[Reset] and do a 180º turn

Back to the beginning

The most interesting things on LL’s press release about the lay-off is not really the lay-off itself. Even TechCrunch missed the key aspect of the change: the focus on consumers again.

Announcing a Web-based version of SL is easy. Blue Mars did the same. It will take 12-18 months to develop, at least, even using existing technologies and not reinventing the wheel (I would simply use Unity3D’s engine 🙂 — really, I have tried to push for funding to develop such a project, half a year ago; sadly nobody is willing to let me have a few million US$ to do that with the aid of a few technological universities and a handful of programmers). Actually having it is another story.

No, the whole point is that M Linden has looked at numbers. On one side, he has put the costs for creating LL’s enterprise division: a whole new marketing department, a sales team, support teams to talk to partners, development teams to create SL Enterprise, web designers for the whole new website, offices in Amsterdam… and a big, big effort to pass along the new message, that LL is “all about corporation and education”.

And at the end of the year, with all money flowing into the corporate division, what are the results?… I challenge LL to show proof that the total income from that division was less than 1% of the gross income. For perhaps a third of the expenses.

99% still comes from where it had always come from: tier (and the LindeX).

Well, what would you do if you were M Linden? The most sensible solution is really to get rid of the enterprise division, since there is no way to make it work. SL simply fails to address what corporations want to spend in developing VW solutions. Of course, a few still do that, because they’re stubborn early adopters. Very very few still recognise the interest in having a “community”, which no other virtual world can provide as well as SL. But these are relatively small projects which do not contribute much to LL’s income: a sim here, a sim there, and they’re unrecognisable from the residential market anyway — where landowners often have communities with a dozen sims, far more lucrative to LL than a single sim by a company or a university at some corner of the virtual world.

The press release also doesn’t mention that LL is ending a cycle of development. The websites are finished — all that remains to be launched is the new SL Marketplace, the rebranded name for XStreetSL. So they don’t need the web developers any longer. SL 2.0 is “finished” with the exception of the meshes; since Pastrami Linden is on the list of Lindens that left, one has to assume that his work is finished and delivered as well. Havok 7 is close to being finished. So all these developers are made redundant — as well as everybody on the enterprise division. I can very well believe that these are the 30% that M Linden doesn’t need any longer — plus a few that he managed to get rid off by consolidating the offices instead of spreading them around the world. Office space is expensive anyway! Why in the world does a company offering virtual worlds require physical space for their developers?! They should be the very first to use their own technology. In fact, I really don’t understand why LL needs more than a small office with a room for meeting in the flesh some important CEOs that refuse to create an avatar. It’s pointless to waste office space for anything else. They should set the example, after all. Aren’t they supposed to be the first believers in their own technology? Imagine if Apple would have all their staff running Windows on their corporate desktops…

Anyway, I digress. The point is that M Linden very likely is really just keeping the company lean after dropping a division, focusing again on the consumer market — which is the only one that really fills LL’s coffers, and has done so for seven years, always growing every year — and probably doing more outsourcing in the future and hiring less employees. As we have seen recently, promotional machinimas and in-world content (for internal use and for the “business hubs”, another idea that they will probably drop now) was hired out to residents or companies of residents. This is a much more flexible way of doing business in the 21st century.

Now, this will mean that in 2010 they will show huge profits! The question is, what will they do with them? Speculation about a possible big investment by IBM, or simply going public, always pops up at those times where LL starts to make big changes. I remain unconvinced. Showing huge profits is not bad by itself.

Another strategy — assuming they’re actually serious about going back to the consumer market — is by shuffling the prices. As the virtual land market stalled with the ever-reducing prices, an interesting strategy would be to drop the setup fees for new islands. Just like that. Remember, setup fees made sense when there was actual labour involved. These days, it’s just 99.99% profit, without hardly any associated costs, since the whole process is fully automated. Setup fees made also sense during exponential growth — at some time, LL would make far more money from selling new sims than from tier. These days, however, the landmass grows very slowly, and most of the income comes from tier. Dropping the setup costs to zero would be a huge incentive to encourage people to get new sims.

Then they might play around with sim configurations. The new Class 6 servers are supposed to hold 16 sims in the same hardware, one per CPU. Well, what about offering instead a 1024×1024 sim (instead of 16 separate sims) for, say, US$2000/month, which would have 240,000 prims and allow 1600 avatars simultaneously on the same virtual space? OpenSim can do that (although it might fail with so many avatars). LL should consider that type of offering, which would be very attractive to some event venues (but also for some companies as well!). And, sure, that would mean giving a huge discount — it’s far better to sell 16 separate sims — but now that they’ll have a huge margin again, they can afford a new price structure.

So the big question is really what is involved in getting residents — not corporations, not universities — happy again. We all know what we want; it’s not as if LL needs to do a lot of searching around the SLogosphere to see what residents need and wish for. For me, the question is if LL is going to listen to what we have been telling them for the past seven years, or if they’re going — again and again and again — to imagine what we want, getting it wrong once more, implement it at a huge cost, and feel disappointed in a year, when they didn’t see any real increase in their revenues, even after changing their strategy.

M Linden took a year to experiment with what LL thought corporations wanted, but was unable to deliver what they really wanted, and this resulted in the huge lay-off and a 180º turn in their focus today, at a huge expense. Hopefully, now that he has set a new goal for LL — make residents happy again — he learned the lesson and starts moving towards implementing what we want, not what LL thinks that we want.

With a bit of luck, they won’t need to downsize again next year, and keep the competition frustrated trying to catch up.

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About Gwyneth Llewelyn

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