Tin Foil Hat Theory – A ReBlog Sort Of

November 27, 2010 by
Filed under: Linden Lab and Second Life 

We all know what a Retweet is, well this is sort of a Reblog. Thanks to a fellow contributor at the Second Life Commerce Forum, I found a series of six blog articles by a very astute writer and SL Resident named Avril Korman. After reading all six parts, I’ve come to the conclusion that she’s pretty much got the gist of what Linden Lab might be planning … but as usual I have some things to add and opinions on their “Target”.

First off, here are the six parts:

  1. Losing the Plot In Second Life? Introducing A Tinfoil Hat Theory About Linden Lab
  2. View This: The Second Life Tinfoil Hat Theory, Part 2
  3. Second Life Tinfoil Hat Theory Part 3: The Rise of the Vampire Bunnies
  4. Second Life Tinfoil Hat Theory, Part 4: Who Do You Want to be Today?
  5. The Second Life Tinfoil Hat Theory Part 5: A Skylight Suddenly Appears (But Search is Still Broken.)
  6. Second Life Tinfoil Hat Theory, Part 6: The Search For A Better Search Engine

What follows is my analysis of Avril’s conclusion, so a Spoiler Warning is warranted here. Go read her stuff first, then come back and read my summation. (She writes well, so just do it. You’ll like it.)

Linden Lab’s Goals

Central to Avril’s theory about Linden Lab and Second Life is the concept that they are trying to become the Virtual Goods Marketplace for the Internet. By lowering the technological barrier (with a browser-based interface), creating a real-name friendly service (with Display Names), offering activities and products that are Micro-Payment based (Ozimals, Vampires, etc.) and providing a state-of-the-art Virtual Goods shopping destination (with The Marketplace), she posits that Linden Lab is hoping to cash in on the massive user base now living on Facebook and drowning in money they need or want to spend. To put it even simpler, Linden Lab wants new users and they’re on a high speed downhill run to get them … no matter what.

Basically, I think she’s nailed it dead on. I pretty much aimed in the same direction way back in one of my first blogs called The Facebooking of Second Life (June 20, 2010). What I didn’t have back then were some of the recent changes that have become more visible or that have sprung into existence since then.

The Changes Must Occur … NOW!

In order for Second Life to become a viable destination (or even scenic overlook) for the Facebook crowd there are a lot of changes that must be made in the platform and in the experience itself. If you’ve been paying attention to Linden Lab, you’ll have detected a near panic mania to complete some of the changes as quickly as possible. It’s as if they are working under a “Do or Die” deadline. I’ve often wondered what could be the reason for such haste, and perhaps it has less to do with the calendar and more to do with the checkbook. We all know that Linden Lab has been operating on the good graces of a group of Venture Capitalist Investors. But even Fat Cats have a limit to how much they will invest before they want to be repaid.

I’m of the opinion that the VC’s are dictating (either explicitly or implicitly) a very hard deadline that Linden Lab must meet. Something along the lines of “the money tap goes off on ______” (fill in your favorite date). Several folks seem to like the end of 2010, and with that just around the corner, it would certainly explain the pure mania evident in the Lab’s headlong rush. However, whatever that date is, I think it’s at the root of their current velocity. Except … when massive changes are made at this pace, mistakes are bound to happen.

Haste Makes Waste … Lands

Second Life is a Virtual World. That means that one of the primary products it provides is Land. Land, even Virtual Land, is a long-term proposition. People don’t just fly in and right away grab up a piece of land. In fact, a lot of people “live” in Second Life without owning or renting any land. However most of them wind up partnered or at least good friends with someone that does own or rent some land. For most people, Second Life is an Internet Existence that demands a sense of permanence, and that illusion just isn’t complete until you have a place to call “Home”.

However Linden Lab is effecting primal changes in the Second Life experience that will cater more to temporary Players. In fact, I believe a mainstay of their plans is their intention to do away with the need to actually reside in Second Life. They just seem to want to capture the new user that will get involved in the commerce of the platform, dip their wallet through the magic waters of Second Life, and then fly on happy and a little bit lighter in the bank account. However as the primary user of Second Life changes from Resident to Transient, the need or desire for Virtual Land will fall off precipitously. The change will in essence kill off the one source of dependable repeat income that Linden Lab has now, Land Tiers.

The Allure of Micro-Payments

Micro-Payments are like house dust. Each one by itself is barely noticeable, but when you pile a whole bunch of them up, pretty soon it starts adding up to some appreciable money. Retail stores know this concept well. They call them “Impulse Buys” and they’re generally the candy, gum, magazines and other low-cost items that fence in the cash registers. The theory is that since the amount is so low, people will just pop for one or two without really thinking it over. Turns out, the theory is a good one as a lot of income for any retail establishment comes from those tiny item sales. When you add in the fact that people rarely (if ever) bring back a pack of gum to complain, the money earned is almost cost free. If the customer isn’t happy with what they bought, they tend to just write it off and forget about it rather than raise a customer service issue or cause a fuss.

In the case of Second Life there have arisen a few well-known activities that make their daily bread from a system of micro-payments. Two of the most popular are the Ozimals Bunnies and Vampires (Bloodlines and The Hunger as well as others). There are also a couple others that are heading in that direction. They may yet break into the mainstream or they might not. However it’s important to remember that even though they have a fairly deep penetration into the Second Life user base, they are a micro-percentage of the overall commerce that takes place daily. They also tend to be “One Hit Wonders” meaning they cannot be replicated and rolled out to competitors or related endeavors. They have their day in the sun but then pass along into the history books and leave the owners gasping for air and the next big idea. (The Vampire Clans may be a slightly different story though as the concept of pretending to be a Vampire seems to have some legs. However the individuals that make serious money from the enterprise come and go pretty rapidly.)

The Downside to A Micro-Payments Customer Base

There are three rather obvious downsides to basing your economy on micro-payments. The first is that you need a very broad variety of products and creators to make it worth your while. Less than a handful won’t provide any form of stable income worth mentioning. If you don’t maintain a continual supply of new micro-products, you will quickly run out of interesting micro-items to sell to your micro-customers.

The second is that the customer base tends to be very temporary. Customers that get into the actual business of micro-payments tend to burnout very rapidly. The only players that wind up with any real appreciable share of the pie are those atop the food chain. When you have a customer base that is already transient in nature (because they came into your Virtual World through a simplified non-immersive gateway) they have even less incentive to stick around once they’ve licked off the candy coating.

The final chink in the armor of micro-products is the cost of obtaining new customers. Since we already know that customers will be around for a very short period of time, it becomes a daily monkey on the platform’s back to attract new customers. Right now Linden Lab does almost no “outside advertising”. By that I mean ads and press that reaches beyond the realm of those already living in Second Life. In fact, they barely do any effective advertising to those already here. In order for them to hook customers living on other platforms (such as Facebook) they will need to undertake an advertising campaign that not only teaches those people what Second Life is all about, but also interests them enough to step outside their comfortable surroundings. That’s a very tall order, and as of yet, Linden Lab has shown no expertise nor interest in trying to educate the Outsiders.

Shooting The Horse You Rode In On

Second Life has grown into a vast and diverse community of inventors, content creators and crazies. The magic that makes Second Life so successful is the sheer depth of those living here. It takes someone committed to the place to spend time thinking of things to make, conjuring up new ideas and products, and generally taking the long-term “let’s have fun” perspective. A population of transients will be pure consumption and very little production. Some folks take the stance that this is exactly what Linden Lab wants, to become the sole source of stuff. While it would seem to increase their “slice of the pie”, I still maintain they do not have the creative resources or overall imagination to keep a giant community well fed and happy.

As they continue on their headlong dash to win the customers they do not yet have, they are daily alienating the population that brought them the few successful micro-payment businesses that exist now. The more they shed their past and aim for the future, they are pulling further and further away from the elements that made them successful.

They may yet succeed in twisting the Second Life platform and experience around to spark a glimmer of interest from the fickle and temporary Facebook crowd, but I maintain that in so doing they will succeed in putting the killing shot into the horse that won the first race for them. Unfortunately it won’t be the first nor the last time a company has traded its success for a chance at the golden ring only to find out they neither want nor can reach it after all.

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2 Comments on Tin Foil Hat Theory – A ReBlog Sort Of

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  1. Tinsel Silvera on Sat, 27th Nov 2010 6:31 PM
  2. I have been following Avril’s posts for sometime now. Whether they are “dead on” or not remains to be seen. They are, however, one of the more common sense theories I have read.

    It is obvious that Linden Lab is evolving and changing Second Life. Are they vying for the transients at the expense of the Residents? I do not think so. I think they are trying for both – albeit sometimes poorly balancing the efforts. And perhaps that is where most of the problems lay – the inability to find the proper balance in serving their current and desired customer base.

    I cannot imagine Linden Lab wishing to eliminate their tier income considering most reliable reports indicate it is generating some 60mm+ a year. That is hardly something someone would willingly let go.

    Tyche’s weekly reports show that the ownership of private sims have held fairly consistent for some time now. Granted they are not growing – but then they are not shrinking either. Basically for every sim that is closed another one is opened. Considering what Linden Lab makes off of each new sim up front, that is yet more income in the coffers. The problem will be when people stop buying sims. And so far that is not happening.

    For as much as Linden Lab and Second Life are changing, so are the people who inhabit it. I think the bottom line is that Linden Lab is trying to ensure that Second Life stays relevant in an ever changing virtual/social market. The success of this is being determined as we speak.