Linden Lab buys XstreetSL and OnRez Shop — why?

xtreetsl is now officially part of second life

I’ve just posted this on the Second Life forums, where it will be buried for all time, so I thought I’d re-post here as a reference:

I might imagine that the major reasons for prompting this buy-out have pretty little to do with “LL wanting to be a monopoly”, although I’m pretty sure that’s what the media (SL media mostly) will say.

There is one practical side to it. IMVU has a content market almost as big as SL’s (they have roughly the same number of content creators — about 100,000 — and more registered accounts), not in terms of unique items (SL has perhaps 2200 times more content), but in sales. The reason? All sales go via Web, they’re not done in-world. In fact, all 3D virtual worlds I’ve seen so far have Web-based shopping, with the possible exception of vSide (which I never managed to figure out how in-world sales worked).

IMVU’s web shop is hopeless to search for anything. If you think that the SL in-world search function is bad, you’ve definitely never shopped with IMVU  🙂 I stick to buying randomly things from Anshe Chung on IMVU, at least I know she’s a trusted merchant 🙂

So I understand that one of the reasons for LL to accept to buy XstreetSL was to fill in a gap: compete with all other virtual worlds by providing their “own” web shop, too. But they were clever: instead of reinventing the wheel and create their own system, and get all merchants in XstreetSL and OnRez Shop furious, they simply bought them. With that, they start entering the webshop business with a huge load of content, registered accounts, and a thoroughly tested environment. It’s a smart move. In fact, if it weren’t for some reasons that will remain unexplained publicly, this is precisely what LL wanted to do with GOM too. I’m actually happy that Apotheus (and Anshe Chung, who owned 70% of XstreetSL) went with it.

OnRez is a different issue. It started out as SL Boutique, done by the immensely talented FlipperPA Peregrine, a bit before the Electric Sheep Company was created, hired Flip, and integrated SL Boutique into the Sheep’s brand for SL-related products, OnRez. Since mid-2008, however, ESC had already given strong hints to partners and customers that they were “phasing out” their work in SL (what possibly prompted them to commit financial suicide that way will never transpire and is just the province of speculation). Some of the Sheep’s customers of the personalised version of the OnRez client had been given due notice that their viewer would be phased out in February this year. I had not realised that this basically meant shutting down the OnRez shop too.

So, LL’s “evil monopoly” is actually stretching out a hand and try to capture and win back the hearts of those poor OnRez merchants and give them an alternative. For that, I’m quite grateful to LL, even if it means adapting to a new system. I use both and I’m not afraid of commenting that OnRez’s look and feel and browsing experience is far superior (it didn’t start that way, though!); on the other hand, except for last month, I had always sold far more on XstreetSL — perhaps 10-20 times more.

How much is “more” really? For irrelevant content creators like myself, 95% of all sales came from XstreetSL (and practically nothing from in-world sales — after all, I don’t own giga-malls and I don’t do product launches, parties, gift certificates, treasure hunts, or whatever it takes to drive traffic to my tiny shops), and with an integration in SL’s own site (or even the viewer!), I can only expect more customers, so at the end of the day, this will be a *good* move for the small fry like myself.

But we have to be realistic. XstreetSL lists about half the number of items than IMVU’s own shop. It’s very very hard to determine sales on either system, but we know that XstreetSL has about 1/4000th or 1/5000th of all content in SL listed there — a tiny, tiny fraction. In terms of “earning comissions” for LL, so that they become richer and more powerful, well, you can discount that whole idea. OnRez never made enough to support itself; XstreetSL barely supports Apotheus’ teams and the costs of maintaining it. Granted, we will see some increased sales if XstreetSL is somehow placed inside LL’s viewer, but as it stands right now, it’s not a HUGE source of profit for LL. It’s enough for Apotheus & the XstreetSL gang, of course, since they’re a tiny company, but it’s not a huge business.

No, I really think that the reason was mostly that OnRez would go away anyway, and probably Anshe is making more money out of IMVU than out of XstreetSL (at the very least, she was selling content on the IMVU webshop *without any costs associated to running the infrastructure* since it’s IMVU that provides it for her, for free), and was planning to drop it. Getting the two major web shops out of the SLogosphere in a stroke was more than LL could bear — so they stepped in (like they did with GOM) and tried to “save” the projects. This means embracing them and putting them under their fold. I’m pretty sure that the ESC were quite happy to get rid of something they didn’t want anymore and make some money out of it; I’m also sure that Anshe was happy to sell what probably was not making enough profit for her; and Apotheus has only to be glad (and congratulated!) for being able to continue to develop his product, have it fully integrated into LL’s infrastructure (servers, viewer), increase the customer base radically, and overall giving us merchants a much higher visibility for little cost.

Really, you have to take into account that the amount of sales on both these web shops always were *minuscule*. Most major SL brands never had their products for sale there (there are obviously a few exceptions); almost all their income always came from in-world sales. An interesting reaction will come not from the handful of merchants on XstreetSL/OnRez (yes, guys, admit it, we’re not many, compared to the grid-wide explosion of content creators), but from the in-world merchants, who will suddenly realise that the “small fry” will be able to compete on in-world searches with a better interface *and not even need a shop for that*.

What will that imply? If webshop-based shopping catches on — like, of course, it does in There.com, IMVU, Kaneva, Twinity, and whatever fancies you — this will mean that all of a sudden the small shops in SL will close. Then the malls will lose customers — malls rely on the “small fry” mostly, and these will be far better off with a webshop-based solution. But at some point, this will mean that the in-world island-sized megashops will suddenly find it very hard to compete. They might hold on for a while — since the big brands might add a new stream of revenue from webshop shopping that will allow them to pay for tier — but at some point, what will be the point for them to keep those huge islands full of content, if basically everybody will shop out of web shops?

Content creators are huge landowners. They make LL happy with their tier. They are also attracted by land rental managers to keep a thriving community happy with their business. This all might disappear very quickly, and SL might become a shop-less environment. The consequences of this is that RL brands will also suddenly give up on SL as a “valid 3D shopping experience”, since nobody else will have shops in SL, so why should they even try?

I don’t know if I like this scenario in the long run. I’m actually fond of web-based shopping — I even do that a lot for my RL clothes, so why not for the SL clothes? — but I will also miss the experience of going on a shopping spree with friends, talk about what we’re seeing, complain about the lag (always!), chat with the owners and so on… this is where SL added value on the whole shopping experience which was *unique* and not available on *any other virtual world* (with the possible exception of vSide…).

So, if I were LL, I’d not overcommit to turn SL’s shopping experience into a clone of IMVU. Let XstreetSL/OnRez be around, sure — buying them out from unwilling funders (but very willing techies!) that were prepared to drop them was a smart move. Giving them some more visibility is also nice — XstreetSL merchants will appreciate the increased sales. But be wary of making the webshop experience a real competitor to in-world shopping, or a whole industry will crash.

So mmh after 5000 islands disappeared in a month… I’m pretty sure nobody LL wishes to see many more than that (all those islands from in-world merchants) close down as well. It would be ironical that the reign of M Linden would mean that in a year, LL’s landmass would shrink to a third of what it was before (halving LL’s income) because of poor decisions and worse communication. *Not* a good way to start 🙂

This will be tough to handle.

[UPDATE] A very thorough bullet-point list on what these changes do entail have been presented by Hiro Pendragon on Second Tense.

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