SecondLife - How To Make Money In Second Life

M Linden here. Many thanks to everyone who responded constructively with their concerns and suggestions about our Openspaces announcement. We’ve listened carefully and your feedback has led to some amendments to our original plan.

Before I jump to the policy amendments, I’d like to provide some insight into our decision and then recap what we’ve heard from you. When the Openspaces product was originally launched, Linden Lab offered Island owners the opportunity to add Openspaces to their land for light use only –- such as ocean or park land. But we didn’t build in and enforce specific, quantifiable performance limits on the Openspaces. Why? For two simple reasons:

1. As you know all too well, many things affect performance of a Sim in complex inter-related ways (i.e., scripts, prims, avatars, media). We were reluctant to limit the overall experience and your creativity by posing specific limits on all these variables – partly because Linden Lab has always been pretty free-form and believes in the innate goodness of Second Life Residents and partly because imposing limits require that we hire staff to enforce them.

2. We wanted to get this product to market quickly. Openspaces was wildly popular. Some Island owners added ocean and park land, as intended but many built empires – glorious builds, beautiful rental properties and other great things. Since land-owners co-habitate on CPUs, if one owner adds an ocean and one builds a carnival, the shared CPU gets overloaded. The ocean-loving Resident who followed the original intent suffers and we are called in to resolve the conflict. Second Life is much too large to do that.

When we sorted through the good and bad in the many conversations, comment cards, emails, and calls, you shared many things but there were three consistent themes we can work with:

1. Those of you who used the Openspaces as originally intended — for ocean or park land — want that product at the original price point and are willing to accept clear restrictions on usage.

2. Some of you have built businesses on the Openspaces product, set your rental rates or built your groups and although you acknowledge you built more than was intended for Openspaces, a large and rapid price change is too much for you to absorb.

3. Some of you created builds that were between an ocean and a carnival and want some kind of “normal region lite” product – a lower price point than a normal region but with the ability to build a certain amount of content.

We’ve launched three land products in the company’s history: Mainland, Islands and now Openspaces. Because we have complexity everywhere else, we’re loath to add a highly complex pricing structure. Nevertheless, it’s clear we have to build a product mix and pricing structure that offers more flexibility.

Here is how we are amending the price change:

1. We are going to retain the Openspaces product at its original price point and its original intended use (forest, water, etc.). We will have technical limitations to help regulate their use, initially avatar and prim limit restrictions, eventually event, classified and script limits. Those of you who chose to use the Openspaces as intended may stay at the US$75 rate, but will need to contact the concierge team to do so.

2. If you want more than an Openspace, we will offer you the choice of moving to a new product called Homesteads that is intended for light use such as low density rentals. For existing Openspace owners we will phase in the price increase for this new product over the next 6 months. Homesteads will also have technical limits for avatars and prims, and eventually script limits as well.

* January 5, 2009 – non-compliant Openspaces will transition to Homesteads and the maintenance fees will go from $75 to $95 per month.  We will offer an educational discount to qualified educators on the new Homestead product. The discount amount will be the same as Private Regions, roughly 30%.

* July 2009 — the maintenance fees for Homesteads will go from $95 to $125 per month

For detailed information on these changes, please go to the Knowledge Base.

We believe this is fair. Jack and I will join you in the forums throughout the day today to discuss this. Comments are closed on the blog, not because we want to limit dialog or free expression but because this is a conversation with Residents and the forums require log-in. This is a policy we are going to follow moving forward with all major announcements. Blog the announcement, express and discuss in the Forums.

One thing I learned and others were reminded about in this process is that we have a very connected, passionate Resident base and we need to bring you into the dialog earlier, before putting forward these decisions. The input we received after Jack’s announcement was prolific and by-and-large very, very constructive. Second Life is at a size where 1:1 conversations are difficult and the forums are inadequate for full dialog. Office hours come up short, too. We have some thoughts on how to bring Residents into the dialog earlier which we will cover in a future blog post and Forum discussion.

I’d like to close on this thought: An area of concern for Residents over the past year has been platform stability. Through the hard work of many, many people, including Residents, we have made great strides that are very well documented. Crash rates are down. Substantially. Period. And until this price change, we were riding high in user satisfaction so we know you have recognized and appreciated the improvements we’ve been making. Our breakthroughs in stability improvement are particularly noteworthy because our land mass increased enormously this year. And, a good part of that increase was from Openspaces. However, the original plan was to expand land mass but expand load at a much lower rate. But, Openspaces — in many cases — have been overloaded with content, scripts and avatars so our very substantial stability gains have come even with the unplanned load increase. We are deeply committed to making this the best virtual world platform in the world and we are making great strides. We’ve also demonstrated we can deliver on our promise of continual stability improvements – even in the face of unanticipated growth.

I look forward to hearing from you in the Forum. Thank you for your candor, patience, restraint and willingness to work with Linden Lab and the Second Life community at large. Second Life is the wonder that it is because Linden Lab has always worked together – albeit sometimes imperfectly – with Residents to build this magnificent, bigger than life world we all love so much.
Thank you.

I’ve been with Linden Lab for two months and each day has surfaced something interesting — and often quite unexpected. So, what have I seen? Read on.

Second Life has evolved dramatically but perception has not kept up with reality in five important ways:

1. Second Life users are more mainstream than many assume. It’s not just tech-savvy early adopters or gamers. It’s a much broader cross-section of society with a median age in the early 30’s and nearly half the time spent in world is by women.

2. The diversity of use cases in Second Life is mind-boggling. If you were able to read every story around the world about Second Life, you’d see a tremendous variety of use cases presented – e.g., medical research and treatment, education, marketing, customer support…and the list goes on.

3. Second Life has an enviable business model. While some may have written off Second Life during our post-hype phase, Second Life has a business model most media, metaverse and social networking companies would kill for. We monetize unique users at many multiples of advertising based models. Plus, with a healthy and growing inworld economy of more than $330 million annually, our users are able to make real money and pay more than half of our fees with credits from selling Linden dollars that they earned inworld — by creating valuable content and providing valuable services.

4. Second Life’s killer apps are just beginning to evolve. I’ve come to see a couple of use cases as future killer apps – namely virtual meetings and education. And, one simple feature – inworld voice – could be a significant product in its own right. Since launching the 3D spatial voice inworld, our users have logged more than 7.2 billion voice minutes making us one of the larger providers of VOIP services.

5. Second Life is leading the industry toward interoperability. Finally, some have said Second Life is a walled garden that will go the way of AOL. Second Life is opening up, so the risk of that happening goes down every day. It dropped pretty substantially recently with the big news on interoperability from the IBM/Linden Lab partnership.

…Please read on as I expand on some of these points after the jump…

The diversity of use cases in Second Life is mind-boggling. The “hype cycle” drives Silicon Valley and Madison Avenue to identify trends, amplify them and then abandon them relatively quickly. Virtual worlds, and Second Life specifically, benefitted and suffered from this highly amplified trend cycle. First came the hype, then the inevitable anti-hype. Now the conversation is more about the far-ranging and widespread set of activities that are happening in Second Life.

Every business day, I get a summary of the mentions “Second Life” and “virtual worlds” received in the web and print press around the world during the last 24 hours. On a light coverage day “Second Life” might gets a couple of hundred mentions. These figures understate press coverage because they do not include television or radio. Television has a big impact. A single news story in Poland featuring Second Life recently generated the highest registration levels we’ve had in a single day this year.

If you were able to read every recent article about Second Life, you’d see tremendous diversity in the use cases presented. Here are some “must-read” articles that show the incredible diversity of Second Life:

• Massively Paralyzed Man Walks for the First Time in Second Life
• Alcoholics Treated and Cured in Second Life
• IBM and Linden Lab Announce Successful Teleport between virtual worlds
• “Ignore Second Life at Your Own Peril” – Times Online
• MTV’s True Life features Second Life musician Keiko
• Enterprising Musicians Seek Fame in Second Life
• American Cancer Society’s Virtual Relay for Life raises $200K in Second Life

Second Life has an enviable business model. Most social media/social computing properties are struggling to build a business model (usually advertising driven) that can support their voracious appetite for hardware and bandwidth. Second Life is very different. Second Life is the only social media/social computing property where, at its core, user-generated content and the economy is the experience. As a result, our estimates place our monetization levels at 3-30x that of major media and social computing properties.

With a healthy and growing inworld economy of more than $330 million annually, our users are able to make real money and pay more than half of our fees with credits from selling Linden dollars that they earned by creating valuable content.

How so? All the content in Second Life (some 2.2 billion items, or 250 terabytes worth of data) is user-generated. Users buy and sell the digital goods they make using our virtual currency — Linden Dollar. We generate revenue by selling land (where merchants build stores, land owners rent houses, educators teach and companies meet) and collecting monthly maintenance fees (somewhat analogous to hosting services), charging for currency exchange services (Linden Dollars to US Dollars and vice-versa) and for search and classified ad placement. We also make money as the economy expands and we issue Linden dollars to stabilize the exchange rate.

Another important comparison is with TenCent (QQ) – a Chinese internet company I have admired for quite sometime. Though our user base is much smaller, our virtual economy is of a similar size to TenCent. A recent Wall St. Journal article reported that TenCent’s virtual currency (used by many of its 233 million regular registered users) garners about 45% of China’s $900M virtual goods industry or $380M last year. This figure is very close to the value of virtual currency transactions within Second Life. Based on our Q2 results (see earlier blog entry) Linden Dollar transactions in Second Life are just over $336M on an annualized basis. Because the economy is intrinsic to the user experience, our much smaller user base generate nearly as much economic activity in absolute terms as TenCent.

Plus user-to-user transactions in Second Life grew 12% in Q2 and user hours grew by 6% (for definitions see earlier blog post). Land ownership is a critical component of the Second Life economy and the news is very good on this front. Second Life’s virtual world expanded by 45% in Q2. Resident-owned land now accounts for over 1.5 billion square meters of space in Second Life. Our growth in Q2 was due to a change in our land product and pricing strategy to make the purchase of land more accessible to first time buyers. The strategy worked.

Finally, and this is the most interesting part of our model, the number of “profitable” inworld businesses continue to grow. By “profitable”, I mean that they had positive monthly Linden dollar flow primarily from their content creation activities in Second Life. What our residents build in Second Life demonstrates amazing imagination and creativity. Second Life is user generated content and collaboration on a scale that is unimaginable on the 2D internet. You can build a room, a house, a conference facility, an office park, a nightclub, a stadium, a game, a consulate, a hospital – and the list goes on. There are public lands for all to enjoy and private meeting spaces limited only to members of your group or company. All this creativity, combined with Second Life’s vibrant economy enables tens of thousands of our residents are able to make real money plus pay more than half of our fees with credits from selling Linden dollars that they earned by creating valuable content. Because of our unique business model, Linden Lab is profitable.

We are taking a big slice of this good fortune and investing it in a substantially improved experience for users – better registration and orientation processes for new users, an easy-to-use interface on our downloadable client, better tools for specific user groups, much better platform stability (more on this in a separate blog post) and improved outreach and customer support. Our users have been vocal about their needs and we are working hard to meet them

Second Life’s killer apps are just beginning to evolve. Even though the initial novelty has worn off for me, I am blown away by how effective Second Life is for meetings. I am fully convinced this will be a killer app. There is a lot of research on how communicating through an avatar enhances self-perception and risk taking. Many people who haven’t experienced a Second Life meeting will say, “There is no substitute for meeting in person.” Try Second Life for a meeting.

For years, I have been advocating and using videoconferences to connect with customers and employees. They cut down on travel costs, reduce a company’s carbon footprint and eliminate time wasted in airports. Unfortunately videoconferences can be deadly boring. A Second Life meeting is the antidote to the tiresome videoconference. You have all of the tools you’d use in a real world meeting – plus you can use your computer to review data, do quick reference searches, look at spreadsheets, etc. and you have the ability to add text questions, responses, opinions and subtle interjections. In fact, just last week we learned about a new resident created collaborative browser for use inworld.

Using the virtual meeting environment for education is an even more exciting killer app. Dozens of universities are buying land from us or working with other inworld providers every week and the pace is accelerating. Seventeen of the top twenty universities in the US have land in Second Life.

To keep track with what’s happening in education in Second Life, check out the SLED Blog. A list of recent news stories are below

• The Christian Science Monitor discusses how students from all over the world are able to study abroad through Second Life.
• Government Executive.com writes how government agencies like the center for Disease Control and Prevention are increasing their presence in Second Life to increase public awareness.
• CNET reports that the San Francisco Exploratorium will be streaming live footage of a Solar Eclipse in Second Life expected on August 1st.
• The Industry Standard reports that Cigna will try to make health education more accessible by creating its own island in Second Life.
• ComputerWeekly.com discusses how the British Computer Society has launched an e-learning specialist group in Second Life.
• The Dallas Morning News presents an article on using Second Life for higher education.

What makes Second Life so amazing for these things is the interaction between students and between universities. Voice is the key enabler. With a headset, residents can talk with other residents just as they would in the real world. With the 3D spatial voice in Second Life, residents can walk from one conversation to another as if they were actually hanging out before or after class. Serendipitous conversations just aren’t possible with other forms of online learning, teleconferences or videoconferences.

Second Life is leading the industry toward interoperability. Over $345 million invested in virtual worlds in this year alone, the lack of interoperability is going to quickly become a nightmare for users. We’re using our leadership position in the industry to drive the architectural standards that we think will enable the metaverse to avoid the fragmentation that leads to slow adoption. Our announcement with IBM demonstrated interoperability between land hosted by IBM and Second Life. Other virtual worlds talk about being open – we are aggressively pursuing open standards and demonstrating results.

{CONCLUSION}

As you can tell, I am very excited about Second Life and the profound impact that virtual worlds will have on our lives. Like many of us at Linden Lab, I believe in a future where interacting in a virtual world is as picking up the phone. As the leader in virtual worlds — in terms of numbers of users, user hours and the size of our virtual economy, revenue, profitability and brand awareness — we take our responsibility seriously. We will continue to invest in innovations that benefit our current and future residents as well as the entire industry. Two months in and more excited than ever! Thanks for your interest.