Second Life Tries For A Second ActSecond Life Tries For A Second Act

I first joined Second Life in January 2007, near the peak of the hype cycle. Second Life was supposedly the next technology megatrend. It would transform the face of the Internet and make present-day technology obsolete.

Then the hype cycle burst. Second Life didn't change the Internet much. Journalists quit the service en masse to follow the next big trend.

But I didn't leave Second Life. I stuck around. I cut back my professional involvement to an article or blog every few months. But I still spend a few hours a week in Second Life, just playing and keeping in touch with friends.

And Second Life stuck around too. It's profitable, and it's hanging on to a core of dedicated users. The internal economy of Second Life users exchanging virtual goods and services is growing. And, perhaps most important of all, the unquantifiable creative soup of Second Life continues at a rolling boil, with new businesses and activities and art popping up every day.

Linden Lab, the company that created and operates Second Life, is growing up. Founder Philip Rosedale stepped aside as CEO, while hanging on as chairman. Linden Lab replaced Rosedale with Mark Kingdon, an Internet marketing veteran.

Where Rosedale often speaks of Second Life in mystical terms, Kingdon has a Wharton MBA and a solid, practical business background. Organic, the Internet marketing company where he was previously CEO, was failing when he came on board; he turned it around. And he also has 12 years' experience with PricewaterhouseCoopers, where he was most recently a senior partner.

Kingdon must grapple with a number of problems: Making Second Life simple enough for most Internet users to get into it, improving stability of the very buggy service, streamlining the user interface, and dealing with a corporate culture that's often more interested in mystical vision than the hard job of running a business.

Perfect On Paper

On paper, Kingdon has the perfect resume for incoming Linden Lab CEO, as I wrote in April: "The Organic experience presumably makes him comfortable working with idiosyncratic, creative people. On the other hand, the experience at button-down PWC will hopefully help empower him to inject some starch and discipline into Linden Lab."

After starting at Linden Lab in May, Kingdon was mostly quiet his first few months, but he recently surfaced for an interview to talk about the company's future business, technology direction and the health of its economy and community.

Kingdon said the company's main focus is to improve uptime, stability, and retention of people who log in to the service and try it out -- converting newbies into active users. "Our fundamental focus right now is in simplifying the experience, and making it very welcome for new users to support our growth," Kingdon said. "That's the guiding principle for all our strategic initiatives."

Going forward, Linden Lab plans to align itself to serve three target markets: Consumers, which is the market the service is best known for today; the enterprise, and education, Kingdon said. Within each market, Linden Lab will identify sub-markets, which Kingdon called "use cases," and focus individual business units on how the company can best serve those use cases. For example, one of the top use cases in the consumer market will be live music, and a top use case in the enterprise will be virtual learning.

The company will develop tools to help each of those use cases make better use of the platform. The company is just now launching an assessment of those markets, to determine their needs and how best to allocate internal resources and Linden Lab to meet those needs.

I found Kingdon's statements about target markets encouraging. Rosedale is prone to messianic statements about brining the whole world into Second Life. Kingdon's comments seemed much more focused and practical. "Philip has got that thousand-yard-stare visionary thing going on," said Wagner James Au, who writes about Second Life on his blog New World Notes and covers gaming for the blog GigaOm.

Still Too Unfocused?

A Second Life business owner who goes by the name "ArminasX Saiman" in SL said he's optimistic about the future of Second Life under Kingdon. "As a growing company, Linden Lab needs a visionary type like Philip, but when a company gets to be a certain size, you need someone more focused on the organization and making it reliable. And Philip is still hanging around the background to provide the vision," said Saiman, who declined to provide his real name. Saiman sells "particle effects" -- Second Life special effects involving smoke, steam, fog, and bubbles -- and works by day as a high-level IT manager for a multinational corporation.

But analyst Christian Renaud was skeptical, noting that those three target markets are quite broad and don't focus the company much -- consumer, education, and the enterprise cover most of the computing market.

"They need to have resources and create programs and target those markets," said Renaud, who heads the Technology Intelligence Group, a new company that advises enterprises on emerging technology. "Unless that really equates to driving resource allocations, it doesn't mean a lot."

In particular, Linden Lab needs to start paying more attention to its big customers. Prior to founding TIG this year, Renaud headed up Cisco Systems' Second Life effort. They have six islands and 1,000 employees in Second Life. But despite the size of the investment, Renaud said he found it difficult to get support from Linden Lab or find someone to talk to. Second Life has other shortcomings as a business platform, which will hinder its adoption in the enterprise market, Renaud notes. It doesn't support authentication, so you can't be sure that a person in Second Life is who he claims to be. It doesn't support encryption, so you can't ensure your communications are confidential. Real-world businesses can still use Second Life for brand-building and virtual meetings, but businesses could be doing a lot more in Second Life if they had the proper tools. Once Second Life clears the security and other technology hurdles, the service could be extremely useful for any kind of high-touch sales, bringing together knowledgeable salespeople and potential customers, Renaud said.

Improved Collaboration Tools

Second Life also needs to be able to do a better job importing information from other applications and data sources. Once those tools have improved, people will be able to easily collaborate on designing 3-D objects in Second Life, including clothing, furniture, buildings, and 3-D charts representing business workflows, Renaud said. Some of that is being done already, despite Linden Lab's crude tools; for example Studio Wikitecture is a project for collaborative design of buildings in Second Life using the same principles as wiki projects like Wikipedia. The organization used the principles of wikitecture to design a medical facility in Nepal.

IBM is working with Linden Lab on overcoming some of the security and data compatibility issues faced by Second Life users. IBM is working on developing a version of the Second Life server that companies can run behind their firewalls, boosting security and making Second Life more suitable for business.

Big Blue has more than 50 islands in Second Life, where it holds internal meetings and connects with corporate users.

IBM sees virtual worlds, like Second Life and its competitors, as being useful to businesses for collaboration and training, said Colin Parris, VP of digital convergence for IBM. Virtual worlds can be used for low-cost role-playing simulations, without the need to fly people into a central location from far away. Virtual worlds will also prove useful for modeling complex systems, like data centers, cities, and buildings. Indeed, IBM used Second Life for a demo of its green data center in August.

IBM's relationship with Linden Lab isn't exclusive. They run virtual world software from several vendors, including Fortera Systems, and Multiverse. IBM is also working on integrating virtual world tools with Lotus Sametime, so that people having discussions over SameTime can move into a virtual environment for a richer interaction. And IBM and Linden Lab recently partnered on a demonstration of compatibility between Second Life and OpenSim, an open source Second Life clone, by teleporting avatars between Second Life and OpenSim in July.

Power Of Virtual Meetings

Virtual meetings are the main business application Linden Lab is currently pursuing for Second Life. Similarly, education, including in-world classes, is another powerful use. the service is host to colleges and universities offering classes in-world, including Harvard, Princeton, and Stanford University. More than 5,000 educators worldwide are active in Second Life, Linden Lab says.

The illusion of presence is what makes Second Life meetings compelling, Kingdon said. Participants think of themselves as being in a different place, having a shared experience together. Users can import presentations, and use the service's native voice application to communicate. Research shows that users identify with their avatars, and are more willing to take risks. People who wouldn't speak up in face-to-face meetings or on a conference call will speak up in Second Life, Kingdon said.

Renaud agreed, noting that meetings in virtual worlds are more active, especially when they involve five or more participants. You have the possibility for serendipitous encounters and side-conversations that you have in real-life meetings, but you don't get on a conference call or Web conference. Moreover, meetings occur over voice and text chat simultaneously, which allows "horizontal crosstalk" to go on in text chat and IM while the main meeting is happening in voice, he said. "You get a Mystery Science Theater sideways discussion."

Saiman said, "What's different between Second Life and a phone call or a chat room is you can see someone, you can recognize them, and your attitude is tuned and adjusted by the accouterments nearby. If you go to a peaceful sim, you may not realize it, but those birds twittering and the palm trees swaying, they have an influence on your thought processes. Aggressive places make you anxious. The best places are those that exploit those things and bring a story to your mind, bring you to a frame of existence you could never achieve with a chat room or a telephone call."

Other virtual worlds might be able to exploit the same factors -- but Second Life has a big first-mover advantage, with a substantial user base and a wealth of virtual objects already created, Saiman said.

Selling Real-Life Insurance

Aviva USA is looking to mix Second Life and real-life marketing for success. The life insurance company launched a campaign, built with the help of IBM, to recruit agents using Second Life. The average age of an insurance agent is 55 years old; Aviva hopes to use Second Life to attract younger, more technologically sophisticated agents. And the company hopes its presence in Second Life will convince potential customers that it's a forward-thinking company,and improve Aviva USA's brand awareness.

The Aviva USA Island has its own orientation area, for people to learn how to use Second Life. It has meeting rooms and an area where people can watch orientation videos.

The company is promoting its Second Life presence at industry conferences, in industry trade publications, in ads and press releases. The company identifies prospects in the real world, and then offers them the option of coming to Second Life for further discussion. Mark Heitz, president of sales and distribution for Aviva USA, said the company is pleased with results so far, but it's still early days. "I don't think we can say we produced X amount of business. We have been attracting people. We're seeing initial interest from people who were not doing business with us and are now interested in doing business with us," he said. "But it's too early to say if it's a success. We knew it would be at least a year before the kickoff before we have success with it."

Smoothing Out Difficulties

Linden Lab is hard at work smoothing the difficulties Second Life users face.

This year, Linden Lab launched new viewer client software with lower crash rates, and improved stability in its server software. As part of the effort to improve platform stability, Linden Lab hired former AOL executive Frank Ambrose to oversee network network and technical operations, reporting directly to Kingdon, after nine years at AOL as senior VP of technology for infrastructure and network services.

Recently, the company began converting the Second Life scripting engine to the open source Mono, for improved performance and stability, and to give developers added flexibility in choosing programming languages with which to develop for Second Life. Until now, Second Life has relied on its own, proprietary Linden Scripting Language (LSL), which restricts growth because nobody outside Second Life knows or uses LSL. Linden Lab is working on simplifying the software client, making some of the basic tasks that everyone does -- like moving around and communicating -- more obvious and easy to find, while getting advanced functionality out of the way, where expert users can still find it, but beginners aren't confused by it, Kingdon said. And Linden Lab is focused on improving users' first hour in Second Life, making it easier to learn the user interface and find interesting activities and potential friends in-world.

But despite its problems, Kingdon said Second Life is healthy and growing, and statistics prove the point. Linden Lab's primary revenue source is renting server space, a process which is known in Second Life jargon as "selling land." The company brags about the land mass growing 44% in the second quarter, to 1.5 billion square meters.

Over time, the company plans to supplement land sales with new applications to support the in-world economy, but Kingdon declined to provide specifics.

Internal Economy Growing

Second Life has its own internal economy, integral to its culture. It has its own micropayment system, with a currency called Linden Dollars that can be exchanged easily for American money at an exchange rate that fluctuates between about 260 to 270 Linden Dollars to a single US dollar. Users set up shops to buy and sell clothing, furniture, building, vehicles, "land and avatar accessories like skins, bodies, eyes and hair. Musicians and club employees get paid in Linden Dollars. The economy even has virtual prostitutes, with digital courtesans paid in Linden Dollars.

Linden Lab boasts double-digit growth in user-to-user financial transactions, from an annualized rate of $300 million in the first quarter to $338 million in the second quarter.

Growth continued in July: More than 61,000 avatars earned more Linden Dollars than they spent that month, up 5.7% month-to-month, with over US$9.5 million Linden Dollars traded for US money, up 5.5% from June and new record.

On the other hand, some 54% of Second Life businesses reported sales slowing down in a recent poll on the popular Second Life blog New World Notes.

Another measure of Second Life's growing pains: Concurrency -- the number of users logged in simultaneously -- peaked at 66,429 in March, and failed to break that record for months since. Second Life finally broke its five-month plateau Aug. 24, reaching 67,335 users, and topped 68,000 simultaneous users on Labor Day.

The active user base of Second Life plateaued quite some time ago. The number of people who spend more than an hour per month in-world has hovered between 500,000 and 600,000 since Linden Lab started releasing that statistic in May, 2007, through to when the company stopped releasing the statistic in May, 2008. Some 14.9 million Second Life accounts have been created since the service launched in 2003. That means huge numbers of people created accounts and never bothered to check the world out, or tried it out and left. Kingdon said the population statistic he finds most relevant is the number of hours people spend using the service: User hours grew for the fourth consecutive month in-world in July, to 34.7 million. That figure might be somewhat misleading, because many Second Life businesses deploy automated avatars, or "bots," to make their areas look more populated than they actually are, equivalent to spam on the actual Internet. Kingdon said the company doesn't have a reliable assessment of the fraction of bots that make up its total accounts, but he said the estimates he's seen show that it's "not an uncomfortable number." He declined to be more specific.

But still, Second Life is healthy in one important criterion: Linden Lab is profitable, Kingdon said, although he declined to provide specifics. Au estimates that the annual run rate is $96 million, and $20 million to $30 million of that is profit. That's more than some companies with a much larger cultural impact and user base can claim.

"Silicon Valley is very excited about Facebook, but Facebook is not making any money. It's got a butt-load of users, but how many of them are super-engaged as Second Life users are?" Au said.

Secret Weapon: Passion

The passion of the Second Life community, and the variety of experiences available in-world, are the service's secret weapon, Au said.

Although Second Life is much smaller than other online worlds, the tools that allow users to create, buy, and sell content in-world makes it much more interesting than other, much bigger competition, which are tailored for gaming -- like World of Warcraft -- or teen chat, like Habbo.

"To me, what the half million are doing in Second Life is a hundred times more interesting than what the 95 million are doing elsewhere," he said.

His recent discoveries in Second Life include a Princeton physicist using Second Life to build models of Newtonian mechanics, both as a teaching tool and as a visual reference; and support groups in Second Life for veterans of the Afghanistan and Iraq wars, who meet in sims where there are no weapons allowed.

Au wrote a history of Second Life, the Making of Second Life: Notes From The New World. He considered walking away from Second Life when the book came out this year.

But he continues to blog about the service.

"I can't walk away from all the stories," he said.