Economics | Second Life Shrink

Rubber Soul

August 8, 2010 by johnny Leave a comment

I was thinking the other day about this article, published on Salon around a year ago. It concerned the waning fortunes of the company behind Crocs, the aesthetically-challenged footwear brand. At the time the piece was written the firm looked in serious danger of going under, and its stock price had plummeted from a high of $70 to around $3. Worse was to come; at one point the shares traded for 79c, though today they are back up to $13.50, and it it looks like the hopes of discerning fashion-lovers everywhere that Crocs might disappear altogether are likely to remain unfulfilled.

What went wrong? Crocs were wildly popular in the middle of the last decade, and the company expanded massively to meet demand that they expected to keep on growing. In fact though, by 2009 everyone in the world who wanted a pair of Crocs had one already, and, since their indestructibility means that no one ever needs a second pair, sales dropped precipitously.

Crocs have managed to come back from the dead by refocussing on their core niche market – people who stand around all day at work – and forgetting about chasing mass appeal. Their advertising now emphasises comfort over fashionableness, which seems pretty obvious in retrospect.

How does this relate to virtual worlds? Well, I think the main lesson is that it’s important not to mistake enthusiastic take up of a product by a particular subsection of the market for a sign that said product will be equally attractive to other sections of that market. With enough media buzz it may be possible to whip up a short-term fad, but long term survival depends on looking after the core demographic, those who find enough genuine value in the product to keep them coming back for more once the initial novelty has faded.

Are there signs that Linden Lab is heeding this message? Yes and no, judging by what Philip Rosedale has had to say recently. He does seem to be alert to the fact that long-term residents need to be taken care of, but he still comes out with hyperbolic comments like “It is all going to happen, and we are going to get everyone in here eventually“, and “The fundamental belief that I have is that Second Life and virtual worlds are going to profoundly affect the human experience, profoundly, and in a positive way“. It may be that Philip doesn’t really believe this, and is just talking up the platform’s potential appeal to draw in new investors, but I fear that it’s more likely that he has so much invested in the idea of Second Life as a truly world-changing technology that he can’t bear to let it go.

Philip should relax, and embrace SL‘s cult status – even niche products can have a lasting cultural impact.

Filed under Culture, Economics, Psychology, Second Life Tagged with Culture, Economics, Fashion, Psychology, Second Life

Virtual alchemy

August 4, 2010 by johnny Leave a comment

When Second Life Shrink was in its planning stages a few years ago I checked out several different blog-hosting services before settling on WordPress. I liked that it was open-source, and a couple of people I knew had recommended it, but what sealed my decision was the amount of statistical information that the platform provides. As well seeing the raw visitor numbers I can analyse where they came from, which pages they have looked at, and which links they have followed, providing me with hours of pointless distraction.

Until fairly recently just about all our traffic came straight from search engines. We’re top on Google for “second life shrink” of course, and lately we’ve been doing well with “second life demographics” too. “Second life addiction” and “second life psychology” seem to come and go; we’ve been on the front page with both of those at various times, though currently we’re languishing down on page three, where only dedicated searchers will find us. We tend to do much better on Bing for some reason; I’m not sure whether that should be a source of pride or shame.

We used to get very few hits from direct links; unsurprisingly, with a couple of exceptions, no one has ever felt that any of our posts were worth drawing to the attention of a wider audience. Recently though we have been getting a steady stream of visitors from a whole host of unlikely sites. I won’t link to them for reasons that will become obvious; suffice to say that they are not the sort of places we would like to be associated with.

I figured that this was likely to be the result of some sort of traffic-generating scam; and a little research has proved that this is the case. The program in question promises to deliver hits by automatically visiting millions of blogs and spoofing an incoming link from the site that is being promoted; the theory is that bloggers, their curiosity piqued, will follow the link back, and then purchase diet pills, or click on Google ads, or otherwise participate in whatever shady e-commerce scheme the site owner is counting on to make back the $70 the package costs.

At least this sting only leaves the would-be web-entrepreneur out by the cost of the program; most of the get-rich-quick-with-Google/Twitter/Facebook offers that litter the web these days are potentially much more expensive. Victims are lured in by the promise of secret marketing tricks for a payment of only a couple of dollars, but after handing over their credit card details they find that they have subscribed to a “newsletter”, for which they are billed $50 or more a month. Of course they can cancel any time, by simply calling a premium-rate number in the Virgin Isles, staffed by operators who will put you on hold for 20 minutes before asking for your bank account number so that they can process the transaction. These sharp practices are not always confined to the murkier recesses of the internet; last year Facebook was awash with similar scams that tricked people into signing up for overpriced cellphone services, though these have been mostly purged now.

What’s interesting about these confidence tricks is not that they are new, but that they are ancient. Persuading people to suspend their disbelief by invoking some magical new paradigm must go back to the days when enterprising cavemen extracted shiny pebbles from their gullible fellows by promising to share the secrets of how to generate revenue using that new “fire” thing that everyone was talking about. From medieval alchemists tuning lead into gold, through Gregor MacGregor’s tales of colonial riches, to Charles Ponzi‘s arbitrage of the International Reply Coupon, today’s blog fraudsters stand in a proud line of grifters and shakedown-artists.

While I like to think that I can see through crude scams such as these, I have to admit that I am not immune to the subtler form of self-deception that keeps me handing money over to disreputable virtual-world-pedlars, not in the belief that it will enrich me materially (nothing so base), but in the hope that I might be able to reinvent myself as a better person (despite all the evidence to the contrary). The alchemists of old sought the Philosophers’ Stone, the mystical substance said to grant enlightenment and immortality; perhaps Second Life, which promises to allow one to transcend the limitations of corporeality, is its modern equivalent.

Filed under Blogging, Culture, Economics, Psychology, Second Life Tagged with Blogging, Culture, Economics, Internet, Psychology, Second Life, Social Media, Statistics, Superstition

Resident value

July 23, 2010 by johnny Leave a comment

When I left on holiday last month I was half-expecting Second Life to have vanished into the ether by the time I returned. That may not have happened (yet), but there are still plenty of reasons to be gloomy about the future.

Predictably enough, Mark Kingdon was forced to fall on his sword in the wake of the Lab’s severe downsizing, a pretty clear sign that the company’s investors had lost faith in in the management. (This event prompted an amusing post by Hamlet Au, in which he solemnly informed us that he had known all along that the Lab was on the wrong track with its enterprise strategy, though, rather like the financial experts who claimed to have seen the crash coming, he didn’t explain why he hadn’t told us about this before). Philip Rosedale is back in charge, and talking about a “back to basics” strategy, but it may be too little, too late.

Much has always been made of Linden Lab’s solid revenue stream and profitability, but there is more to business than profitability; profitable businesses are shut down every day. What’s more relevant to Second Life is the question of the rate of return on capital, and the company’s position in the investment cycle. The venture capitalists who have their money tied up in the Lab are not in for the long haul; they will be looking for a liquidity event at some point in the not too distant future. An IPO would seem to be out of the question in the current financial climate, which leaves two options – further private equity, or sale to a bigger company. Attracting the former would depend on convincing investors that the Second Life business has enough growth potential to underwrite a decent return on their capital when they cash out in a few years, which would be no mean task.

So that would seem to leave a sale as the only way forward. The Lab has two main assets: its technology and its customer base. The former, for all its faults, may be ahead of the field; the problem is that no one wants to be in that race any more. The future doesn’t lie in a big downloadable client that needs a high-end machine to run on; what people want now an experience they can access through their browsers and on their smartphones, and Second Life isn’t that world.

So the only thing that Linden Lab has that is worth a damn is us, the residents. They have worked out how to monetise us, through subscriptions, tier fees and Lindex commission, but if they are going to market us as a saleable asset they will have to figure out how to securitise us too. The only way I can see of doing that it to follow the social-media model.

Philip may be promising a return to the old Second Life, but the reality of the situation may force him to continue with Mark’s plan to turn SL into a 3D Facebook, though obviously that hasn’t worked out too well so far. Like I said, the virtual future looks bleak.

Filed under Economics, Second Life Tagged with Economics, Second Life

Preternatural Greenies

June 17, 2010 by johnny Leave a comment

This article, written by our occasional arts correspondent Olivia, was posted well over a year ago, but it still gets a steady flow of hits, mainly from people searching Google for some combination of “Second”, “Life” and “Greenies”.

Most of the Rezzable sims reviewed in Olivia’s piece disappeared from the main SL grid last year, and have since taken up residence on Open Sim, but the Greenies Home hung in there, still drawing in the crowds with its whimsical charm.

But now an era is drawing to a close as the loveable little aliens prepare to blast off for pastures new. Is this an omen? There are many stories of animals mysteriously sensing impending natural disasters, such as these reports from Sri Lanka of the 2004 Boxing Day Tsunami. Perhaps our diminutive green friends have forseen the coming apocalypse, and are getting out while their Linden dollars are still worth something.

I too shall be disappearing, but only temporarily, as I venture out of the range of 3G and WiFi for a summer break. I’ll be back in a few weeks, to find out if Second Life is still around for me to write about.

Filed under Blogging, Culture, Economics, Second Life Tagged with Blogging, Culture, Economics, Financial crisis, Second Life, Superstition

Linden layoffs

June 13, 2010 by johnny Leave a comment

Meanwhile, back in the virtual world, the news is rather downbeat too. As you will know by now, if you are interested in these things (as you must be if you are reading this), Linden Lab laid off around 100 employees this week, a third of their workforce, closing down their outlying offices and winding up the enterprise division.

I’m not one of those bloggers who affects to be on personal terms with the Lindens, so the list of redundancies means nothing to me, but apparently among the casualties are a VP, and various key staff in the technical, sales and marketing departments. The official spin is that the new configuration will allow the company to focus on its key objectives, but it’s hard to see such a level of cutbacks as anything other than a sign of corporate distress.

The response of the Second Life community to this news has been characteristically solipsistic, with a memorial garden set up where residents can show their grief for the fallen, since obviously our pain is the main story here. I suspect that the now-jobless Linden staffers may have appreciated a little practical solidarity more than such virtual gestures. I’m feeling a bit guilty that I never actually got round (so far at least) to organising a Second Life Communist Party, instead of just talking about it. We could have staged some sort of in-world protest, and our San Francisco comrades could have picketed the Lab’s offices or something. I hope the Lab’s remaining employees have seen the writing on the wall, and are getting themselves unionised.

What does this mean for the future of Second Life? The optimistic view is that the Lab is realigning itself with its core market, content to be a successful niche player rather than being hell-bent on expansion. My more pessimistic take is that the cuts are the desperate actions of a management that has no plan other than preparing the company for sale.

I’ve always been doubtful that the current Lab management knew what they were doing, and I think the ideal long-term outcome would involve M Linden turning the whole operation over to the residents, and letting us run it as a cooperative. I suspect though that he would rather see it fail than flirt with such a progressive ideal, and I’m not sure that many residents would be up for life as virtual communists either.

Time will tell I guess, but right now the $70 or so I paid for my last annual subscription is looking like one of my less smart investments.

Filed under Economics, Politics, Second Life Tagged with Economics, Politics, Second Life

Liberal Distraction

April 28, 2010 by johnny Leave a comment

The economy had been rather sidelined in the election campaign over the last week or so, as the media obsessed over the prospect of a hung parliament and speculated about the possible makeup of potential coalitions. A cynical observer (like me) might conclude that the attention given to Nick Clegg and the unlikely rise of the Liberal Democrats has been designed to distract us from the fact that all the main parties have essentially the same prescription for reducing the deficit, one that involves sharp cuts in public spending.

The intensity of the coming pain was hinted at in a report released today by the Institute for Fiscal Studies, which predicts a return to the sort of austerity not seen since the 70’s, or, in the case of the Tories’ plans, since the war, and notes that all the leading parties have been less than forthcoming on where the axe is going to fall.

The whole thing is rather dispiriting, though I guess it’s just about possible to imagine something good coming out of it all eventually. If the opinion polls are accurate and the election result is inconclusive, then one or other of Labour or the Tories will have to court the Lib Dems, who are likely to demand electoral reform as the price of their support, and a fairer voting system will give left parties more of a chance.

The austerity measures, when they come, are bound to generate some sort of public reaction, as we’re seeing in Greece. If we can do some work now to establish the framework of a left-led anti-cuts campaign, we could be in a position to make an advance when the next election comes, which might be sooner rather than later if past experience with hung parliaments in the UK is anything to go by.

So Nick Clegg might end up being an agent of real change after all, in ways he never intended.

Filed under Economics, Politics Tagged with Economics, Politics

Happy 4/20!

April 20, 2010 by johnny Leave a comment

We haven’t had a marijuana-themed post for a while, mainly because my life is far too burdened with responsibility to allow me to smoke much these days, and when I do blogging is the last thing on my mind, but I couldn’t let International Stoner Day go by without some mention of the noble weed.

None of the main parties contesting the UK election are unequivocally in favour of legalising cannabis, but the Liberal Democrats, currently riding high in the polls, have historically been open to the idea of decriminalisation at least. Their manifesto does promise that their drugs policy in government would follow scientific advice, which is increasingly coming out against prohibition.

It would be nice to think that the Nick Clegg is a secret toker who would make legalisation of pot a red-line issue in the coalition negotiations that would occur in the event of a hung parliament, but sadly this seems unlikely.

There are more promising developments across the Atlantic in California, where a ballot initiative proposing the legalisation of marijuana is due to be voted on in November. One of the driving forces behind the measure is the Golden State’s ballooning budget deficit; supporters claim that regulating and taxing pot sales could raise up to $1.4 billion annually. If the bill passes and the money starts rolling in it may be hard for a cash-strapped government over here to resist the temptation to grab a piece of the action.

The final piece of the puzzle may, paradoxically, be the emerging evidence that links cannabis with serious mental health problems. This was the rationale given by the Home Secretary when harsher penalties for cannabis possession were reintroduced in 2008, against the advice of the government’s own advisers. However the counter-argument, that the risks associated with cannabis make it imperative that it is properly regulated, and treated as a matter of public health rather than criminal justice, will hopefully gain ground, especially if our Californian cousins lead the way.

These things move slowly though, and I doubt that we’ll be able to light up legally by next April 20th, whoever wins the election. I can only hope that it doesn’t take too long, and my dreams of spending my retirement tending my own little patch of green can come true.

Filed under Culture, Economics, Politics Tagged with Culture, Economics, Politics

Taxing issues

April 11, 2010 by johnny Leave a comment

My prediction that the election campaign would be “exciting” was perhaps a little optimistic, but the focus has been on the economy, as I was expecting. The debate so far has centred around the issue of National Insurance levels, though this clearly is just a proxy for the real divide between the main parties, which is on the level of short-term cuts in public sector spending that are needed to stabilise the economy. My sense is that Labour are doing better than expected in the early exchanges, since they seem to have more credible numbers, whereas the Tories are rather unbelievably claiming that the £6 billion they need to cover the cost of not raising NI can be found through “efficiency savings” that won’t have any detrimental effect on services.

There have been comparisons drawn with Ireland, where the government have severely reined in public spending, thus reducing their deficit in absolute terms, but with the result that the economy has shrunk even faster, meaning that the deficit is now actually bigger as a proportion of GDP. This would seem to suggest that the Labour strategy of (relatively) gentle cuts in UK government spending is the right one, or the least wrong one at any rate.

However Labour’s reputation for general economic competence has obviously been undermined by the fact that they led us into the recession in the first place, and the voters’ desire for change may be enough to carry the Tories into power. There have been some signs that Labour may try to play up the class element of the debate, which I would have thought would be the way to go – “No Cuts, Tax the Rich” would be a good slogan – but they have just promised not to increase income tax, while leaving the door open for a hike in the regressive VAT, so I don’t hold out much hope of a sharp shift to the left.

It will be interesting to see the effect that the televised leaders’ debate this week has on the polls. I like to think that the UK electorate is completely focussed on the issues, and is too smart to be distracted by presidential-style personality contests, but I expect I will be proved wrong about that.

Finally, the most amusing story of the campaign so far is that of Stuart MacLennan, the (now ex-) Labour candidate for Moray in north-east Scotland, who was forced to resign after the papers reported that he had made various offensive comments about political opponents and his prospective constituents on Twitter. I would have thought that the first thing to do when standing for public office would be to delete your Twitter feed, since the last thing you want the voters to know is what is really on your mind.

Filed under Economics, Politics Tagged with Economics, Politics, Social Media

The Linden Principle

March 24, 2010 by johnny 2 Comments

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?

Filed under Economics, Psychology, Second Life Tagged with Economics, Financial crisis, Psychology, Second Life

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