Saturday, March 15, 2014

From Thriving Anarchy to Failed Corporate State: Second Life & Linden Lab 2008-2010

In 2006 Second Life looked like it was well on its way to becoming a leading mainstream internet platform:
  • virtual real estate tycoon Anshi Chung made it to the cover of Businessweek Magazine 
  • the land market was booming with mainland parcels rising towards L$12 per square meter
  • steep user growth propelled the population past the million avatar mark in October 
By the end of 2010 the tide had turned:
  • Linden Lab laid off 30% of its staff in June 2008
  • private estates were contracting for the first time ever
  • mainland real estate lost about 80% of its value, tumbling to $L0.62 per square meter 
What went wrong?

After putting together a time line of events, my take is that Second Life’s decline was set in motion by a concerted effort by Linden Lab between 2008 and 2010 to transform Second Life from an anarchic virtual frontier settlement into a business-friendly company town. An ongoing series of policy decisions over the next two years ended up alienating their existing user base, squandering human, technical and financial resources, and failing to advance the platform into the business or mass consumer market.

My contention isn’t that any particular decision was wrong. As a matter of fact, some of them were positive and necessary. Others though, were doomed to failure. In aggregate, along with incomprehensibly poor communication with the Second Life community along the way, Linden Lab managed to throw out the virtual baby with the bathwater.

Here are some of the key elements of the story:
  • The first overt sign of a sea change was the announcement on March 2008 that Second Life cofounder Philip Rosedale would be stepping down as CEO. Curiously, this was only three months after "irreconcilable differences” with Rosedale pushed CTO Cory Ondrejka out of the company. In retrospect, Ondreika’s advocacy for open sourcing the Second Life client and server was at complete odds with the forthcoming direction of Linden Lab.
  • On March 25, Linden Lab began reclaiming their brand from the Second Life community with tight new guidelines for the use of their trademark. This angered many core users who had named blogs and businesses with protected terms such as "Second Life" and “SL," with either tacit or active encouragement by Linden Lab employees. Looking back, this was the start of a shift to an “us vs. them” dynamic between Linden Lab and the Second Life community that continues to this day.
  • A partnership between IBM and Second Life was announced at the beginning of April. This sparked the release of a Second Life Enterprise product in November and a shift in corporate focus to the Enterprise and commercial markets.
  • In April, Mark Kingdon was hired as the new Linden Lab CEO, who began leading the “Lindens” in a much more traditional corporate approach to its customers. By August the Second Life blog would be transformed from a fairly transparent vehicle for communication with users to a more traditional platform for corporate communication. 
  • In October, a significant increase in pricing on “void” simulators was the first in a series of policy shifts on pricing that negatively impacted significant user groups, including an end to education and non-profit discounts in 2010 that would double the cost of Second Life for school and charity groups. 
  • In January 2009, Linden Lab took control of web-based storefront commerce through the acquisition and merger of OnRez and XStreet SL. Ten months later, after establishing what amounted to a monopoly, vendor fees and minimum commissions were raised. January also marked the peak of the Private Region growth curve, growing ever-more slowly until June 2010 when it began a continuing decline that has still not been abated. 
  • In June 2009, adult content was banned from all areas of the mainland, exempt for Zindra, a newly established continent. This created a significant burden for customers with established adult mainland businesses.
  • In November, the Second Life Mentor Group, a bastion of community-led support for new Second Life users was disbanded.
  • In December, Linden Homes were introduced as a new incentive for premium account members. This was a curious initiative that created themed suburbs of tract homes, flying in the face of a culture of individuality that had been a hallmark of Second Life culture. This move was a clear indication that Linden Lab decision makers no longer had any sense for their customers. 
  • Linden Lab must have had some sense of their growing disconnection from the Second Life community because a new Conversation Manager position was introduced in January 2010. Unfortunately, he ended up creating more problems than he solved. 
  • In February 2010, Linden Lab begin asserting tighter control over third party client access to Second Life with a restrictive new policy.  
  • Second Life Viewer 2.0 was released in March. The viewer was almost universally panned, ironically pushing even more users to third-party clients. 
  • Linden Lab laid off 30% of its workforce on June 9. CEO Kindgon’s spin was amazing, saying, "Today's announcement about our reorganization will help us make Second Life even simpler, more enjoyable, relevant and engaging for consumers starting with their first experience. It will also enable us to invest in bringing 3D to the web and will strengthen our profitability." Unfortunately, he was not destined to be a part of this bright new future because he resigned a few weeks later, with Philip Rosedale taking over as interim CEO. 
  • Second Life Enterprise was canceled in July 2010.
  • Rosedale stepped down as interim CEO in October before a permanent replacement was recruited. Bob Konin, COO, served as the new interim CEO until Rod Humble was hired in January. 
That's my tale of the ghost of Second Life past. Next time, I'll weigh in on the ghost of Second Life future.

15 comments:

modemworld said...

"Linden Lab laid off 30% of its workforce on June 9"

This is often pointed to bereft of the fact that under Mark Kingdon's tenure, some 125 new staff were hired by the Lab in a period of some 14 months.

This represented a stunning 50% growth in staffing numbers at a time when the SL platform itself wasn't showing signs of eqivialent exponential growth (other than in the misleading and meaningless statistic of land mass).

Most of the positions created appear to have been aimed towards admin, sales & marketing, and also appear to have formed the core of those subsequently laid-off.

Rhianon Jameson said...

Interesting piece, and I'm looking forward to the next installment.

How much of those events were driven by a feeling that, yes, things were going well in 2008, but that Second Life was viewed as a niche product that wouldn't really take off and make serious money without more mainstream acceptance? That would mean (a) business adoption, necessitating (b) a tighter control of the more tawdry elements (hence Zindra).

Even at the time, users pointed out the problems with this strategy, and in hindsight it was even more of a losing strategy, but it explains some of the decisions in that period (though God knows not all of them).

Botgirl Questi said...

Thanks for the added detail! It actually adds support to my thesis, since the layoffs were focused on staffing that was related to the Enterprise outreach. (I'd actually met a few of the salespeople in the course of vetting the platform for our company.)

I wasn't arguing that the layoffs were the result of the greed of a company deciding to squeeze more profit while abandoning development efforts; I saw it as a tangible sign that they'd given up on the Enterprise initiative and the related overhead.

Botgirl Questi said...

Rhianon: Based on conversations I had at the time with Linden salespeople at a couple of trade shows and in phone conversations, they were very bullish on the Enterprise. The vision was a future when employees at companies like IBM and HP would routinely use Second Life for collaboration, business and technical modeling simulation, and marketing to consumers.

We actually used Second Life to model Systems Oriented Architecture in a 2010 trade show video: https://vimeo.com/5771820

modemworld said...

Re: layoffs - yes, I agree, and thought that was your aim.

It's just that the flip side of that coin is so often missed when people point to the layoffs.

And sadly, others do try to make a case of it either being corporate greed or "proof" the company was in dire financial straits - including one who persisted in trying to link it to nefarious tax-dodging schemes on the part of LL ...

Oh well, what would the world be without the conspiracy theorists :).

Looking forward to your stirring of the tea leaves as you look to the future!

Botgirl Questi said...

Inara: Thanks. Another factor your initial comment brought to mind was the actual cost of the initiative, as well as the opportunity cost. Assuming a conservative $80,000 per year fully loaded cost per person, that's $16 million in two years. Although I'm sure some of that expense was used to improve their base platform forward, the majority was probably wasted. What opportunity was missed by failing to take a different approach? We'll never know, but it's interesting to consider.

Josef Balbozar said...

Real Money ?

Botgirl Questi said...

Josef: Yes. US Dollar. That was actually a very low estimate. Check out the salaries visible on Glassdoor.

Ron T Blechner said...

No mention of the vapid, escapist marketing campaigns despite developers trying to pull in corporate and educational clients and make virtual worlds more relevant to real things?

Botgirl Questi said...

Ron: Yeah. In retrospect, maybe they should have named it something like "The Linden Lab 3D Enterprise Platform." The Second Life brand had a lot of baggage.

rodgerschmutz said...

They laid off half of the Community Team, don't forget that. To be honest, some of the sales side stayed, so I'm not sure the layoffs had anything to do with a pull away from Enterprise. ALL Managers with the Education/Nonprofit focus were laid off. Let me clarify also: no, these folks were NOT paid $80,000 a year, as far as I know. MOST of the Lindens I knew who lost their job were part of the legacy group of <100 employees who had been around for YEARS... it was the rare exception or new hires that got by. Kingdon hired big so he could scrap the rest of us and create a new corporate culture. Did he? I don't know, didn't stick around. In retrospect the writing was always on the wall. We were just too far into the koolaid to realize before it was too late. Years without even so much as a cost of living wage increase. One of the VPs didn't know they were laid off until they attended a meeting and saw their name was no longer on the business plan presentation. We were offered severances based on how high up we were in the rankings and told we would only receive it if we agreed to sign an NDA that lasted one year. Basically, don't talk smack about LL and you will have a few extra weeks of pay in a rough economy. If you ask me, they let go of a lot of people who were driving community interests. I learned a lot about cult style corporate bullshit at this job. And because I'm the type to boycott EA over their crap decisions, I also uninstalled SL and never looked back. And yes, I was one of the few Lindens who were always in world, during my work hours and afterward. I was a champion of community interests, or I like to think I was. I know this anonymous post may not be received well, and it has been so long since it's all happened, and I am doing well for myself now; but from what I remember this is how it was and I wanted to share since I never have before.

Botgirl Questi said...

Roger: Thanks for sharing your story here and the additional insight. If I understand you correctly, you saw the layoffs as another part of the move to transform Second Life's original employee and its legacy culture to the new vision?

A few people on Facebook and Twitter mentioned that the turn in the physical world economy also had a big impact on the failure of the Enterprise product and the need for layoffs. That's hard to argue with and was a certainly contributing factor. That said, in the years since, the decline of private estates and flat active user growth points to a much deeper problem. Also, there is virtually no Enterprise use of virtual worlds today, while the rise of 2D solutions such as GoToMeeting are thriving.

Anyway, thanks again. I'd love to hear from other people where were employees at that time.

Burhop said...

Putting aside some of the hardships, pains, and anger some people faced with all this, I found the whole thing hugely educational.

There are lessons on running a company, building communities, virtual currencies, working with customers, managing growth and expectations, letting hype get away from you, and so many more things I can't list.

Botgirl, I can't wait until you write a book on it. That one book on IMVU sure did well ;-)

Botgirl Questi said...

Mark: I wish I had the time and attention span to write a book. Over the years, a lot of Linden Lab decisions seemed incomprehensible, so I'd love to hear more from people who worked at Linden Lab during that time.

Gwen said...

Botgirl,

I saw things from a slightly different angle. When I first joined SL, it was just as you say, an "anarchic" sort of frontier. This was made clear when, while still basically a noob, I got griefed by someone. I did what was in The Docs, and filed an AR. Of course, nothing happened, since LL wasn't paying attention to abuse reports at that time. It was that lawless time, when the answer to griefers was to orbit them to -5billion meters and crash them. Maybe they'd lose interest in the time it took for them to relog.

The first sign that all was changing was when the Havok system came online, and all the weapons broke. You couldn't orbit anyone anymore, you could only relatively slowly shove them up to 4096 meters, where the orbit prim would derez, and they'd come back down and fill your sim with self-replicating cubes in anger. (I found out later that even though they BLAMED Havok for this, it wasn't the cause -- a couple of Lindens who didn't like weapons nerfed the system deliberately. Well, it IS based in California, that's telling, but it certainly destroyed my inworld job, reviewing weapons for a magazine.)

They DID institute first the Governance Team, later the RESI team, which actually looked at and usually answered abuse reports. But then they changed the rules, which said at first "get a lot of people to AR each infraction separately", and replaced it with "each person can only write ONE AR per incident per sim, or it's abusing the system". Someone I knew who used the old rules and filed two ARS for two separate offenses -- what they had ASKED people to do -- got her suspended for a week.

Slowly, over time, they made worse and worse decisions that showed they weren't interested in a) their existing users, and b) having ANYONE in-house eat their own dogfood anymore. Office Hours went away. Then once again, there was no response if you filed an AR -- but this time, there was nothing you could do but retreat to your own land, where you could at least use land tools to evict a griefer. Usually. When they weren't broken.

Even in this day and age, when a machine is cheaper, especially disk storage, they haven't reduced the price of a sim significantly, though they DID drop the "set up cost" for a full sim by a significant chunk. However, they DID raise the monthly maintenance fee for it, so you ended up paying more in the long run.

I used SL for my webcomic for years, because it was the best graphics around. That's not true anymore, but they've never worked to improve it to keep up with other game engines. SL avatars used to look the best. Now they look almost primitive. Combine that with the steep learning curve, no real help except for a wiki (usually outdated), and the fact that gamers look at SL as if it was brain dead, and it's no wonder it is declining steadily.

Most gamers I talk to that use other MMOs are confused by the fact that SL isn't a GAME, but a PLACE. They want quests. They want to be taught what to do and have an actual goal to achieve. They want bosses to beat. Telling them "build a house, make something to sell," makes them look at you like you've grown a second, evil head.