The battle for the future virtual world environment is on!

The teacher_001

I’ve tried to write a comment on the latest article on High Fidelity posted on Technology Review. But I’m long-winded and their system didn’t accept my comment. So here it is:

Rosedale’s latest attempt at designing a virtual world from scratch shows that he has learned a lot of lessons in the past 15 years. The article neglects to explain Rosedale’s background in physics; Linden Lab actually started by being a VR gear company, doing the hardware first, and designing a virtual world in order to test their gear, simply known as ‘The Rig‘, and which is allegedly still stored somewhere at Linden Lab’s premises. It was never commercially sold.

Thus, Rosedale’s vision continues solid. The difference is that others, in the past 15 years, have developed much nicer gadgets, and now all that HiFi needs to do is to provide the ultimate virtual environment to play with them. As far as we can see, they’re progressing quite nicely, and should have an awesome product by the time the Rift is finally on the shelves.

Nevertheless, Second Life®, even without gadgets, thrives. This is what the post-hype press has completely failed to capture. The so-called exponential growth curve in new accounts back in 2006/7 might have been mostly due to a huge increase of spam bots — a thesis that was proposed a year ago to explain why Second Life continues to have 10-15k new signups every day but few new users actually appear in-world. Because Linden Lab’s community portal is known by forum spammers as showing an active community of millions, using an expensive software which is only employed by huge communities (or it wouldn’t be worth the cost), it’s not unusual to claim that most new registrations are attempts from automated registration ‘bots to desperately try to get access to that community portal. Obviously, they never appear in-world as actual avatars.

As Linden Lab started to review their numbers and post information with much more care and reluctance, few metrics are currently known by the population at large. However, it’s interesting to notice that, although there certainly was an increase of actual humans inhabiting the virtual space in 2007, there is much less ‘decline’ than the post-hype press likes to admit. They were fooled (like we all were) by the automated spambot registrations. But actual users of Second Life back then were also fooled. We seriously believed that humans were joining Second Life by the millions. We increased development of everything — products, services, virtual goods — because we expected all those millions to be actual human beings willing to engage in a virtual world.

It turned out that all of those were probably nothing more than spammers. But this was carefully ignored; in fact, past CEOs of Linden Lab have tried to address the issue of user retention and blame their own difficult-to-understand interface to explain why so many registered but so few actually used the virtual world. I still think they’re completely on the wrong track: the lack of users is not really because of lack of appropriate technical skills to navigate the virtual world, but because… virtual worlds are not a mainstream product, but just a niche product.

Niche products are comfortable to live in. Apple started as a niche company. They still refuse to lower prices and compete on the low-end mainstream; that never prevented them to become the largest company in the world. BMW, Harley Davidson, the exquisite watch manufacturers in Switzerland, the top fashion designers, and even companies like Oracle or Adobe — all of those operate on niche markets and will never expand to the mainstream. They are all successful companies. They grow, surely, but very slow.

Second Life, in spite of the lack of hype past 2009, has grown, and grown, and grown. It’s several times the size it was at the peak of the hype, and virtual good transactions have steadily grown from a few millions of US dollars during the hype to a staggering half billion US$ per year. And it continues to grow. It just fails to attract the interest of the media, even if it’s a market of a million people willing to spend $500 per year (on average) on virtual goods. That’s not bad. That makes Linden Lab profitable. It continues to grow. Just not exponentially.

Second Life has of course a lot of shortcomings. This article illustrates them well: navigation controls are really hard to understand. Translating gestures to the virtual world is hard and they are ‘detached’ from your real gestures. It’s not easy to ‘see the world through your avatar’s eyes’, in spite of a very flexible camera (which, however, is also hard to control). Conceptually, Second Life presents a view more common to typical 3D games and less similar to an ‘immersive environment’, which is what HiFi is all about. And, of course, HiFi already supports all the latest VR gadgets out of the box, while Second Life just slowly progresses towards incorporating the Oculus Rift, 3D joysticks, and little else besides. No wonder, then, that Linden Lab is also developing a new virtual world platform to address Second Life’s shortcomings; this will be a product competing head-to-head with Rosedale’s HiFi, and will suffer from precisely the same limitations: when it starts, it will have zero users and zero content, compared to the massive wealth of Second Life’s own environment.

What will differentiate both? Mostly, the business model. Back in 2007, during the hype peak, Second Life released its viewers as open source, but failed to leverage on that aspect: instead of having a community of users contributing to the viewer, each contributor forked the code for its own viewer, and little wa scontributed back — a terrible way to open source the code. Second Life’s server code was reverse-engineered and became a popular alternative environment, OpenSimulator, which emulates almost all functionality of Second Life while still being compatible with the same viewers. Of course, it means starting with zero users and zero content — and that means that OpenSimulator’s growth has been tiny, users being aggressively sought by a constellation of wannabe ‘grid operators’, who are here one day and disappear the next, for being unable to capture enough users to become profitable in the long term. It’s hard to beat Linden Lab’s ‘game’ by emulating them — when the niche market is so small.

We know actually quite a lot about HiFi’s business model, in spite of your claims. In fact, Rosedale’s new company is rather open about the way they expect to make money. It’s not merely through listings in a directory. It actually does something more clever. If you contribute with CPU, memory, and bandwidth to add resources to the overall virtual world, you deserve to be paid by visitors to the areas you host; by contrast, if you wish to visit areas being hosted by others, you pay to access them. HiFi, the company, provides not only the software for all that, but also a micropayment engine which supports this business model, smoothly and transparently dealing with steams of cents going from hosters to viewers. HiFi gets a share from that. But the more people contribute with hardware to extend the platform, the more money they might be able to make. That’s a good incentive. Will it work? Maybe, maybe not; it’s a novel way of thinking about resource allocation, and, while in a less abstract form, this is what happens in Second Life as well, it’s clear that the ‘we pay nothing’ generation is the mainstream. There are exceptions — Apple’s iTunes Store, in spite of just having half the users of Google Play, and a sixth of the market share of the mobile platforms, actually generates twice the income of Google Play. Why? Because Apple has been able to capture the interest of those few people who are willing to pay to access virtual goods, and excel in doing that. The mainstream, however, doesn’t want to pay, and that’s why Google struggles to keep up, in spite of having six times the number of users. This the challenge that HiFi (and Linden Lab’s next-generation virtual world platform) needs to overcome to become a very lucrative company.

To recap:

  • Virtual worlds are actually a tiny niche market. A very profitable one, but it’s not a mainstream product, and will never be. That’s the tough reality.
  • It’s not a question of more or less gadgets, or more or less sophisticated interfaces. Because it’s a niche market, the amount of people who will be drawn to product X or Y is small. Not tiny — enough to sustain a company with profits over several years — but small. People will eagerly switch over to a more shiny and bright solution, but they won’t be many. We have seen this happening over and over again.
  • HiFi and Linden Lab’s next platform will be competing for exactly the same people in 2016, with similar products, and with similar handicaps: no users, no content, tiny market. Who will survive? We know about HiFi’s business model and it makes sense for a slice of the market (the people willing to pay for online services). We have no clue about Linden Lab’s business model for its next platform, and not enough data to speculate about it, since, unlike HiFi, they have provided us with nothing we can evaluate.
  • Facebook will also launch their own virtual world, along the same lines, and probably also in time for the Oculus Rift to be on the shelves. However, Facebook is also in decline (and thus Zuckerberg has been very clever in expanding and diversifying its operations). Will something tagged with the Facebook brand make a difference by 2016? Remember that we’re really talking of just a few million people here. By 2016, they might already be happy in either HiFi or Linden Lab’s next platform and unwilling to move.

In spite of everything I’ve written, I’m not a pessimist. I’m a strong believer in niche markets. They have faithful users, and often are quite willing to spend money. Almost all luxury brands are niche markets and all companies operating in them are very successful and quite profitable. For the niche market of virtual worlds, the future seems quite bright indeed, as never before in the past 15 years, and I’m obviously as excited as everybody else, and quite intrigued about the possibilities. But I’m also a realist and understand the limitations of a niche market: at some point, it won’t grow, but just deliver a steady stream of income. And having three competitors for the same consumers — HiFi, Linden Lab’s next product, possibly Facebook — means that the current revenues enjoyed by Second Life, which has 98% of the overall market, will be split among the three players. Facebook has unlimited funds and can hold on while the competition dies out, and it can also engage in a dumping strategy until HiFi and Linden Lab are ruined. Linden Lab can still fall back to Second Life, if their new platform is a flop. What can HiFi do?

CC BY 4.0 The battle for the future virtual world environment is on! by Gwyneth Llewelyn is licensed under a Creative Commons Attribution 4.0 International License.

One Pingback/Trackback

  • Tara Li

    I got into this discussion a few days ago, on G+. My question regarding these new worlds is – how much in-world creation can you do? My feeling is that this was the killer feature that got Second Life up to the point where network effects kicked in and it started pulling in people for purely social purposes.

    I am an immersive type of user. I wish OnRez and XStreet hadn’t been built, as searching websites pulls you out of Second Life for the most part, to use a full-featured browser. Having more people in world shopping at malls would drive the development of better mall design, better display of products, more engagement with the users.

    Likewise, as far as content creation goes – having to use tools like Blender takes you out of the world. You don’t get the enjoyment of showing someone your half-completed build, and having them make suggestions that you implement while they watch. You don’t get that sense of collaboration, of anything’s possible, or the instant gratification of BOOOM and there’s a cube in front of you. And 3 minutes later, someone’s shown you how to turn it into a sphere, hollow it out, make the outside transparent, twist it – and now you have a way to make a sphere smaller than the official limits! The learning curve on Blender is hugely steep at the very beginning, and it doesn’t provide the instant feedback of in-world creation.

    Blue Mars tried the “create all content outside of the world” approach. It didn’t work so well.

    Ultimately, I think the in-world content creation was key to Second Life – in part because artists are interesting people, and people who aren’t artists want to connect to them, to see the process of creation in action, to understand some of what and how and why they’re doing – much like indie publishers are learning these days that it’s not just enough to put out links on Twitter saying “Here’s my new book!”, that you have to connect to your audience, and let them see you as a person. That’s what the early adopters of Second Life had, and the second wave got from SL – the chance to connect to the creators who were the early adopters. And eventually, some of the second wave became creators themselves.

    But with the arrival of mesh, and no way to alter more than the size and rotation of mesh in-world, we’re losing that, with content creation moving more towards “What can I sell?” rather than “Hey, isn’t this trick cool???” The programmers, instead of figuring out what they can do with LSL, spend more of their time bitching about SL not having complex data structures, #include files, and some kind of fancy IDE. Meanwhile, the regular users are amazed when someone shows them how to modify a hovertext script to show something they want it to say – and then they blink in amazement when you show them how to change the COLOR of the hovertext! I don’t want to say the professional content creators and programmers are snobs but, well… When’s the last time you showed someone how to take a cube and add hollow and a cut-path to make three walls of a room out of one prim?

  • Michaela Adams

    Linden Lab did have a monopoly for over a decade and now that monopoly is coming to an end and you can be sure Linden Lab is feeling it already. For a decade Linden Lab has been extremely rude to their customers and have abused many of the residents to do as they pleased and fill their pockets as much as possible. Many companies abuse their monopoly but the ones who do that pay the bill at a certain point. That point is now.

    This shows how desperate Linden Lab is becoming now =

    http://hire.jobvite.com/CompanyJobs/Careers.aspx?k=Job&c=qv79Vfwq&j=oqbNZfw7&s=IndeedSponsored

    In particular this line: Assist with managing Private Island cancellations / distressed estates outreach program

    For many many years Linden Lab held a knife against the throat of the estates in Second Life without ever having a concern except for the couple who received huge discounts on tier fees. There has been a lot of corruption within Linden Lab and their management of the grid. Not only with land and tier but also with creators and other parts of the market.

    There was never anything possible, Linden Lab would never put effort to provide help. It has always been pay and shut up or we take your sims offline. When contacting Linden Lab their support department with a question that did not involve a solution of just pressing a button or restarting a region anything else received a non solution.

    Even large landholders are pretty much in the same situation. To much abuse by Linden Lab went on, this caused and is causing the exodus now. You have to search for a build on the mainland these days, it is like only 15 or 20% of the land is in use. This month should be one of the top months for Second Life and it is like we are in june of 2011.

    I suspect deep simulator erosion will happen, some will go to opensim, some will go to high fidelity, some will go to facebook and other new worlds that will come. You can be sure to expect close to a dozen new virtual world platforms in the next 2 years. Next to facebook, high fidelity and Linden Lab you also have Yahoo, Sony and Samsung. Not to mention Voxelfarm which well get indie pricing soon. The new great virtual world might come suddenly out of nowhere, that is how it works with tech.

    Virtual worlds are a bit like social networks were. Before facebook you had plenty of them, country specific, niche specific, some small and some large. Then suddenly facebook came and did it right and everybody went there.

    I do think Linden Lab their days are numberbed. There has been a reversal now where the customers and the estates hold the knife against Linden their throat. The link I posted clarifies this.

    As for the growing content market in Second Life should that be the 50 L$ mesh shoes or the 280 L$ full furnished mansion? Linden Lab did manage the platform in a lousy manner for years. We can thank Rod Humble mostly for this and don’t forget current CEO Altberg.

    Don’t get me started on Altberg, if I were an investor with Linden Lab Altberg would be standing on the street with a box in his hands RIGHT NOW!

    I do agree with Tara Li and her findings.

  • Michaela Adams

    This is the job description from the link, I will post this as it might be interesting for future reference:

    Land Product Coordinator

    Product | San Francisco, Seattle, Boston, United States

    Overview

    Linden Lab is looking to add to our talented Land team. This team is responsible for partnering with our internal Support Operations, Quality Assurance, Engineering, Product and Marketing teams to drive product and feature improvements based on feedback received directly from the customer.

    Responsibilities

    Maintain Mainland and private island product operations

    Provide direct customer support for Mainland, Private Island product operations, account and Land billing issues

    Assist with monitoring and enforcement of various Land ownership programs

    Provide Mainland auction queue management assistance and support

    Develop and enhance user stories for new Land product features

    Assist with managing Private Island cancellations / distressed estates outreach program

    Channel customer concerns and product feedback to relevant departments

    Qualifications

    To perform this job successfully, an individual must be able to perform each essential duty satisfactorily. The requirements listed below are representative of the knowledge, skill, and/or ability required. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions.

    Excellent communication skills, and in particular, to be superb at social interaction whether it be inworld, chat, on the telephone, or in writing

    Able to multi-task, work under pressure and communicate with multiple individuals at once

    Demonstrated ability to think, work as part of a team, to integrate with others and to show personal initiative when called for

    A well developed sense of humor, a thick skin and a positive outlook are all good traits to have

    Flexibility to work weekends, evenings and non-traditional hours

    Education and Experience

    Prior experience with Second Life and/or technical support experience with established online MMO games or communities, is preferred

    English language fluency

    Strong written and verbal communications skills

    Analytical, creative thinking and problem-solving capabilities

    Travel Requirements

    Travel required to San Francisco office quarterly

  • Pingback: Second Life Notes | Nalates' Things & Stuff()

  • Gwyneth, as you know, I’ve been the voice of real-world integration of Virtual Worlds for almost a decade. We’ve both witnessed Linden Lab, the creators of 2nd Life completely botch their Enterprise offering, by failing to understand both the need for 1st Life connectivity (Social Media, Calendar & Office Automation Integration, Real API Stack, Support for C++/C#/VB, etc. etc. etc.)

    Phillip and his successors also failed to grasp the importance of developing a marketing, sales, development & implementation channel for their platform. Had they made this a priority, along with the aforementioned items, we would likely have seen 100X the adoption we have to date.

    Imagine: A Virtual World platform, that was integrated and bundled with every copy of Windows sold.
    Imagine: The Virtual ‘World’ on your desktop is licensed for up to 5 concurrent users and an unlimited amount of virtual space.
    Imagine: All or part of your private desktop Virtual World can be synchronized with a cloud-based Virtual Universe and by doing do, you can increase the number of virtual visitors, travel seamlessly from one Virtual World to another and use all the cool new toys (Oculus) to do so.

    If a VW provider like Microsoft were to implement this type of model and provide ubiquitous access to it across desktop, tablet and mobile platforms, it would NOT be a niche product!

    These are all ideas many of us postulated and I have advocated for almost the entire time SL has been in existence. Posters who have said LL has been too greedy and too dependent on archaic technology are right. A good example of this is LL’s failure to implement the 64-bit Havoc engine and a pure 64-bit client. But I digress…

    The bottom line is Competition is Good and it looks like we are finally going to see some real competition in the Virtual World space. I can hardly wait!

  • Zobeid Zuma

    “Imagine: A Virtual World platform, that was integrated and bundled with every copy of Windows sold.”

    I’m pretty sure only Microsoft could do that. Why would they? And what about the rest of us using Mac or Linux? Planning to throw us under the bus?

    “…and provide ubiquitous access to it across desktop, tablet and mobile platforms…”

    Tablets and “mobile platforms” don’t have anywhere near the system resources to run SL with a decent frame rate and user experience, and many of them don’t have the bandwidth either. Maybe someday… (If SL’s system requirements ever stop ballooning even faster than Moore’s Law.)