Second Life provides startups with a few hard but valuable lessons on the realities of creating products and building audiences.

The once-trendy virtual world Second Life officially turns 10 years old this week. It’s been years since its initial hype wave. Many technorati thought it would be as important to the internet as Facebook itself and many may even be surprised that SL still exists. In fact, the pioneering VR world is both profitable and maintains  a relatively large userbase for a 3D online world.

 

 

Users largely frequent SL to chat with others but also occasionally to play games, attend events, and visit fantasy/adventure regions. This hasn’t changed much since SL came out of beta, though in the first five years there was also a strong element of community dedicated to building, improving, and exploring a new virtual world; most of that zeal has since gone away. (Indeed, lately 70 percent of regular users don’t explore the world at all when they log in.)

I’ve been writing about Second Life since 2003, first as Linden Lab’s “embedded journalist,” then as a GigaOM editor and for a book, and still continue covering iton my own blog. Still, I recognize that it’s very much a niche product that today isn’t adding users. So unless you’re among them, you’re probably wondering why its 10th anniversary is worth thinking about at all.

The short answer: Because it remains a valuable case study of an ambitious and influential (albeit flawed) innovation. And also, because there’s a good chance Second Life will finally have, well, a second life. As real-world social networks like Facebook reach a usage plateau and new tools like Google Glass and the Oculus Rift emerge, it’s easy to foresee a  fairly broad desire for platforms that enable immersive, imaginative, real time interaction within a large community.

I’ll explain that point further,  but first some key takeaways from Second Life’s first 10 years:

Your product is whatever consumers say it is

Early in its development, company executives committed to a vision of SL that seemed sensible and exciting at the time: Its potential was to become the 3D web (a la the Metaverse of Neal Stephenson’s “Snow Crash“). I believe that was ultimately key to SL’s failure to go mass market because it ignored what the overwhelming majority of the users were actually doing in SL. While Linden Lab decided SL wasn’t a game, its users were primarily using it for social game activity like roleplaying, virtual fashion, collaborative sandbox building, and yes, virtual sex.

Many subsequent moves proceeded from that flawed assumption – such as a disastrous attempt to create an enterprise version – leading to few new users, but lots of layoffs. Linden Lab learned too late that companies need to evolve their product based on what it’s actually used for – not what they want it to be.

Innovation must account for usability

Years before social media became integral to the internet, Linden Lab envisioned an entire ecosystem of user-generated content. Yet many VCs refused to fund it because, as founding executive Hunter Walk once told me, back then they all considered creativity a “dark art” best left to professionals. SL was among the first platforms to prove this assumption wrong. (Unsurprisingly, Walk went on to become an exec at YouTube – perhaps the premier source of user-generated content anywhere – which launched a few years after SL.)

SL’s goal to be a platform for 3D-based user-generated content fell short because of an overly complex interface and pervasive usability problems that still hamper it today. Consequently, it’s been eclipsed by simpler, easier-to-use alternatives – chief among them the blockbuster game Minecraft, from a game developer with no Metaverse-making pretensions. There’s little point in creating an innovative product if its innovations are too frustrating and confusing to use.

Be wary of vulnerable revenue models

Counter to many tech startups of its era, SL quickly became profitable thanks to a brilliant new revenue model: selling and renting virtual real estate, on which landowners could build businesses (nightclubs, fashion outlets, sexy hangouts, etc.) and hopefully earn some profit for themselves, too. SL also had its own virtual currency, the Linden Dollar – which was exchangeable with real world currency;  back in 2006 the GDP of SL was estimated to be $64 million.

As user growth and activity stagnated, however, this revenue base slowly but inexorably began eroding. And while the company now reports 1 million monthly users, 400,000 of them are new sign-ups – and almost all of them give up after the first try. So the real user base is not that different than it was five years ago, when Second Life had about 550,000 active users.

And without new users spending Linden Dollars, landowners can’t afford to keep paying monthly land tier fees, which make up most of the company’s $75 million annual revenue. Linden Lab is struggling to find alternate revenue streams. As a general takeaway, it’s better to diversify a product’s revenue model when times are good, so as not to be vulnerable in leaner years.

While these missteps might lead one to conclude that SL is destinated to sink deeper into obscurity, there are several reasons why Second Life’s prospects in the next 10 years are still quite good.

An unexpected and important use case

SL enthusiasts have tried promoting it as a platform for any number of real-world applications, such as remote conferencing and architecture visualization, but only one consistently shows substantial and unique value: a real-time, immersive social space for people with physical or mental disabilities that impair their first lives, who often find comfort and security interacting through anonymous avatars. (Indeed, some academics believe using Second Life might even help improve motor ability for people with Parkinson’s.) This capability alone almost justifies SL’s entire existence. As the developed world experiences a spike in senior citizens, SL very well could find a new audience.

Virtual worlds still entice

SL co-founder Philip Rosedale (who stepped down as Linden Lab CEO a few years ago) just launched a new startup, High Fidelity, with the explicit goal of creating the next generation of virtual reality technology. And SL co-founder Cory Ondrejka, who went on to become Facebook’s VP of Mobile Engineering, is an investor/adviser of Cloud Party, an innovative, web-based 3D virtual world seemingly designed to specifically avoid all of Linden Lab’s early mistakes and pitfalls.

Talented technologists like them maintain an active interest in virtual worlds for a similar reason that I do: the ongoing conviction that virtual worlds have the potential to be an important facet of mainstream culture. The missing puzzle piece then is finding the right platform to deploy them.

It may finally be ready for the rest of the world

Linden Lab will soon introduce a version of SL that runs on Oculus Rift, the widely admired virtual reality headset (which just secured $15 million in funding). This move echoes a prediction made by original Second Life investor Mitch Kapor, who insisted to me back in 2009 – after SL’s major hype had cooled – that it would still become a mass-market product.

“I think it’s all a question of what’s the appropriate time frame,” Kapor said then. “The interaction metaphor is not going to be a mouse and keyboard.” Based on the growing buzz over the Rift, the right metaphor may finally be here.

Photo credit: Living Stingy

Via Gigaom