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.

CC BY 4.0 Linden Lab buys XstreetSL and OnRez Shop — why? by Gwyneth Llewelyn is licensed under a Creative Commons Attribution 4.0 International License.

About Gwyneth Llewelyn

I'm just a virtual girl in a virtual world...

  • Yeah, stronger web-shopping might do much damage to the ugly malls with third grade content. Nobody beside mall owners will have a tear for them. But I don’t think big shops will disappear. Shops that are well built and with good content will stay. As you said, they provide much more than just getting the item, they provide shopping experience. It might turn out as cleaning of the SL. Which, in the long run, can attract RL brands.

  • Prokofy Neva

    You guys are so silly. If the day before Linden GOM’d these two shopping sites, the existence of these sites did nothing at all to lessen the number of malls, shops, stalls, and boardwalks in SL, why would it change the day after? Even if the Lindens leave their bang-up job of fixing dbase code *cough* and turn their attention to making XSt somehow work “better” (it works pretty well now), how will that lessen the number of malls? People use XSt as a search, and then go in world to see the thing in person.

    dandellion is just bringing classist and elitist notions to the mall as an SL institution that he imagines is “ugly” or has “third grade” content and that “nobody besides mall owners” will miss. Bullshit. People love malls. The uglier the better! The tackier the content, the better! You cannot *stop* people from loving them and creating them and filling them with tacky stuff, and God bless ’em! They aren’t all the high falutin bunch from the Not Possible in Real Life club. Newbies especialy breaking into business need malls, because those prim-a-donnas in the fancy boutiques won’t even share a corner of their venues with them unless they suck up to them terribly. Malls are democratic, they are for the People, seriously, you socialists and Extropians should in theory like them on that grounds alone, but your false aesthetics get in the way.

    The other thing you say that is curious, Gwyn, is your idea that LL, to compete with IMVU or some other world selling junk on the website, has to always have a website. It doesn’t. It has content inworld — and resident businesses making shopping sites. Or at least it *did*. That was special. SL generates in a *day* what it has taken Sony 30 days to generate — a million dollars in content sales.

    No, it’s more about LL wanting to streamline getting a piece of that million. It’s like the openspace sims. Everybody flipped them and made a buck, and the Lindens weren’t getting any of it. There is a rough dynamic as you know from looking at their revenue and costs whereby they make X million and we make X million, and it’s too much in balance now, i.e. we make money and they don’t. We tend to forget that, spending as we do on tier and junk, but looked at from the zoom-out level, it’s money that they aren’t getting any piece of at all, the way their peers at IMVU or Sony are, that’s all.

  • Nice post Gwyn, and you’re the only one I’ve seen so far to mention that the OnRez experience/design was actually _better_ than SLX. I’m as disturbed as everyone else about the possible repercussions of this move, but my immediate whine is that I really hate the SLX interface. OnRez is a pretty, easier shopping experience than SLXs tiny text heavy pages and I liked having a choice.

    I’m also not too convinced that in world stores will disappear. If a web listing provides a slurl, I almost always go to the in world store to look at it before I buy, and I imagine I’m not alone in that. Pictures are one thing, but to see an item rezzed is another. I wonder if most people do that?

  • Nacon

    Didn’t I warn you in some way that Second Life going to die few months ago?

    This announcement had tickled my funny bone, still doesn’t convinced me that they’ll be saved.
    They seem to get the idea that there’s something wrong with their marketing ground but not quite getting it yet.
    Copybot still need to be killed before you can make any form of marketing to work flawlessly as they’re hoping.

    Linden Lab with bunch of idiots, still.

  • Prokofy said: “the uglier the better”

    Well, we cannot be all have the same brain damage as you do. Some of us actually have taste.

  • I think, like many other huge shifts in the SL environment, it will take a while to see what the real effect (or lack thereof, possibly) of this change will be long-term. Regarding malls and pixel & particle shops, I, for one, like seeing prim products in person when possible before buying. I also prefer demo versions of products to see the 360 view, check seam alignment, etc.

    All the hallmarks of good production are often NOT expressed by promotional images used by designers. The shoulder seams, hip, under the arm, crotch area especially indicate whether a designer bothered to do a good job in my book. In world models/bots (sadly bots) can provide the necessary view one needs to check stuff out. Hopefully those options won’t disappear.

    I know that the only thing I really miss from Telehubs is that I used to be forced to view more of the grid, the mainland especially. I don’t miss the lag, the ugly pile up of promotional materials, nor the convoluted methods one needed to use to get around.

    SL and its residents are nothing if not adaptable, and LL is running a business. Moves such as this one, and the acquisition of GOM are smart for LL, which helps ensure SL’s long-term existence. We may not like the route taken but most of us are interested in the destination.

    Then again, I got out of the business of selling my goods, other than my services as a DJ, years ago, so I’m looking at this purely as a consumer. I am quite sure were I still a merchant I’d be a bit more upset about this. I rarely shop through the web-based options, however I too prefer the OnRez interface.

  • Nacon

    Most likely to see more of black market in world than you’d see on web.

    Fashionist however… still remain in world, they don’t like the idea of using 3rd party to display their over-the-top-ego designs. They must have a over-the-top-ego store design to display their ego… err products, sorry.

  • Fleep, I’m not the only one, Riko Kamachi has a quite detailed description of what’s wrong with XStreetSL and what’s good with OnRez here. It’s a very thoughtfully written analysis.

    Prok, I don’t know if it’s “good” or “bad” to emulate IMVU/There/Kaneva/Moove/whatever and replace in-world shopping (unique to SL) with web-based shopping (common to all other virtual worlds). My personal feeling is that something huge will be lost if LL pushes web-based shopping with strength. I’m actually afraid they do that because of the inevitable comparisons with “other” virtual worlds.

    I’ve heard the argument that “people search on the Web but buy in-world” quite often. I don’t have any data to sustain that argument at all; it certainly is NOT the case with myself, where all sales are made on the Web. And I never got an in-world contact saying “I bought your product on XStreetSL and wish to talk about it” (or get a refund, or something). People use the messaging service on XStreetSL for that. It’s like SL doesn’t exist at all. I’d be even glad for an email or a message on MSN/Yahoo/Gtalk, my contacts are publicly listed, but no — if they shop on the Web, they contact me on the Web. Granted, others might have a different experience. And “shopping for content” is a vast world — fashion, skins and attachments are easier bought that way, but I’m sure that people prefer to do a test drive on a vehicle, or walk inside a prefab, before buying those. If LL developed an in-world “preview” feature for clothes and skins, well, I’m sure that would definitely make a difference…

    Nacon, SL is not going to die 😉 Really, if I got L$1 for every time I hear/read this, these days I’d be able to buy Linden Lab several times over, and the more time passes, the more I’d earn lol

    As for CopyBot, as said elsewhere, it’s the analogue hole problem: if it’s in your computer, you can copy it. The only solution is “going RIAA” on the pirates, and LL is reluctant to do that, although they certainly have banned quite a lot of people… just not enough.

    Torrid, thanks for setting the record straight 🙂 I had this vague idea (since I quite well remember to be able to login to SL using a simple PHP script, when libSL was in development, based on the docs they had published, and that was before the client became open source) but unfortunately my memory is not so good for details…

    Madame, nice to see you here 🙂 I have to agree with you. I have a mixed approach as a consumer myself: I love to do in-world shopping, but that requires time and patience, due mostly to the lag (using Kirstens Viewer certainly helped that!!), but also because it’s not easy to find exactly what you want — shops are huge and rarely well organised (one might say this is deliberate). I remember looking for a hair style at Six Kennedy’s Girlywood that I wished to buy for my “twin alt”. That took me a whole week, logging in an hour per day, just to rez a few more hundreds of textures, and look around to see if I finally got it. And I even knew the name of the style (and had pictures and images, even on her blog and all)! Sadly, there was no way to search for it, and Six is too busy to answer those simple questions. I eventually found it, of course, but that required persistence. If she had it on sale on XStreetSL, it’ll have taken 5 seconds — but of course, miss all the fun.

    So I agree with you, it’s hard to say. New residents, specially those coming from IMVU, There, etc. will probably only use the webshops, since that’s what they know, and what they expect SL to provide. Old veterans will miss the shopping experience. But at the end of the day, what will matter is “how much does it cost to keep my 3D shop in SL, compared to just listing things on the webshop?”. If you have a budget of, say, US$500 to pay for tier and events that drive traffic to your shop, won’t those very same US$500 buy a lot of ads on the webshop instead, and provide way more sales that way? It’s obviously very early to answer this with “yes” — specially because brand new residents are not the best consumers…

  • Some astute observations, Gwyn.

    This is going to be a substantial shift for Linden Lab, a value-added shift for consumers, and a theoretical bump for sellers – depending on the quality of integration of services.

    It also means that, hopefully, my free vending kit will be something of the past. Maybe I’ll focus on a new customize-item type vending machine. 🙂

  • Nacon

    Gwyneth@ I know, I’ve heard enough of that too. I don’t, however, make easy prediction without educational research and experiences.

    Not everyone can understand how Second Life rose to successful level, not even IBM nor Linden Lab themselves.
    Must understand human nature, there are excuse for everything they do.

    This is going to damage people’s moral. If you do get 1L$ for every time you hear it, you’d be one spoiled goddess of your own world.

    The next big announcement is going to be bad.

  • Gwyn your description of how the land market may pan out would be financial suicide for Linden Lab, I really can’t see that being allowed to happen. Tier is still very much the backbone of the business.

    Short term we may see people rushing to a webshop, but long term people will stick to the inworld experience and have Xstreet as an alternative. Some items sell on Xstreet because of their superior search engine.

  • Evelyn Ponnier

    Personally I am a “view on the web, buy in SL” girl. If LL could actually improve the search to being a web shopping experience for browsing (and buying), but also have a SLURL to visit the main store on the ads, I can still see people shopping inworld from the stores.

    But I think there is more in the works than just shopping. It is only a hunch of mine, but I think LL may be moving towards web-accessible inventory management. This is theory is based on a discussion in the forum last year on improvements to premium memberships. One of the requests noted by T Linden was a web accesible inventory. Xstreet and Onrez have been doing a form of this since they were created. Integrating their type services more directly with LL would help bring this about technologically. Buying them out prior would avoid any nasty lawsuits.

    Of course, that idea was suggested in the ‘improvement to premium memberships’ thread. I wonder if LL would require a premium membership to sell via search?…

    Concerns about LL losing revenue from store tier and concerns about the search being flooded with cheap and nasty ‘fly by night’ merchants may allayed by LL placing a mandatory ‘store location’ with each advertised product. Residents can either buy the item immediately or lesuirely shop at the store.

    Thus LL could possibly be really making a move to make more money out of the content creators from three possible angles: Tier, advertising and memberships.

  • Saudações amigáveis,

    Like everebody I’ve recieved the news too and my first thought it was about the world economy. It is LL fighting against crisis? I mean, purchasing the both highest out-world companies and “control” the money flow, control the content (I think now they are able to control and track the copyright issues, build a new official sales market and why not LL company have an different way to deal with the in-world market. I see a lot of motivations to LL do it. Or who know if it haves anything to do with this article http://www.neowin.net/news/main/09/01/14/irs-to-tax-second-lifeworld-of-warcraft-earnings-3#comments (made by The Internal Revenue Service, the American tax authority), politics suggestion?????.

    I see it good for the residents, for the SL and for the virtual market. I think they have many motives than we can think about.

    If it is for the best, LL done the best choice.

  • lol why my comment disappears?

  • idyll

    If shops can somehow incorporate a more precise search, they’ll survive. I find it pretty frustrating to wander around stores looking for what I saw on a blog.

  • Take a close look at Apez.biz and Hippo – there’s a huge window of opportunity there: http://www.rezmagazine.co.uk/2009/01/merchants-view-slx-onrez-and.html

  • I have respect for LL, from a business perspective they did a good thing, taking control of two largest online marketplaces really adds value to their services. From execution perspective – I totally dislike it, for example shutting down OnRez so quickly? why? It’s a valuable asset, they could have used it, instead they are just killing it! weird move.

    I am also not convinced that in-world shopping will disappear – it was and will stay one of the most interesting things to do in SL for most people. There are multiple companies offering in-world networked vending systems that are much more capable than the one OnRez had, for example metaLIFE( http://meta-LIFE.net) and Apez mentioned above!

    So my prediction is that following this move by LL – new platforms will appear and grow stronger, because there will never be ONE and ONLY platform to manage it all – too many people working the other way, and it’s a complex issue, to hard to solve under one umbrella, especially keeping in mind LL ability to provide rapid innovation and problem solving!

  • This rather suggests a move away from SecondLife as an integrated virtual world as a domain of its own (for doing things very different to what people otherwise do), and towards SecondLife as a 3d web tool (for doing the same things as people do using the web, but in 3d)…