[Reset] and do a 180º turn

Today, Linden Lab turned another page on the history book for virtual worlds and entered another chapter… or, to be more precise, they turned a page back. Which is surprising. Linden Lab normally doesn’t do that. So, what happened?

First of all, I feel terribly sorry about the long list of Lindens that lost their jobs. Some of them have been around for eons and were good friends. Some, which you all will recognise, did an outstanding job while they were at the ‘lab — it’s incredible how M Linden has the courage to face them and tell them to go home. I profusely thank to all of you personally for the incredible work you’ve done in the past half-decade on behalf of all of us, and wish you all the best for your next endeavour, whatever it might be.

But now it’s time to see what this is all about. While the SLogosphere is already panicking (who writes those press releases anyway!?) and most can only read the words MASSIVE LAY-OFF AT LINDEN LAB, it’s worth to pay attention to the small print, which is where the interesting news actually are.

It’s about our world, after all

During the last days of Philip “Linden” Rosedale’s supreme reign, LL was starting to push out Second Life to areas that it was not prepared to deal with. They were all turned to the idea of Second Life as a residential, consumer product. It was supposed to be a Lego for adults, who would connect to it from home, and share their buildings with friends, and do crazy things with it. But all of a sudden, starting in 2006, real business and real academics started to see SL as an incredible opportunity to do a completely different things, not possible elsewhere.

People panicked at that time. They thought that all of a sudden “our” virtual world was going to be swamped over with ads and boards all over the place. The dozens of thousands of small businesses in SL (which have grown to hundreds of thousands these days) were scared about the “competition” coming from Real Business, which they feared that they could swamp SL with cheap or free content created by professionals paid in real money for real wages.

This, of course, did never happen (companies obviously hired existing residents; know-how is not something you can replicate so quickly). Instead, businesses clashed with LL’s policies. They wanted control over their sims; LL was not prepared to relinquish it. MTV jumped straight out and went to use There.com’s technology because of that; CSI:NY grumbled about the same and CBS didn’t do much more experimenting in SL after their initial efforts. The reason was the same: LL was antagonistic to RL corporations in SL.

But this quickly became impossible to stop. More and more corporations started to enter SL (1500 are known to be in-world), and they started to make demands. Professional developers were appalled at the way LL treated their clients. It was impossible, for instance, to get billed. Lots of excuses were invented on the spot to “explain” why LL was not really helping out companies to enter SL. At some stage, groups of independent developers even offered LL some help to create for free an official site for companies, which would have a completely different message than the “residential SL” consumer-oriented portal (an idea that obviously LL rejected, like they already had rejected a previous offer of help to run the in-world customer support, also for free).

So during the “hype years” of 2006/7, when corporations were all raging to enter SL, LL was simply not showing the appropriate attitude. And at the same time, universities were also starting to offer services in SL — and doing research. And, of course, stumbling over all the obstacles: thanks to Pathfinder Linden, who also had left a few months ago, at least they still had some official support back then from the ‘Lab. Corporations had no such luck.

A lot was written already about how companies “got it all wrong” during the hype days, and that’s the reason why besides IBM and Intel few have endured until today. But LL’s anti-corporation stance was not much discussed. Over time, they started to be a bit more flexible, but they took their time.

Then we entered the reign of M Linden. He came with a solid corporate background of managing a company that was focused on the corporate market, not the residential one. And he noticed that all these corporations were still knocking at LL’s door begging to enter. But they also had a long, long list of complaints of things that didn’t work well, from customer support, to an impossibly-high-learning curve, to lack of control.

M Linden started massively hiring new people, and re-assigning teams to new priorities. He realised that SL was not growing exponentially, but merely by a few percent every year — good enough to please the stakeholders, but not something that would earn him a picture as Time‘s Man of The Year. And that’s because SL was mostly — and still is — a service for the residential market. How could M bring the corporations in?

A lot of new ideas were implemented, all at the same time. A new web strategy was developed, where the consumer, enterprise, and educational markets would be clearly separated. The biggest change, of course, happened on the enterprise side: developers started being addressed much more like partners than “pests who ask too much from us”; corporations finally were able to be properly billed and even send wire transfers for payments instead of using the CEO’s personal credit card; a new product, SL-behind-the-firewall, was launched; a new marketplace was announced (still not launched); and a new viewer, allegedly easier to use, was introduced.

At the same time, on the residential side of things, a lot was being cut down. A ghetto was created to put the adult community (i.e. pretty much a third of SL’s economy) “out of sight”. Orientation islands were dumped. The Mentors were disbanded. All sort of crazy policies were implemented, with lots of drama around the interpretation of the new ToS. And the long-term open source strategy around their viewer totally backfired: instead of crowdsourcing a lot of eager programmers to fix bugs and implement new features, because LL takes 6-18 months to implement a patch of a single line of code (due to strict Quality Assurance procedures), programmers just gave up, forked the code, and launched a myriad of new projects, among which Emerald is the leader — and also the group that split the most, as new developers grabbed the code and released their own ToS-breaking, content-copying versions instead.

It became a mess, and the reluctance of adopting SL 2.0, combined with broken search didn’t help LL’s plans much. To make matters worse, LL started to aggressively compete with its own residents, by offering Linden Homes, which allegedly increased the number of Premium users, at the cost of putting established communities and land owners out of business and forced to try to sell and rent land below cost if they wanted to stay around. I have no idea if the extra Premium accounts compensated for the loss of landmass from landowners who gave up and closed their businesses.

Nevertheless, the residential side of LL’s business continued to thrive, which is quite a feat, and would run against all expectations. In spite of everything, SL grows, and grows more than the RL economy, even if there has been a slight decline of simultaneous users (but not of new users). Hours-per-month, however, continue to increase, as well as almost all indicators.

On the business side, we have no numbers. But… seriously… how many SL Enterprise boxes has LL shipped? They made a huge deal of listing the dozen beta-testers. I estimate that not more than 20 SLE boxes were ever sold. That means less than 1% of all income. 99% still come from the residents, doing business as usual, even in spite of all the difficulties.

I guess that M Linden was baffled. Why weren’t businesses rushing in like crazy? Now that LL had changed its strategy and approach to business and education — setting new sites, creating a network of partners to act as a sales force, launching new products and services, even opening up in-world business hubs… why weren’t all those corporations flooding the gates like they did in 2006/7, when LL was against them and they still came?

I have no idea what answer M did get. But I can speculate!

Sorry, wrong virtual world

In the past two months, my own company lost three prospects to LL’s competition. Most of you would think they went to Blue Mars, because it enjoyed some hype as the future SL killer. It’s not so. Blue Mars hardly has any distinguishing feature for the corporate market, and, as you’ll soon see, they’re even worse off than LL on the choice of technology.

Since early 2008, a lot of opinion-makers were saying that the future would be web-based virtual worlds for kids; Lively was launched following the silly advice of those opinion-makers, and shut down half a year later; Metaverse held on for a little longer. Then opinion-makers suggested that corporations would require real information about real people to justify coming to a virtual world; LL slowly tried to switch everybody away from text and adopt voice and encouraged — through oppressive measures of identity validation — people to stop being pseudonymous. After the privacy fiascos of Facebook, and the examples given by Habbo Hotel vs. YoVille, apparently all these “theories” didn’t really make sense after all. Getting rid of privacy in SL seemed to be mostly a waste of effort, and LL reverted their decision regarding the extremely demanding validation measures; still, some claim that they’re too easy-going on alts and their potential for griefing.

The idea that big corps, government, and universities were shocked about casinos and sex in the virtual world seemed also to be another red herring. LL got rid of all that, or safely tucked them under the carpet out of sight. Big corps, government, and universities didn’t flock to SL enthusiastically. Today, they claim that the “bad image of SL as a sex-only VW” is too strong, and opinion makers nod their heads wisely. The harm is done and LL cannot fix it.

But no, the real reasons are actually quite simple, and very straightforward.

First of all, Second Life is incredibly expensive. Of course any Fortune 500 company can afford to buy a handful of sims, that goes without saying. But the point is that the competition is far more cheaper. OpenSim is free, you just have high maintenance costs — it’s not worth for a few sims, but if you require a vast virtual space, with hundreds or thousands of visually contiguous areas, OpenSim is extremely cost-effective. Oh, of course, you won’t be connected to SL and have no way to transfer content (legally) from SL to OpenSim. That doesn’t worry the corporations and the universities: the time when they pretended to have an interest in “community” or “readily-available” content is long gone. Now they have long-term projects, taking 3-5 years to develop (and not months or weeks like in 2006/7!) which are only for internal use. SL has little interest for them, and being disconnected from the SL Grid might even be seen as an advantage (less distraction!).

OpenSim, however, suffers from the same technical limitations as SL. Namely, it requires an ultra-heavy viewer. Of course, all average computers bought after 2007 will run SL decently fast. The problem is, these days, nobody seems to own an “average” computer any more! Cheap mini-laptops for US$300 abound — cheap is what sells during a financial crisis! — and almost none can run SL. Even a US$500 laptop, if not well chosen, won’t be powerful enough to run SL — or, if it does, it’ll run the battery flat in a couple of hours. Assuming, of course, that people have the patience to learn how to use it. Let’s face it, we residents are all very special people. We’re incredibly patient. When we logged in to SL for the first time, we spent countless hours learning the interface. That’s not an “average” user. The average user wants to spend 3 minutes registering for an account and expects everything to be immediately obvious after they log in; SL couldn’t be more distant from that goal. Even M Linden’s proposal to reduce the “first experience” to merely an hour is not ambitious enough. SL has to be as easy to use as Facebook (and even I get confused about Facebook’s menus often!).

And on top of that, SL works on top of proprietary communication protocols — which don’t go through corporate or campus firewalls. These days, network administrators leave users little choice through their firewalls but to connect to Web servers. Even Microsoft learned that the hard way and switched their Messenger protocol to run over HTTP — they became increasingly less popular as firewalls everywhere blocked their protocol as well. LL still sticks to their own protocols, in spite of some effort to the contrary (we’re still waiting for textures to be downloaded via HTTP!). From a developer’s point of view, it’s cool that we can, these days, communicate with objects in SL (and vice versa) — a strong selling point for SL as a platform to develop applications, because we’re not limited to LSL any longer. Well… you know what I mean. There are still huge limitations to LSL.

But SL’s IM protocol is perhaps the only one that is not moving to XMPP (made popular by Jabber, and famous by Google, although AIM and Yahoo are supposed to migrate to it too). And SL’s IM protocol is not only about IMs. Inventory transfers, money, group requests, and so forth, all go through that protocol — and it’s impossible to integrate it with existing platforms. Google Wave, for instance, to allow federation of Wave servers, just built everything on top of XMPP. You can’t do the same in SL — except by using ‘bots, and even that has limitations, since the ‘bot software, even though it had a few Lindens as contributors, is mostly a reverse-engineered effort. The standardisation process for the SL protocol is around the corner, but there will be several more months of waiting until that provides us with viable solutions.

Content, of course, is also completely proprietary. While the industry has kept a few standards around and provided tools to convert between them easily — VRML, Lightwave OBJ, COLLADA — SL has no standard for importing and exporting content, since it was supposed to be all done in-world anyway. All the other VW platforms — even simple ones like the now defunct Metaverse, but including Frenzoo, Moove, and many other small-scale VWs — support at least one of the standards. That means that content developers just create the content once, and tweak it and adapt it to any other platform. You can’t do that in SL. Well… until SL 2.1 is released at least. For now, however, it means that if you wish to create content in SL, you need to be proficient in the SL viewer, and that is another huge learning curve that few corporations or universities are willing to deal with. Add to that the notion that you aren’t supposed to make backups of your content — because LL does it for you — and you can imagine that the corporate and academic markets are not very happy about that. (We can’t even restore the content of a sim via the Estate Tools — we need to file a ticket with LL for that! — much less make a backup on our own disk…)

I’m aware that this is a question of IP rights vs. ease of development, but the point is, other platforms have no qualms about allowing developers to upload and make backups of their content.

So no wonder that companies and universities are jumping on the VW bandwagon — but not LL’s. They’re using Unity3D instead, which runs on Windows, Mac, iPhone/iPad, Android (soon), Wii… and on the Web, of course. The company behind Unity3D has very cleverly been able to infiltrate themselves into all markets by offering solutions that LL simply cannot provide. They tell prospective clients that they can get a rendering engine as good as LL’s (not so good as CryEngine3, but it runs on all platforms, not just on Windows — a big mistake Avatar Reality made when choosing a platform tied to a single operating system), use their own content, do application development using familiar languages and methodologies, and, well, put it on a CD or embed it on a Web page without the need to download anything.

How can LL compete with all that?

They used to have an advantage: “community”. But, as said, these days, corporations and universities couldn’t care less about “community”. They just want a cheap-to-develop VW fully under their control. SL couldn’t be further from that.

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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