3pointD.com

Chief Puzzle Pirate Daniel James (who showed up to the Metaverse Roadmap summit in a pirate’s hat one day, as I recall), has an interesing post on his new blog in which he pulls apart the business model and philosophy of Linden Lab, makers of the virtual world of Second Life. While his comments on SL as a religion are spot on, I’d take issues with his business model analysis. Perhaps most interesting about the post, though, as Scott Jennings points out, is that James says his company, Three Rings, “will develop something oriented towards player-created content.” Definitely looking forward to that.

James takes issue with two things in the LL model (besides the strange insistence on its remaining a walled garden in certain aspects, which I get the sense is crumbling anyway): their management of the Linden dollar and the model of real estate as the key scarce resource in the economy.

To my eyes, LL has no choice but to manage their currency any other way than as a real-world currency, since they want it to be freely convertible to dollars or other real-world coin. The “simple faucet (time/money) -> drain (taxes/’state-sold’ goods/item decay) economy [which] works out well enough in Puzzle Pirates” wouldn’t work for LL. Item decay is not an option in a world in which lasting real-world applications are expected to be built, and “state-sold goods” would pull the rug out from under the Lab’s position as a service provider, not a content provider. (LL already dances on a narrow ledge in this regard, at times.) The “time/money” input would also serve to unlink the economy from the real world, or at least to make it more of a welfare state, which would have a similar dampening effect. Now taxes, on the other hand, could be a good idea. LL doesn’t have enough sinks in its economy, as evidenced by the falling Linden dollar (against the US dollar). Taxes proved so unpopular with early residents, however, that a Second Life Tea Party served to get rid of them. If LL wants its economy to be integrated into that of the real world, though, taxes or something like them will have to make a comeback.

LL currently gives its money away for free: new money enters the economy when new accounts enter the world, and continues to be produced in the form of weekly stipends. That’s not a healthy footing for an economy as complex as Second Life’s. It may be that LL eventually moves toward a model not unlike the US Federal Reserve’s, in which new money is by and large loaned into the economy in the form of Treasury bonds. That cushions its inflationary effects by draining money over time (in the form of interest payments) for each big chunk of money that’s introduced. Were LL to shift to such a model, though, the timing will be difficult to manage. Moving away from the free money model will no doubt be unpopular (even I like free money), and inflation as such doesn’t yet really exist in SL. Most SL vendors are incredibly reluctant to raise prices. I imagine, though, that this will change soon.

LL also faces the challenge of somehow taking into account the real-world monthly fees their customers pay for “owning” land. This is something the company hasn’t addressed at all yet, to my knowledge, in terms of how this fits into the Linden-dollar economy. I have no insights on this at the moment, but it’s something that needs some attention, I think.

On land as key resource, James has this to say:

I understand that physical space is the point of greatest cost of goods for Second Life, so it makes sense to charge a lot of money for it. But as a long-term business model it sounds pretty… well, crap. That’s renting servers, otherwise known as a more complicated kind of web-hosting with fancier proprietary code. Perhaps the exclusive supplier aspect means that the margins are sufficiently great, but I still can’t get comfortable with the idea that Land Barons are going to be pivotal to the future virtual utopia.

Again, spot on in thinking that the SL business model is simply “a more complicated kind of web-hosting with fancier proprietary code.” Which makes land barons into a kind of middlemen hosting service. I too think this model is going to have to change. I wrote about this in a recent post, in which I considered the possibility that we’d one day live in a kind of distributed metaverse, in which anyone could log into a hosting service and launch their own 3D Web space or community of spaces. Linden Lab seems to want to keep enough of its model proprietary so that it remains the only hosting service that matters. I’m not sure I see how it’s possible, though, to do both that and to push truly broad adoption at the same time. James believes that “a successful platform will have to be open-source in a pretty deep way (which conflicts, it seems to me, with the land-rental model, though not necessarily with the ‘not-a-b@nk-but-a-bit-like-one’ model).” Amen.

Or should I say, “Yarrr“?