Ignatius Onomatopoeia]

I will beat this drum again here and at my blog: Linden Lab needs to work on licensing and inter-grid issues so it can deliver Marketplace content to other grids and make the Linden Dollar the defacto intergrid currency.

That would bring in some revenue from the OpenSim universe. I've a hundred bucks worth of shopping I'd have done for my simulation in Jokaydia Grid, and I bet others would spend that much and more, all with revenues going to LL from commissions.

[Troy McConaghy]

Hamlet replied, “The comparison isn’t in the services each company provides. The comparison is with their main revenue streams — both of them are out of date and cannot be replenished.”

“… The point of this post is to show that fairly drastic changes ARE needed, because Second Life cannot remain profitable with its existing revenue model.”

Hamlet is talking about how AOL still (in 2011) gets a majority of its revenue from dial-up subscriptions, subscriptions which most people don’t need. It’s true that should be a concern for AOL, because those people probably also have a (non-AOL) broadband connection as well: they have another, better alternative way of connecting to the internet.

That’s where the analogy with Linden Lab breaks down. Right now, there’s only one way to buy/rent land in Second Life: you must pay Linden Lab (or a middle man, who then pays Linden Lab). There’s no other way, no alternative. Sure, you can get a cheap OpenSim, but OpenSim is still a pathetic experiment, with around 10,000 active users, compared to SL’s 1,000,000 or so (i.e. two orders of magnitude more). [You can argue about the exact numbers, but you can’t argue that there are two orders of magnitude difference between them.]

[Adeon Writer]

Remove free accounts? Owch. I already spend 90 USD monthly on SL, and I am a basic account that has no desire to own land.

[Arcadia Codesmith]

LL needs other revenue streams, if not Facebook then something just as big, to wean them off their destructive addiction to tier fees.

The market price for virtual land is free, with no rent (beyond perhaps some very modest hosting or subscription fees). LL's price structure is unsustainable.

[Mitch Wagner]

Hamlet - I think the AOL metaphor -- and I understand you meant it as a metaphor -- doesn't work. As you describe it, AOL's fundamental business model right now is (let's just say it out loud) ripping people off. It's borderline fraud. They're selling a service to people that the people aren't going to use because they already have something better.

LL, OTOH, is simply selling a service that's arguably overpriced.

[Ignatius Onomatopoeia]

Troy wrote:

"OpenSim is still a pathetic experiment"

How much time have you spent on other grids? You've painted with too broad a brush. I find the small group of Jokaydians very happy and productive, and we are starting to bring in students. The grid is stable, as is InWorldz' that I review in the current issue of Prim Perfect.

One could argue that InWorldz is not really OS, because it's a walled-garden grid. At the same time, it has decent concurrency.

For other smaller grids, concurrency is not all that important, especially for educators. If I can run 10 avatars from students or colleagues through a simulation, that's all I need and it's hardly "pathetic."

OS is not SL, but InWorldz is close and costs a great deal less.

[Hamlet Au]

"As you describe it, AOL's fundamental business model right now is (let's just say it out loud) ripping people off. It's borderline fraud."

I don't agree, Mitch -- or at least, I'm pretty sure I know what AOL would say. They'd say their subscribers get a software package which very conveniently connects them to all the online content they're used to, including AOL-based communities, along with technical support and online storage for their content. Then again, if you asked Linden Lab why people should pay so much for virtual land when OpenSim is free or nearly free, they'd say SL land owners get a software package which very conveniently connects them to all the online content they're used to, including SL-based communities, along with technical support and online storage for their content.

[Linda Paine]

@Alan Dudek: I can understand your thinking. I had the same problem with an estate owner who gave back the 3 sims I was renting for more than a year without any word. I rented because I don't wanted to pay 1000 USD for set up a sim in trust of LL. At Avination I pay nothing for the set-up and actually 60 USD per month. This is the main difference between the commerial Avination and the commercial Linden Lab. Of course, LL have much more costs for background administration at the moment. But I'm sure they have a strategy too. A different I guess.

It would be interesting how much empty mainland comply to running servers.

[Ananda]

Well since "Facebook Integration" is talked to death and there's been no explanation of how it would work anyways without publicly accepted avatar accounts, what would you change to find new revenue streams for LL?

On getting connected:
How about doing some of the things other social media does? I think (hope) that's where they are going with the webification of profiles and such. And that it's not such a bungle as it seems so far, but actually ends up with a seamless way of joining huge numbers of notice groups, sorting and filtering that info, promoting "likes" and "picks", being able to maintain an online presence through seamless IM widget and mobile device messaging, being able to open up the real Google and easily find SL groups and activities (and of course getting some of the traditional web and search adspace).

On hosting:
I still hope for the day when SL is not such a walled garden, where LL is a central certification and clearinghouse for avatars that can roam (with their stuff!) from place to place in the 3D version of the Web. Perhaps getting a "certified hypergrid identity" or "certified hypergrid host" could provide a new revenue source? LL's biggest asset is not so much the land, but the community network effect and, frankly, the built-up inventories. If LL can find a way to certify alternate land hosts as trustworthy (i.e. you can trust them to host content and assets with privacy and not immediately turn around and resell them) and to provide a content or avatar registry service, so copybot items are automatically flagged, and avatars are free to use duly purchased and licensed content on other grids, something like that might be a better way to go than to depend on continuing to host land in what seems like the most inefficient, inflexible manner possible.

[Ciaran Laval]

Hamlet your Facebook intergration comments are beginning to sound like David Cameron and his big society, nobody has a bloody clue what he means but the more he talks, the more scary it sounds.

Facebook is not the answer for Second Life, it never will be. Second Life should be paying attention to other, free to play virtual worlds and MMORPG's and see what they're doing.

Linden Lab do need to add to the tier model in terms of income, they are trying advertising models.

They could do with making it easier for people to share the costs of a sim but they should not be chasing the mainstream shadows, let the world evolve naturally instead of trying to force it into the wrong sized shoe.

[Hamlet Au]

"Second Life should be paying attention to other, free to play virtual worlds and MMORPG's and see what they're doing."

Cieran, I agree. And as it turns out, many of the successful ones are... using Facebook to promote events and new content. Here's some:

http://www.facebook.com/outsparkfiesta
http://www.facebook.com/DDOUnlimited
http://www.facebook.com/LOTRO

It's all the more necessary to have a communication channel like this with a free-to-play world, because then it's likely users will log on more sporadically, and it's difficult to send communications in-game.

[Ciaran Laval]

I've never disagreed with promoting Second Life on Facebook, I actually downloaded LOTRO this week, and whereas I see a hell of a lot of adverts for their store and VIP service, I haven't noticed Facebook being pushed LOTRO client side. Pushing your product Facebook side makes perfect sense, I've even suggested LL should have Facebook exclusive promotions, that's the sensible way of linking with Facebook.

I also think LL should take a look at places like sticksports who have simple flash games but put brief adverts on the loading screen, I know this will make some wail at advertising but LL do need other sources of income.

[David Cartier]

Hamlet, I am seeing a lot of completely new accounts, and I am seeing old accounts returning. For a lot of them it is because they missed it, or they have a computer that can handle it now, but there are a whole lot of people coming in because they heard about it in college, or because all that hope and change hasn't worked for them and they need a cheap escape from not having a job to go to. The free accounts are ok, they very often lead to a premium account or an island property, but people should have to provide some kind of ID for the first one and the alts should all cost something, even if they just stand there and model clothing all day long. And Linden Lab STILL need to make the Welcome Areas for NEW ACCOUNTS ONLY. There are a lot of people coming in to check it out and being turned completely off by the nutjobs who hang out there all day long.

[Ann Otoole InSL]

LL uses facebook to promote SL. There is nothing wrong with it. There is no requirement to have a facebook account to be in SL. They could use google adsense too.

But no matter what they do in respect to marketing there are aspects of SL that need to be easier for newcomers to understand. Quick Hamlet. You have tier level 8192 and all your land is in group so you have 8704 m2 donated. You want to grab a better parcel off the auction. What must you do exactly in order to get the better parcel and remain at the exact same tier level without bumping it up? Try explaining this to a newcomer.

There are more aspects of SL that need some work than just a simplified viewer for initial visits.

[Ener Hax]

very well said and from a unique perspective that no one else has

bravo for being blunt and thoughtful

[Arcadia Codesmith]

Ananda is on the right track. LL has a unique opportunity to position itself as THE hub for transit between virtual worlds... not just OpenSim worlds, not just social worlds, but any sort of virtual world.

This is my dream: after a long play session in DC Universe Online, bruising my delicate knuckles on the twisted flesh of Gotham's underbelly, I feel the need for a little downtime. I beam up to the Justice League Watchtower, dash to the SL portal, and step through.

The portal analyzes my character, costume and gear, and since I'm a paid subscriber, gives me free licensed counterparts on the SL side as I transition.

I step through into the SL hub, a bright, busy crossroads of activity reminiscent of Times Square.

Feeling a bit conspicuous in my superhero garb, I step up to a nearby kiosk and browse clothing options. Several microtransactions to multiple merchants later, I'm decked out in civvies and ready to play.

Another kiosk nearby lists available clubs and other venues. I pick a nice little jazz club with a live band and moderate traffic numbers on the InWorldz server and open a portal. As I step through, I get a customs message: weapons are not allowed in this sim. I consent to leave my smoke bombs and brass knuckles with the customs agent, and I'm allowed to pass.

SL, meantime, has collected small fees from DCUO, InWorldz and each merchant I've patronized in the hub to compensate them for the listing and linking costs. While I'm in Inworldz, I can buy other merchandise, but customs will check it for the proper tags if I try to take it into other worlds, so I can't smuggle my STAR Labs energy rifle into Middle Earth.

That's my dream. I don't expect to see it in my lifetime. But LL and other VW should feel free to shatter my expectations in this case.

[Aeonix Aeon]

Sustainability into the future for Second Life, or any virtual environment, includes shifting the revenue mentality to being the gatekeeper of content, with attached micro-transactions. Marketplace is a good start, but was a few years too late. It should have been something inherently included in their business model from day one.

Social media integration is also a key factor here in gaining further ubiquity and a foothold, however if Linden Lab wants to move forward successfully in that venue, they are going to have to offer something in return to the social web and not continually leech one way.

The biggest revenue stream they have at their disposal is ironically one they have yet to actually utilize, in combination with the social media integration. That is to say, that all of these years, corporations and big names did not actually need to be sold islands and high-end events, but instead should have been offered the one thing that really counts: Their real world products translated into virtual world equivalents and officially offered on Marketplace as a promotional option, with the possibility of real-world tie ins.

Those virtual world equivalents would later extend to the now foundations of Social Media integration with Second Life, and offer a demographic reach which touts 600 million potential viewers with disposable income.

But only if Linden Lab understands the two-way street of social media integration, as well as the full potential of their own marketplace.

Licensing the Linden Dollar to Hypergrid is actually a good solution, as well as integrating Marketplace for Hypergrid too. They are both solutions to a problem I raised with the need for a unified currency and asset ubiquity for all connected grid systems in order to make it worthwhile while I was interviewed by HyperGrid Business.

That and unifying the Hypergrid teleport system as an actual native LM that works with the SL Grid as well.

The main theme for Second Life's continued salvation is Ubiquity and Content. The odds that Linden Lab realize this before it's too late is currently 50/50 - especially if they continue to remain delusional in thinking that content (and proper utilization of it) is not king.

If they licensed the marketplace and Linden Dollar currency to HyperGrid and related grids, it no longer matters if they are selling servers and land - the loss in hardware tangible sales is made up through the explosion of unified content transactions. Exponentially so if they make social media integration a two way street. And even more so if they integrate hypergrid teleports as a native LM system in their own grid, connecting the world.

It is definitely in their best interest to keep free accounts, because the subscription model will not sustain them, but all the money that people spend in-world, with the micro-transaction fees attached, will sustain them far more than ten dollars a month in subscriptions will.

I'm willing to bet that the average person in Second Life spends more than ten dollars a month buying things and purchasing Linden Dollars.

[Christy Cooper]

Linden Labs would do well to continue on it's path to become a game creator system like Unity 3D. Also to be able to use SL to create iphone apps and ipad games. I worked on the NPC's for opensim and did pathfinding and AI there creating games SL only could dream about. The new scripts, NPC's, Meshes etc all point to them taking aim at Unity 3D. I wonder why they are also working on iphone apps at Linden Labs?