There can be only one

One-time internet pace-setters AOL have announced that they are getting out of the social networking business. They have put Bebo, which they paid $185 million for just two years ago, on the market, though no one seems to think there will be any takers. If no sale goes through the service may be closed down as soon as the end of May.

The management at AOL have hardly covered themselves in glory in recent years – the Time-Warner/AOL merger is often cited as the worst deal of all time – but one has to feel a bit sorry for them, as back in 2008 it wasn’t clear that Facebook would come to dominate the market to the degree it has. In 2007 people were still writing papers identifying FB as a service for the upper classes, and youth-orientated Bebo must have looked like a reasonable bet.

I think the demise of Bebo is further evidence that, for Web 2.0, value lies in the network, not in any particular interface. Underlying the story is a much older lesson though; in a maturing consumer market the middle ground tends to disappear, and to survive an enterprise must either be dominatingly large, or serve a specialised niche. If I were running Second Life I’d be tempted to follow the latter strategy.

The Linden Principle

Towards the end of last year the BBC aired a documentary on the Great Banking Crisis of 2008, which featured various bankers, government ministers and officials recounting the emergency meetings where the decision was taken to nationalise large parts of the British financial system. The Royal Bank of Scotland, once one of the most successful institutions in the world, had, by late 2008, been reduced by an ill-advised expansion strategy to a virtual basket-case, and was only hours away from total collapse. Faced with the prospect of millions of citizens waking up to find their accounts frozen, the government called the RBS management into the Treasury to finalise the details of the deal that would eventually see the state acquire 84% of the bank. During the course of this meeting, officials realised that Fred Goodwin, RBS Chief Executive, seemed to have only the flimsiest grasp of the trouble his bank was in, believing that a modest cash injection would be enough to stabilise things. Goodwin retired shortly afterwards, with a generous pension, leaving the taxpayers to contemplate the lesson that, as Chancellor Alistair Darling ruefully noted, when it comes to running banks it’s a good idea to hire people who know what they are doing.

We tend to assume that, when someone reaches a position of responsibility, this must be as a result of some rational process that evaluated their competence for it. However we are often faced with evidence, like the poor decision making that led to the financial crisis, that contradicts this, and suggests that other, unknown factors must play a part in the selection of our leaders.

Laurence J. Peter, who died in 1990, is best known as the author of the Peter Principle, which states that “In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence.” Workers who are good at their jobs are promoted until they are in a job they can’t do, at which point they get stuck. Since big organisations tend to find it difficult to get rid of people, eventually every position will be filled by someone who is incompetent to manage it.

I was thinking of all this when I read about Linden Lab’s latest marketing wheeze; an advertising campaign that seeks to dispel a supposed “Fat Naked Guy in a Basement Anti-Second Life Meme” by showcasing the attractive people behind selected avatars. This seems to me to be wrong-headed on so many levels that it does raise doubts about how well the Lab management understand their own product and what makes it attractive to their paying customers. One only has to google “Linden Lab incompetence” to come up with plenty other examples of Lab strategy that have proved unpopular with the resident community.

On the other hand, Mark Kingdon has an MBA from the Wharton School of Business, and years of experience in senior management, whereas I am an embittered loser with a blog (though, I must point out, reasonably slim, fully clothed, and currently resident above ground). Who would you trust to run a successful company?

Falling into the chasm

It was reported yesterday that Facebook had overtaken Google to become the most popular website in the US last week. The social networking site gathered 7.07% of total hits (up 185% on last year), marginally ahead of Google’s 7.03%.

Pundits are suggesting that this is an indication of how people are increasingly using the internet in a different way – instead of searching for information, the theory goes, we are now looking more for social connections.

As we’ve noted before, this type of thinking seems to be driving Linden Lab’s corporate strategy, as they try to market Second Life as a social networking application. They clearly have some way to go to compete with Facebook though, both in the raw numbers – FB has a user base of 400 million, and concurrency of up to a million, against SL‘s figures of 18 million and 80,000 respectively – and in terms of cultural penetration. Major newspapers are still publishing articles that assume that the majority of their readers will never have heard of Second Life, while Facebook references can be found even in traditionally conservative media like legacy comics.

Grace McDunnough posted an interesting piece (illuminating comments too) on the Lab’s marketing strategy a couple of days ago. Referencing a recent Harvard Business School case study, which itself draws on Geoffrey Moore‘s influential 1991 book Crossing the Chasm, Grace concludes that the educational market is a bust, the “adult” market is an embarrassment, and that content creators are being slowly sidelined. What does this leave? A 3D chat service, or, as Grace puts it, “playing house with paper dolls”.

This rings sadly true to me, and seems a terrible waste of the platform’s potential, but I guess there’s no arguing with market forces. It seems that the early adopter community (in which I count myself spiritually, if not strictly speaking temporally) is going to find itself increasingly marginalised. We can only hope that the Facebookisation of Second Life turns into a complete fiasco, M. Linden gets his cards, and a more enlightened management goes back to the original, steady (if limited) business model of taking money from people like me, who are willing to pay a few bucks a month to live out the life of the mind in a virtual world.

Monetising SL 2.0

I feel that I should download the SL 2.0 viewer, just so that I can have an opinion about it, and join in the general excitement, but I’m finding it hard to get enthusiastic about what is, after all, just a gateway to the really interesting part of Second Life, that is the content and the community. When I first signed up to SL a couple of years ago I downloaded the alpha build of the Linux client, and I was happy with that until fairly recently, when the Lab started restricting which viewers you could log in with and it stopped working. I switched to the then-current version of Snowglobe, which I have had no major complaints about.

I’ve never been entirely convinced that making the viewer more user-friendly was the key to broadening SL‘s appeal. I guess the Lab did some consumer research that told them that the viewer’s rather steep learning-curve was contributing to SL‘s woeful retention rate, and I’m sure that the new version makes it a bit easier to get through the first hour, but I would have thought that keeping people on board for months and years would depend more on the nature of the virtual world and its residents than the bells and whistles of the client software.

Though maybe I’m overstating the importance of content. The BBC are currently running a series The Virtual Revolution (which you can watch online if you live in the UK), which is taking a look at the impact on society of the growth of the internet in the last 20 years. It’s necessarily broad, and there’s been nothing terribly surprising, but it’s still interesting, particularly the discussion of how Web 2.0 has been monetised. Services like YouTube, Facebook and Twitter may get their user-generated content for free, but most of it is worthless junk. That doesn’t matter though, the theory goes, because as users post, search, rate and comment on all those videos, updates and tweets, they reveal a mass of valuable data about themselves and their social networks, information that can be profitably mined for targeted advertising.

One can’t help but wonder if the Lindens have some similar plan in mind. They have certainly been talking up the social-networking aspects of SL, with their purchase of Avatars United, and Wallace Linden’s suggestion that we should all link our real identities to our avatars. If they could find out all about us and our interests, they could turn that into a revenue stream, provided they could figure out how to serve up the ads in a way that wasn’t too annoying. Perhaps the much-touted URL-on-a-prim functionality of the 2.0 viewer is part of the Lab’s plan to sneak pop-up advertising into the virtual landscape.

History needs a push

Back in April I received an email inviting me to participate in a beta test of Metaplace, the “next-generation virtual world platform”, that, its designers hoped, would make it easy for anyone to create their own little metaverse.

“Lonely?” the invite inquired enticingly, before promising that I could “meet new friends to chat and build with.” I can’t say that I wasn’t tempted, but I figured that wasting my time in one virtual world was enough to be going on with, and gave it a pass.

I kept meaning to go back and have a proper look in the months that followed, but never quite got round to it. I was interested in what their monetisation strategy might be, and this week I found out; they didn’t have one, and are shutting down their operations early next month.

Metaplace isn’t the only player in the virtual world business to hit trouble recently; Forterra have laid off half of their staff, and are rumoured to be up for sale.

I hope there isn’t going to be a virtual rerun of the real world financial crisis, with relatively small outfits going to the wall first, to be followed by the big operations that everyone thought were solid. It would be vexing, to say the least, if Second Life were to disappear just as I have finally worked out something fun to do with it, though perhaps an atmosphere of impending crisis will help my plans.

Here’s me in my new outfit, in a bar in Steelhead, a steampunk community in the Pacific Northwest:

I’m trying my best to look like a Wobbly, though I’m perhaps a little too smart. Clothes for the common man are hard to get hold of in SL; the best I could do was this Victorian worker’s suit by Eladrienne Laval. At least the neckerchief is deepest red. I’m going to try to get some radical agitating started in the new year, once I’ve worked out what our demands should be, and had some flyers and red cards printed up.

Virtual Bakumatsu

On the 8th of July 1853 US Navy Commodore Matthew C. Perry anchored at Uraga Harbour near Edo (modern-day Tokyo) and presented officials with a letter from President Millard Fillmore, which demanded that Japan, which had been largely closed to foreigners for two centuries, open its borders to US trade. To show that he was serious Perry bombarded the harbour with explosive shells, and when he returned a few months later he found the locals willing to sign up to the Convention of Kanagawa, which established, among other things, minimal import taxes for foreign goods.

In the years that followed Japan was obliged to conclude similar treaties with other Western powers, and the influx of cheap imports plunged the country into economic chaos. The feudal order of the 250 year old Tokugawa Shogunate collapsed under the pressure, its demise speeded by military intervention by the US, France and Britain. It was followed by the Meiji Restoration, which laid the foundations for the modern industrialised Japanese state, though the remnants of feudalism were not entirely swept away until the defeat of the Satsuma Rebellion in 1877 (an event portrayed, with considerable artistic licence, in the film The Last Samurai).

I mention this because I can see parallels between the hierarchical society of sakoku-era Japan and the regime we know in Second Life. What commerce there is with the outside world is strictly regulated by the ruling caste, who either directly control the marketplaces, or take a hefty cut of transactions. In-world manufacturing is dominated by small-scale craft producers, and success in this field is dependent on acquiring mastery of relatively low-tech but somewhat esoteric skills. Borders are closed, there is no democracy, and the population lives and dies at the whim of their masters.

Like feudal Japan Second Life is threatened by a tsunami that may sweep away the present economic certainties. This peril does not come in the shape of a warship, but in the seemingly harmless form of mesh imports.

The plan to allow import of content created using professional 3D design tools like Maya or Blender was first announced back in August, and recent reports have suggested that it will become reality soon. The Second Life design market is currently protected by the fact that there is little incentive for professional digital designers to learn how to build with prims, since there is no application for the skill outside of SL. Once they are able to create virtual objects using the knowledge they already have it’s more likely that they (or the companies that they work for) will see SL as a way of making some easy cash. Existing SL designers will find themselves exposed to competition from a well-established industry, whose advanced products will make their painstakingly sculpted prim creations look hopelessly primitive, and their businesses will be unable to survive.

Will this opening of the market to outside competition be a bad thing for the average non-entrepreneurial resident? The quality of virtual items will rise, and they will probably be cheaper too, since production will be more efficient. The grid as a whole will survive, as the Lindens are sure to impose a healthy tax on mesh uploads to keep their revenue stream flowing. There may be less circulation of L$ within the world, as the dominant businesses are less likely to be resident-owned concerns, and would be extracting their profits rather than spending them on the grid, but this would just mean more real money would have to be transferred in to allow residents to buy stuff, which would also boost the Lab’s bottom line.

What might change is the nature of the SL experience. The idea that all residents have the tools at hand to create their own reality will fade, to be replaced by a culture where our avatars exist only to consume the products that are manufactured for us. Second Life, which seemed to offer an antidote to the alienation of capitalist society, will have become just one more expression of it. I guess this is progress though, and we can no more resist it than the Samurai could halt the march of modernity and expel the barbarians. We can only hope that this is just the first step in a process of proletarianisation of the SL population that will one day create the conditions for more progressive social change.

Tweetomania

I hate to admit it, but, way behind the curve as usual, I have started to view Twitter as an important part of my life, rather than a pointless irritant. When I set up our feed I was intending just to use it for publicising blog posts, but then I started following a couple of people (you know, just for kicks), then a couple more (though I could have given up any time I wanted, I just didn’t want to, right?), and before I knew it I was getting mildly agitated if I couldn’t get my tweet fix several times a day.

The tipping point came when I started following Mal Burns, who is a one-man SL newsfeed, cranking out dozens of tweets a day linking to all sorts of interesting metaverse stories. He seems to have quite a big audience, judging by the surge of traffic we have had on the couple of occasions he has featured one of our posts.

Our feed is somewhat less influential, though we do have a few followers, including one celebrity, Noreena Hertz, the vaguely left-wing economist, though I expect that by the time you read this she will have ditched us – she’s done the follow/unfollow thing on us a few times before, so I suspect that she has some sort of system that automatically follows anyone tweeting with the #economics tag, and then one of her assistants kicks us off a couple of days later when they actually read the rubbish we have written. Interestingly, our old SLS account has roughly ten times as many followers as our active feed, despite not being updated for nearly a year.

My addiction has been facilitated by my acquisition of the TweetDeck app for my iPhone, which makes it much easier to post updates and follow the general chatter. TweetDeck is part of the huge ecosystem that has grown up around Twitter, with literally hundreds of startups vying for a slice of the revenue pie, which, last time I looked, amounted to exactly US$0. Twitter head honcho Biz Stone has reportedly targeted 2010 as “the revenue year”, but even he isn’t willing to predict that the company will be profitable any time soon, so I can’t see how all the hangers-on are hoping to make any money.

I have a horrible feeling that the whole set-up is some kind of plot to get us all hooked on free produce, before they crank up the price and force us to pay big bucks to feed our habits. That wouldn’t be entirely bad news for me though, since I am qualified in the treatment of cyberaddiction, and the tweet-detox market might be worth quite a bit.

Scenes from the Class Struggle in Second Life

Anyone who felt that my suggestion that all property in Second Life should be collectively owned was overly fanciful should perhaps direct their attention towards a couple of recent developments in the area of SL commerce.

First up: the changes to the structure of XStreet listing fees and commission charges. The exact ins and outs of this are detailed elsewhere; the main thing is that the service has become much less friendly for small-scale vendors, and more orientated towards big operations.

Secondly, Pink Linden recently sent out a questionnaire to a sample of SL merchants, canvassing their opinion on various hypothetical developments, including setting up an official Linden-sponsored shopping mall. Again the pricing and commission structure would favour large, established businesses over their smaller or newer competition. (It may be relevant that Pink used to work for eBay, who have also been accused of squeezing small sellers off their platform).

This initially reminded me of the concept of State Monopoly Capitalism. The intricacies of this theory are too complicated to go into here, but it can be roughly summed up as the idea that in the late stages of capitalism the state becomes increasingly identified with the interests of a particular section of capital, specifically the big monopolies, to the detriment not only of the proletariat, but also the smaller capitalist enterprises.

The thesis is not without its problems, though a full discussion of these is beyond the scope of this column, and it has been rather discredited by its association with the Popular Front orientation of Stalinist Communist Parties in post-war Europe. The question of the power of monopoly capital and its relationship with the state is more interesting than ever these days though, and it’s still worth reading Lenin on Imperialism, the Highest Stage of Capitalism, and Mandel on The Economics of Neo-Capitalism.

To transfer the concept of SMC to Second Life, one would have to see the Lindens as the equivalent of the state, and the big merchants as monopoly capitalists. Are either of these assumptions valid?

To quote Engels, from The Origin of the Family, Private Property and the State:

[The state] is a product of society at a certain stage of development; it is the admission that this society has become entangled in an insoluble contradiction with itself, that it has split into irreconcilable antagonisms which it is powerless to dispel. But in order that these antagonisms, these classes with conflicting economic interests, might not consume themselves and society in fruitless struggle, it became necessary to have a power, seemingly standing above society, that would alleviate the conflict and keep it within the bounds of ‘order’; and this power, arisen out of society but placing itself above it, and alienating itself more and more from it, is the state.

A “society … entangled in an insoluble contradiction with itself … split into irreconcilable antagonisms” does sound like a description of Second Life, and the Lindens certainly have the coercive powers usually associated with the state, but is it a state in the modern, capitalist, sense of the term? There may seem to be “classes with conflicting economic interests” among the residents of SL, but what is the nature of these classes? To answer these questions we must determine where avatars stand in relation to the means of production, which in turn requires us to decide what form the “means of production” take in a virtual world.

Virtual items may be created in the minds and on the computers of designers, but they only take on a social reality when they become available for exchange, when they are uploaded to the platform. Thus the virtual world itself forms the means of production. Linden Lab owns the world in its entirity, which means that no one else can independently control those means of production, and thus no resident can really be said to be a capitalist, let alone a monopoly capitalist.

Second Life may indeed be the scene of class struggle, but the conflict is not between workers and capital. The social relations that operate are more akin to those pertaining between feudal overlords and their serfs, with the Lindens taking on the role of absolute monarchs, supported by a small group of robber barons. The virtual masses are not proletarians free to sell their labour power to the highest bidder, but peasants obliged to toil for the benefit of their masters.

How can we move on from this obviously unsatisfactory state of affairs, and build a virtual communist society? I have a plan, but I’ll need another post to explain it properly. I might even make it my entry for the Linden Prize…

A Nation of Shopkeepers

The third-quarter SL figures came out the other week, and, as usual, tout est pour le mieux dans le meilleur des mondes. One statistic in particular caught my eye; the number of monthly unique users, which was just over 750000. This reminded me of the results of a survey of the SL economy released in the spring, which estimated there were around 18000 self-identified virtual businesses.

The 750000 figure will include an indeterminate number of alts, and the 18000 enterprises may each employ more than one person (or some people may run more than one business), but, whichever way you look at it, it’s clear that SL entrepreneurs form only a tiny part of the virtual population.

I have no objection to people using the immersive virtual environment that is Second Life as an opportunity to live out their shopkeeper fantasies; whatever floats your boat I guess. However I do find it irksome when this small minority demand that the whole world should be structured to facilitate their particular brand of role-play, even if this grossly inconveniences everybody else, and, when they don’t get their way, threaten legal action that might destroy the entire system.

Linden Lab should adopt a Zindra-style solution to this problem, and set up a special continent where aspiring virtual business people can be segregated. There they would be free to sell each other shoes and sex-beds, sue one another to their hearts’ content, and leave the rest of us in peace to have fun with our second lives.

Taking Ownership of the Problem

In an intriguing footnote to the Burning Life festival, reports have emerged that a person or persons unknown distributed a mysterious box around the site, said box allegedly containing a virtual cornucopia of ripped-off items. Outraged commentators immediately cited this as yet another example of Linden Lab’s woefully negligent approach to protecting IP rights. Interestingly, and I’m sure entirely coincidentally, the alleged super-crime was brought to the world’s attention by none other than Stroker Serpentine, who of course is currently suing the Lab, claiming in his action that, among other things, the Lindens have had a woefully negligent approach to protecting IP rights. If that wasn’t enough to get the conspiracy theories going, Stroker’s rather ham-fisted attempt to pin blame for the alleged offence on (apparently) well-known open-source advocate Damen Hax further fanned the flames. Throw in the whole third-party viewer controversy, and the scene is set for another skirmish in the long-running war between the forces of DRM and the open-source guerillas.

Godless communist that I am, in my ideal virtual world all items would be free to transfer and copy, and content creators would contribute their talents without material recompense, their reward being the knowledge that they had helped build a better experience for everyone. I guess that’ll have to wait until after the revolution. In the meantime we’re stuck with some sort of copyright protection system, though we clearly need something better than the current unsatisfactory model.

The lesson from the music industry is that there is no future in ever-more-complex DRM – making customers jump through hoops to access content that they have purchased just pisses them off, and it’s never long before the pirates crack it anyhow. It’s much better to make paying for stuff so painless that people won’t go to the bother of seeking out stolen goods – some sort of micro-payment or subscription system seems to be the favoured model.

How might that work in Second Life? The first step would be to establish a central content inventory, run by Linden Lab directly, or some semi-autonomous surrogate. Upon payment of a subscription residents would gain access to this inventory, and would be able to rez up a set amount of prims. The exact number available concurrently could vary depending on the level of the subscription – free accounts could be limited to, say, 10, with a sliding scale up an unlimited quantity. Continued access to the items would be dependent on keeping up the payments. Content creators who wanted their items to be included would have to register, and once they had they would get a cut of the subscriptions, based on the relative popularity of their stuff.

I’m sure that it wouldn’t take too much tweaking of the permissions system to make this function. The key would be to set the subscription (tax might be a more descriptive word) low enough so that evading it by picking up pirated goods was more trouble than it was worth, but high enough to generate enough revenue to keep the designers happy.

A scheme like this is much more likely to succeed in a virtual world than in real life, where a lot of work would have to be put into prediction of demand, and planning resource and capacity allocation. This doesn’t always work out well in practice, though I’d argue that it is possible to run a successful planned economy if enough information is available. In a virtual world however, items can be manufactured instantly, with practically no resource implications, so it’s perfectly feasible to have no advance plan for production, and to just react to demand.

The biggest hurdles to overcome might be cultural, psychological and political. Designers would have to accept that they were essentially employees, or at least subcontractors, of a big state-owned corporation, and residents would have to be happy to pay the tax to support it. Somehow I can’t see either of these things, especially the former, coming to pass, and I doubt Linden Lab, grounded as they are in the free-market spirit, would have the appetite to run such a system anyway.

If the public option isn’t palatable, there might be a private alternative – designers could band together in consortia to offer a smaller subscription service. I think it would really need the scale of a grid-wide operation to make it practical though, so over time the trend would be towards a private monopoly, which has a lot less to recommend it than a public one.

I’m sure that someone has thought of this before, done the sums, and worked out that it wouldn’t be profitable. I don’t see that as a valid objection though, since the aim I have in mind is improving Second Life for everyone, rather than making money for anyone in particular.

The broader point is that it’s no good pursuing technical solutions to what are essentially cultural problems. It’s very difficult to make people do things that you want them to do on an individual level, even harder to get them to stop doing things you don’t want them to do. A better approach is to try to construct a psychosocial milieu in which the desired behaviour is more likely than unwanted actions.

The solution to the content theft problem lies not in stronger encryption of content, nor with harsher penalties for breaking the TOS. What the Lindens must do is engage in some social engineering, to foster a stronger sense of collective ownership, to build a community that believes that an offence against one is an offence against all. Give everyone a chance to own an equal share of everything, at a price that seems fair, and no one will feel the need to steal, for they would only be robbing themselves.