Not even three months have passed since Virtual Worlds 2008 presented some 150 or so companies, eager to join the virtual world bandwagon, and showed off what these companies think the future will be: roughly speaking, web-embedded, isolated virtual worlds, almost all targeted for kids and teenagers.
And a few have indeed been popping up lately. It’s not only Lively, which grows by about 2-5,000 new rooms per day (the second most active room seems to be a Brazilian one). Apparently, this was just the tip of the iceberg, as a lot of “hidden” projects were suddenly revealed.
We will need a new name to describe “social 3D web-embedded virtual worlds” (S3WEVW simply doesn’t work as an acronym), and they’re not exactly new. The market is mostly dominated by Habbo Hotel, and Disney’s Club Penguin, for kids and teenagers. Some analysts believe that their users might “upgrade” to either IMVU (more content, runs from a browser too — Internet Explorer only — but it cannot be “embedded” in a web page) or Google’s Lively. The idea is that kids all have their own blogs and pages on MySpace, and will soon start to place links to those virtual worlds (or embed whole “rooms”) on these pages as well.
Now let’s forget for a moment “how will these new companies make money” and look at the established models. For instance, Habbo Hotel makes money from selling Habbo Coins, advertising, and licensing their platform to be used on big web portals; IMVU sells currency and digital content, directly and through partners and developers. Club Penguin focuses a lot on giving parents a lot of control, and their income source seems to be mostly from merchandising (notice that Disney’s Virtual Kingdom, another take at building a 2D virtual world, “officially” closed doors for lack of interest). However, Meez is my favourite example, since it picked up where Yahoo Avatars left: allowing content for the avatars to be bought as well. And obviously they sell virtual currency as well. But they have gone a bit further. Not only are you able to use your cute avatar inside your own room (which Yahoo Avatars never managed to implement) and join Meez’s “hangouts” on MeezNation, but I’m pretty sure that Meez’s major source of income is (was?) from agreements to allow users of other social websites (like PhotoBucket) to use a Meez avatar inside their sites. In a sense, this is an understandable business model: it doesn’t rely on the success of the platform in selling virtual currency, but on the agreements they forge with partners. WhyVille, a 2D virtual world for children, uses this model exclusively — partners design content and pay for that privilege — with the interesting aspect that they tend to favour educational and non-profit organisations as partners.
Raph Koster’s Metaplace also goes a similar route: Raph claims that everything in Metaplace will be free, except for virtual currency, which will be his company’s only source of income. Metaplace is also a web-embedded 2.5D virtual world (a 3D version is supposed to be going to be launched “soon”) and targets a slightly elder audience. But the format is similar (i.e., also a web-embedded virtual world), with the difference that it’s quite more open than others: anyone can become a Metaplace developer (contrast that to Google Lively’s “totally closed content” environment; or IMVU and There.com’s “controlled content”).
After Lively, we also got announcements from Vivaty (also a web-embebbed 3D social virtual world, with far better avatars), and Just Leap In. Both are totally competing with Google on the same audience — but with far better graphics, performance, and ease-of-use (the latter is even just Flash, so it works on any platform that supports Firefox). Either is an example of something well done. Alas, none have the Google brand behind them; and none give clues on what their business model is. For me, of course, that’s the crucial point.
No business plan? Riding on the Bubble again?
As a survivor of the dot-com bubble, it wasn’t very hard to see what projects would ultimately fail, and to see which ones would last through the bubble and grow beyond it. Some were surprises — Google’s reliance on a single business model that nobody believed in: web-side adverts — but many, many failed because the whole concept was wrong, and companies with a similar concept simply had to shut down.
The typical example was the “Internet for free” idea, which started to appear by 1998 everywhere. Internet Service Providers thought they could give their service for free and get an income from advertising on their web portals, since most of the people didn’t know how to change their homepage once the ISP’s software was installed (remember, Google was only founded as a company in 1998, and they weren’t selling ads… yet). Giving Internet access for free was one of the silliest idea ever, but it had two important effects: it completely removed all small-sized ISPs from the market, who had to survive on customers who paid. The second effect, of course, was that the notion of getting-money-from-web-ads was dropped as the silliest possible notion — giving Google the opportunity to establish a de facto monopoly when all other companies failed (or, like DoubleClick, were bought by Google).
Business models like Amazon’s or eBay’s did survive the dot-com bubble almost with no scars. Why? Because they had business models based on getting a share of the income made by third parties. They simply had completely different business models than the usual hey-I’ve-got-a-techie-idea-but-no-clue-on-how-to-make-money-out-of-it-so-please-buy-me-Mr-Business-Angel companies. Their idea was that a community of buyers and sellers, if they have momentum, will generate enough interest to make the company providing a service to put buyers and sellers in contact with each other become lucrative just for the small fees. People are very reluctant to give their money away to Internet-based companies, since so much is for free — unless the service is valuable, and they see an advantage in using that company over others, mostly because they have a large user base, a product that is really used, and worth paying for.
So we come now to this new generation of web-embedded virtual worlds, and we should be asking the same question: how will those companies make money? What is their business model? Why will their customers pay for having those services? What are their advantages over the competitors?
We’ll quickly see that we can divide the current crowd in three groups:
1. The techie gang
These are the visionaries who understand about technology but have no clue about business. But they don’t have to. Venture Capital companies and Business Angels are always looking for some clever ideas to invest on. They simply need to evaluate how good these people are, how interesting their project sounds, how likely the company and their product is going to be talked about in the media, and, well, how cool they are. Innovation is the important thing here, specially if the technology is unusual, radical, or simply well done. VC funders will provide business knowledge as part of their services anyway.
On this group we have mostly three subgroups. On one side looms Google: they have the worst possible product of the whole group, but, well, they have by far the best brand. They’ll survive just because they’re Google — unless, of course, their CEO decrees that the project is not worth pursuing further. Until that happens, they can keep Lively up for as long as they wish. Google does only make money from a single product: Google AdWords/AdSense. The rest is, well, experimenting and R&D, the important thing here is knowing what the reasons to leave adwords to the pros are. None of the other Google services will probably make a single cent (or if they do, they will not ever be profitable), but that’s irrelevant. They have vast hordes of money to spend, and can afford to absorb the costs of failure. They also have a policy of innovation and good engineering: launching new products, even ones that might not be successful, motivates the shareholders to keep believing in Google’s ability to innovate.
Then we have the “buy me!” wannabes, the legacy of the dot-com era. They announce products in “closed beta”. The word “cost” is never mentioned on their websites — everything is to be had for free. The technology ranges from the moderately cool to pure awesomeness, but they only have a single fixed purpose: like the ISPs in 1998, they want their product to be free to attract the largest possible amount of “beta users” (early adopters), and push off their idea to a VC, business angel, or even an IPO (if they’re bold enough). “Money” to pay for the product is secondary; it’s the “fire and forget” approach. If the bubble told us any lesson, it’ll mean that most — if not all — of those projects will, indeed, be forgotten in 3-4 years, after their owners are fired.
2. We’ll get money from content/virtual currency
This group is fortunately a bit more reasonable. They very likely show their funders the statistics published by Linden Lab and say: “look how much content is sold every day in the Second Life® world!”. Their sales pitch will very likely be something in the lines of “if we sell that content exclusively, it means that all the money transacted in our virtual world will come to us“. In fact, that’s a rather good argument. Closed content is what made AOL and MSN grow in their pre-Internet days, and I’m pretty sure that they want to ride on top of that.
An interesting twist is the emphasis on controlling the virtual currency. The notion that the business model is to provide currency for a virtual world is quite novel. If you remember SL’s 2004-2005 history, you’ll see that Linden Lab just provides that service “accidentally” — the LindeX is an unforeseen and unplanned event in the history of Linden Lab. Sure, by paying a few L$ every week to Premium accounts, one can point the origins of the “virtual currency” business to Second Life, as back as 2003. But it was not deliberate. In 2008, however, whole business models are created on the notion that the company running the virtual world will only provide currency, not content (Metaplace being by the far the one with the largest emphasis on that).
Now the problem here is, again, critical mass, in both the userbase willing to spend money (and buy virtual currency), and the content creators “allowed” to develop content to be bought. IMVU, for example, has the largest catalogue of items with user-generated content — I’ve counted over a million — and they have a healthy content-based economy. Google Lively started with a handful of items (but with “millions of combinations!”, they claim). Meez is probably second to IMVU on available content, or perhaps There.com — both are hard to count — but the other models are all closed-content. So this means that the amount of content they can produce per unit of time is necessarily limited.
Compare that to the billions of items available in Second Life. There is simply no possible comparison. SL has way too much content when compared to all of these put together, and since SL continues to grow, and content creators are getting better and better, the sheer creative output overwhelms everything the industry of 3D digital content has ever seen. 200 developers at Google cannot ever produce a tiny fraction of what around 100,000 content creators do every day in Second Life. Not even Google is able to afford 100,000 designers — and even if they did, Second Life has a five years head start. So by 2013 Google (or Microsoft, or Yahoo, or Sun, or IBM, or anyone with enough money to hire 100,000 designers from one day to the other) might slowly come to the same point as SL is right now in terms of content production, but… SL will not be exactly asleep during the same period, and probably have trillions of items for sale by then.
The issue is, if you want to enter the content production business on your own virtual world, how can you compete with the huge and vast amount of available content of Second Life, which is, indeed, based on a solid business model — high-quality content is mostly paid for, but it’s insanely cheap?
How do you replicate that, and convince your funding partners that you can do it better than Linden Lab? (Specially because Linden Lab does not do anything — “it just happened” — and, in fact, dropped the content production business altogether, relying exclusively on third parties — the residents — to create content.)
3. We provide services for others to make money
Here is, at last, something that has a solid business plan, one that any VC company or business angel will be able to read and understand. In a word — underlying technology is not relevant. What you sell is.
Once more it’s interesting to see what all these virtual world companies are offering. There.com might have the best business model, closely followed by Multiverse: they simply license their development tools to create closed virtual worlds. In the case of There.com, they might just need to sell one or two licenses per year (and they certainly made enough licensing the technology to the US armed forces). They don’t even need to cover content production — companies like the Electric Sheep Company will gladly create the content for their own customers. They just need to sell licenses. Multiverse has a shared revenue model: try your virtual world with your own content for free if you wish (they’ll provide the tools and the hosting), but once you start charging a bit for it, Multiverse wants a share. It’s a very fair and reasonable model. Probably one that targets the low-end companies producing content, but the long tail effect will certainly work for Multiverse: capture the attention of enough small companies, and the revenue will still sum up. Also, they’re cost-oriented: they only need to host more virtual worlds (and increase their running costs) if they get more customers. I’m personally very, very fond of cost-oriented business models, since they’re very clear to follow, and there are no hidden surprises — things that investors and funding partners will naturally appreciate.
There is only a catch, of course: you have to be good at selling your product. That requires an exemplary salesforce, a couple of visionaries and evangelists, a marketing campaign, and good PR with the media. However, all these are part of any regular business: they’re the major risk in any business area. Most people fail to appreciate that “technology” hardly plays a role here — being good in promoting your services will always work out in the end, no matter how good your bad your technology is; a lesson that both Microsoft and Apple have taught us.
Survival of the fittest
We come now to the final question, which is trying to figure out, from so many possible models, which ones will survive, and which are just really “VC bait” and not serious propositions at doing business.
Keep in mind the old American saying: “You’ll be a millionaire if you’re the best at doing what you do; even if that’s just pushing trashcans”. It doesn’t matter if you are the most business-savvy one, have the best technology, have the best salesforce, the best programmers or content developers, or the best marketing. Ultimately, if you’re the best at any of those, you’ll succeed.
And this is where the players in the market are positioning themselves. Linden Lab has by far the advantage with Second Life: they have a business model that works (3D content hosting). They have the largest number of 3D digital content creators ever amassed by a company. They have a contiguous, immersive world (all large-scale virtual worlds, from World of Warcraft to Habbo Hotel, are “sharded”, ie. the world is different for different users, as they log in to different servers). They still have the best avatars, although things like realXtend or the upcoming Sony Home (if it ever gets launched) might finally surpass SL. They might not have the best technology — in the sense of stability and reliability — but they are raising the stakes very high by allowing streaming of all user-created content, and not only allowing pre-approved content as all the competitors do. And they have an edge in providing an immersive experience.
If you look at the closest competitors, they all tend to talk about the same thing: “this is not a separate environment, it’s an extension of your real life”. Although this was never used as a sales pitch before, it’s now commonplace. The marketeers apparently fear that people view their products as “alienation” or pure entertainment — which allegedly will make companies shun them for some reason. I have no clue if anyone did a market study on those, or if they’re just extrapolating from the success of MySpace and Facebook to show real people, with real pictures, talking about what they do in real life, and want to bring that into their products.
But is that so important?
Somehow, I feel that 14.5 million residents, 60,000 of which make a living out of Second Life, and at least with 100,000 active participants in the economy, couldn’t care less. For them, SL is an immersive experience, but they don’t care if it’s a “second life”, an extension of the first, or pure entertainment. They make Second Life a living world, with its own economy, a contiguous landscape, and a sense that we all are in the same environment together. Are they all wrong?
Apparently even Microsoft thinks they’re not. In fact, Microsoft just found out that they can engage the community (in their case, MS’s own developer community) inside Second Life and make the events well-attended and interesting for them, for a fraction of the cost. For us SL veterans, those aren’t news. The important thing is that Microsoft certainly has the ability, the technology, the developers, the resources, and the money to launch their own closed-content, restricted-access virtual world. So does IBM. And to an extent, that’s what Sun’s also doing with Wonderland running over Project Darkstar. So why is Microsoft in SL? One would expect that Microsoft, Queen of Closed Content (remember MSN in 1995?), would surely be the first to shun the open-minded quality of SL and launch their own, ActiveX-oh-it-runs-only-in-IE7-under-Vista-sorry-about-that virtual world?
But they don’t.
One would also expect that colleges and universities would just continue to work with OpenCroquet or any other academic-sprouted virtual world environment. After all, the complains about educators in SL are endless: from complains about their lack of powerful enough hardware to run SL, to the inability to go through their campus firewalls (and sometimes the problem of registering too many avatars behind the single IP of the campus router before SL limits the number of accounts coming from the same address), and the age problem, which excludes K-12 students to work together with their teachers on the same grid, and, more recently, the lack of proper HTML support on a prim (unlike all other VW technologies) to allow shared whiteboards and collaborative textual content on the classroom. Also, the cost of renting enough land for their projects is sometimes too high for the poor universities without enough resources or funding.
So why don’t they use any other, free technology?
Digital content creators have long lived from selling their content on popular artist’s communities like Renderosity. None of these sites are closed — they grow and grow, although their content has little use outside their community. Instead, these days, many are simply developing for Second Life. For the end user, the cost of a digital item done in SL is even slightly lower than what is being sold on those sites. But the difference is the amount of sales that you can manage in SL! Unlike the specialist sites, all residents in SL are avid consumers of digital content, and a fraction is even prepared to pay a bit for having good quality products. So SL managed to engage the mainstream users into consuming digital content.
Now, all these designers are a vast pool of labour that can be tapped for any other virtual world. Why don’t the other virtual world creators understand this, and instead, close the doors to user-generated content? Even Apple opened up their iPhone platform for third-party developers. Twitter’s not dead yet because, unlike Plurk, they have released an API and allow others to integrate with their (mostly broken) technology. The whole world is interfacing Jabber/Gtalk with Facebook with OpenSocial with OpenID; APIs are released every day for the most incredible products; we get widgets and applets to draw data from some sites and place it in others. The “interconnection mantra” that started long ago with RSS feeds (and probably even before that) dominates the market, as all vendors of web-based social environments attract programmers, developers, designers, and digital artists to create things that interact with their own products. “Mashup” is the meme of this decade.
So why do those virtual world start-ups insist on closed content, proprietary technology, and no way to allow interconnection with other tools or third-party content?
We can also be critical of Linden Lab’s slow adoption of engaged participants as co-developers of the technology; I mean, we’ve been crying for it for the past four or five years. Nevertheless, Second Life was designed from the start — like, say, MySpace — to fully allow users to generate their own content and interconnect with other people’s content (the permission system!), while at the same time, thanks to Lessig’s influence, protecting creators’ intellectual property rights. However, all this remained mostly Second Life’s legacy. Other companies don’t view any of the above as being important.
Why aren’t they learning the lesson of the old 2D social environments, who certainly are all about interconnection, third-party products, and mashups?
Business is about providing closed environments?
A thousand companies currently in SL see the Web as a tool allowing three things: marketing/brand awareness; providing information with a very low cost of distribution; and an enabler of business (even if it’s just getting customer contact forms to allow a further channel of communication). These days, no company questions the “need” to be on the Web, although it’s delegated to the same status as, say, business cards. You just have to have a Web presence in the 21st century.
Capitalising on it to generate income — or diminish costs — is, however, a different thing. Many companies are certainly aware of the potential (they read Bill Gates’ books!), but only some are willing to spend enough on that.
It’s not surprising, thus, that the first generation of companies entering Second Life were more interested in the marketing and brand awareness aspects of this brave new world, and they had deep pockets to experiment. That’s something comfortably familiar — spending money without the need to worry about a return is always nice!
However, this phase of “SL as a media splash generator” is now over for about a year. Companies that are in SL are perfectly aware that the media doesn’t care about them any more, so they focus their virtual presences in completely different areas. Microsoft, as seen, uses it to attract developers to events for a much lower cost; Xerox does internal briefings, meetings, and training, avoiding flights or videoconferencing; Kelly focuses on recruiting human resources. Universities use it to create virtual classrooms (the best don’t look like “classrooms” at all; they’re educational tools that would be impossible — or insanely expensive — to build in real life). All these are putting SL as a tool to engage businesses in order either to cut costs or to extend their core businesses through new, less costly channels.
And all of them take good advantage of what Second Life can do: in a word, it’s a contiguous virtual world with millions of inhabitants, fully changeable by the residents, who create their own content, bounded only by imagination.
So how can we understand the Electric Sheep Company’s new product, a totally locked and closed virtual room embeddable on a web page? The Sheep, once acclaimed as Second Life’s biggest accomplishers in terms of vision, highly detailed environments designed by the top content creators, and massive engagement of the community (CSI:NY in SL didn’t attract “millions” of users but certainly several hundreds of thousands!), seem to have totally backpedalled on their original ideas and vision and reduced themselves to the opposite field: absolute control of the closed environment, tailor-made for a single client at a time, without any possibility of interconnecting to other areas.
Why the change?
The Sheep are not the only ones who complained about their relationship with Linden Lab. Unlike, say, Multiverse, who understands very well that they have to closely work with their partners and developers in order to succeed, Linden Lab, in the pre-M Linden era, couldn’t care less about their developers. They refused to deliver “closed” areas under absolute control (which forced the Sheep to develop MTV’s “Virtual Laguna” mostly on There.com). And by contrast, the developers claimed that companies were too Puritan to live in the middle of all the sexual content and just want to stay away from it, and limit themselves to places where there are no griefers, no sexual deviants and perverts, and no kids. Linden Lab couldn’t care, and more important than that, there was no way to hammer some good sense in anyone at LL who might have made a difference back then. So some developers simply shunned Linden Lab, disgusted with their lack of vision and inability to address corporate customer’s needs.
Perhaps these developers forgot that those “clean” places have no users, either, as we can see now from Google Lively’s rooms — the “business rooms” are forever empty.
Ashcroft Burnham, who sadly hasn’t written yet on the subject, discussed with me the other way the different levels at which Second Life will succeed. On one hand, we need to have a community of engaged users, who are here just because they have fun and entertainment. These are the core users of SL — they have a careless, carefree approach to SL, and will be only around this virtual world if they find entertaining things to do. Since there are no restrictions in the kind of entertainment that can be provided — anyone can produce content and entertainment! — groups of individuals are eager to fill that niche of the market. But they require land to place their offerings (be it a live music club or a Gorean dungeon); thus, real estate agents are happy to intermediate between Linden Lab (from whom they buy sims wholesale) and the end customer, for a fee. Providing entertainment requires content, so content designers are also happy to design for SL. This in turn attracts more people who require more land and more entertainment and more content to provide that entertainment — and so on. It’s an ever-growing spiral, and although it’s (currently) not exponential, Linden Lab’s metrics shows that it continues to grow healthily.
So any company that wants to tap this market of residents eager to log in to the place “where everything happens” will quickly understand how to fit in (or die in the attempt). However, they’ll be here because this is the place “where everything happens”. It’s too early to say, but in the future this will also be the place where new residents will come because “this is where the companies are”; right now, we see that happening in the academic and research world to an extent. New researchers interested in developing their thesis about virtual worlds, 3D environments, digital art, new teaching techniques, or psycho-social simulations, turn to Second Life, because it’s where all of this is happening right now. Previous attempts had to create a virtual world first and hope to get a decent number of testers (recruited from among the students…) to make valid research; nowadays, they can just use SL for that.
Ashcroft shows that both are sides of the same coin. If the residents, their society and economy, simply leave and go somewhere else, why should the companies stay? There would be nobody around in this contiguous world. No, they’re here because the residents are here. Anything that makes residents stay longer, or more happily, or encourage new residents to come, will benefit — directly! — all companies and research institutes that have settled in SL. But similarly, their very presence also encourages others to come. Between having a choice to go to a closed room on a webpage where you see displays of products from a company that doesn’t interest you, or visit an interactive, ecological educational sim (by Grundfos) or learn how to trade on the real world currency exchanges (thanks to Saxo Bank’s Currency Trading Game), what would your choice be? If Microsoft launches a big party with live music on their sim, with the pretext of announcing a new line of products, people will join for the music, and to talk with their friends, attend the boring presentations for a bit, and then leave to roam the grid in search of more entertainment. There is always something to be found on the 18,000 or so public islands.
By contrast, the “closed room” model doesn’t allow that. Lively encourages people to quit a busy room (you’re there because your friends are!) and create your own, by yourself, and have fun that way. But then you have to invite your friends to join you (you’ll need to email them or, well, use GTalk… Lively is not contiguous, although you can see if your “contacts” are online). On the Sheep’s WebFlock, how will you know what others are doing? Put into other words, where is the “green dot effect” that Hamlet Au talks about?
“Closing off” the virtual world experience is basically expecting that companies will have showrooms that only attract exactly the kind of people they’re interested in: their direct customers. But even for them, what’s the point of entering a closed environment? The only obvious “selling argument” is that it’ll be a sex-free environment, suitable for “business” and not for “pleasure” (one wonders if American CEOs think that the human species grows in cloning vats…), and where the unruly crowd can be quickly shut off. WebFlock is also appropriate for corporate intranets, specially on the huge, multi-site corporations: Second Life does not offer an equivalent product (except for having private islands closed from the mainland; but employees will certainly be able to create alts and log in to different areas of SL…), although you can set one up with OpenSim, of course. But the wide audience will not really be impressed by a cute (or cool) chatroom on a website. The novelty will quickly wear off, specially if you have to register and log in to yet another site, with yet another download (even if it’s a tiny plugin).
(It’s only fair to say that at the current pricing shown on the Sheep’s site, all they need is a dozen or two customers per year to make WebFlock worthwhile; so they’re not worried of having “hundreds” of customers with “millions” of users — a handful is enough to make their stakeholders happy. And they’re good at selling ideas!)
So, according to Ashcroft’s logic, and extrapolating, companies will invest only where they can see a lot of people; and people will only go to where there are companies providing services and entertainment (or, if the companies are lacking, individuals providing them). The era of “closed rooms” is completely out of sync with the “mashup era” of this decade, where “more people interconnecting” is seen as a Good Thing™.
Mashing up the InterGrid
It’s hard to say if Second Life, under the current incarnation or a future one (I believe in a future running the InterGrid with realXtend avatars, OpenSim servers, and LL’s own Open Grid Protocol), is the “right” thing to succeed. We’re bogged down in the nightmare of an excruciatingly painful “first hour” in SL; constant lag even on top-of-the-line computers; failures and crashes well below the 99.7% guaranteed uptime of most Internet-based services; and silly limitations that nobody understands (making content creators and programming specialists tear their collective hairs in frustration) — so it seems that Second Life is a dead end, unless someone can wave a magic wand and “make good what’s wrong”. Alas, products evolve (and so do our expectations!), and while we expect to be able to do a 1000-person rock festival in SL “soon”, we forget that in 2003, 7 people in the same sim could crash it by just chatting normally in text. So the evolution is painfully slow, but it’s not zero — every day something tiny gets fixed, every day something becomes better. SL’s development, however, does not follow the Internet’s growing exponential demand of “good things fast” (a rule that Google seemed to have ignored when launching Lively).
One thing is for sure. The most successful projects on the 2D Web have been based on solid business models. These were the ones surviving the dot-com bubble crashing. “Wishful thinking” that “someone will pay” for a cool idea is not a valid model any more, although people still pretend it is (and will ultimately pay for the consequences). The most creative models are the ones where most of the consumers are getting the service for free, but a few are willing to pay (that’s how WordPress.com is able to pay for the hosting of a million blogs for free; the few VIP users pay enough to allow them to support the infrastructure, and even give away the software for free). Balancing the business model so that enough income is generated to support the “free goodies” is not easy (Linden Lab took four years; allegedly, Amazon, PayPal, or eBay almost took a decade). Twitter’s ultimate failure to address this issue might spell their doom and disappearance — they’re mostly VC capital funding the infrastructure, and allegedly their business model is to sell profiling data of the unsuspecting users — which has a limited market, one that is way smaller than the success they had in attracting new, unpaying clients of their services. A lot of companies are finding out — the hard way — that you cannot run on VC funding only. So if you can’t figure out what a company’s business model is — because all you can see is them giving away things for free — most likely they’ll disappear after the money is spent. A few will be bought by Google, Yahoo, AOL, or Microsoft, but only a very very few will survive.
The next most successful projects are the ones that, beyond a business model, learned how to integrate their products and services with others, and we’re not only talking about technology. eBay managed to “outsource” their arbitration by allowing third parties to arbitrate consumer complaints. Amazon does not only deliver their own books which they buy from publishers; effectively, they allowed third parties to take advantage of Amazon’s own technology (that matches potential buyers of goods with potential market offerings) and offer their goods through Amazon as well (the client might not be aware, until that last screen where they fill the payment data, that a certain product is actually not going to be delivered by Amazon but by an independent merchant who is just using Amazon’s technology).
So on those projects you might see some “longevity”. Taking Twitter’s example again: as a company, Twitter might be doomed, but microblogging took off, and now there are open source and free tools allowing you basically to do the same. They all interoperate and have been developed to allow “federations” of interconnected sites. On the instant messaging front, we see the same happening with Jaber/XMPP (an Internet Standard) of which Google Talk is the most famous example (and the one with more users). MSN and Yahoo already interoperate to a degree; and the last group, AIM/ICQ/iChat, also merged together in a sense. There is little space left for “a new messaging protocol” and only fools try to launch their own (like, well, MySpace…). ICQ, the pioneer, might disappear in the long term, but their ideas of interconnecting people via instant messages will not.
I strongly believe that there is no future in having a thousand (they’re already 150!) different, closed, isolated “virtual world technologies”, all promising to grow at a staggering rate, all promising to be better than anything done before, all funded by “unlimited” VC capital in search of a business model (and giving everything away for free while they invent one), all autistically refusing to accept that the “competition” even exists (because they’re so much better and cleverer at reinventing the wheel). All, apparently, claiming that virtual worlds are “real life” tools (ie. an extension of email addresses, web pages, or instant messaging). All excessively worried that people learn about human beings having sex, to an extent that the obsession makes them to promote a totalitarian control endowed into the company’s employees.
All apparently ignoring what happens on the 2D Web, where exactly the contrary is happening: social web sites interoperate, even if they are all competitors. We embed RockYou slideshows in MySpace, and feed photos from these into Facebook, at the same time we mash them up with our Flickr stream and announce it to the world through an RSS feed from Feedburner, and let everybody know about it on FriendFeed or Ping.fm. Open protocols, interconnection, mashup, integration, open APIs, delivery of creative digital content — all these are the keywords of the current state of the art of the 2D World-Wide Web.
And only one player in the 3D World-Wide Web seems to be very aware of it, and making a serious effort to encourage that. The rest remain hidden behind closed and locked doors.
Business, ultimately, is about interconnecting people and have them exchange services and goods. Not isolate them into closed environments. The last decade of the 20th century should have taught us that on a geopolitical scale — but also on the business side. IBM, Microsoft, Sun, and Apple are still around because they’ve educated their clients that “interconnecting systems” is a good idea.
Let’s see if the new virtual world wannabees also learn the lesson, or if they are just here to make some media splash, raise a few millions in VC funding, sell a few ideas, and quickly disappear without a trace.