The Fall of Second Life

Second Life is writing its own doom.

Key to the fall of Second Life, is the company that runs it - and their administration of the game. Linden has given in-world residents the right to build, act and transact as they see fit, however, they have not given them the right to govern themselves. They cannot really manage risk in currency, nor have any voice in legal issues, or otherwise be represented in any meaningful way.

Linden is dangerously disconnected from the social experiment it created. The key to this is the disconnect between Linden Lab's view of what is known as a "Linden" transaction. Essentially, a micropayment. In-world the transaction is not governed by any tax, not regulated in any way. Vendors sell to buyers, buyers purchase from Vendors or other players. The beat goes on. The basic engine of the economy is an automated vendor that is placed on virtual land. That micropayment is then backed out of the game using a currency "exchange". So its an in-world transaction that returns to the real world by way of your paypal account. Linden adopts the view that the out-of-world transaction must be regulated in the same manner as the in-world transaction, that is - money paid into the game, cannot be dealt with using a new platform of laws and mores. And so despite the fact that in the real world there isn't any real law to deal with microtransactions, and the internet itself has no basic controls - the Linden Labs corporation imposes artificial constraints and devaluation on their own currency and land transactions. And in so doing, they are preparing the way for their own obsolescence.

Land is a key concept. This land is constructed from a mesh network of servers that run physics engines. They are known in-world, as "Sims". Short for simulated environments. Drop an apple on the ground, and it will fall. Linden builds sims to handle user volume, and they're supposed to build them in a manner in which existing , constructed simulations are not artificially displaced in value. Land is a key element to any economic transaction, as most transactions occur using programs constructed within 'vendors' that exist on this virtual platform.

Land oversupply began when Linden Labs - attempted to describe their user traffic in terms of individual, free accounts - and excluding the number of alternate accounts that were created by the end users within the environment. Because the logon process is such that a single account is required to logon per avatar they then recorded an explosion of accounts, as end users logged in, then discovered they could create alternates. And of course, they matched them to alternate mail accounts, and the like. As SL took off, Day to day traffic increased by a finite percentage, however on their main website they reported exponential account growth (and likely, to their investors as well).

In reality, SL had only mildly interested the vast majority of its players. They had attracted a dedicated group of people willing to forge their way into the new virtual world. As pioneers these people expected to homestead. But they were being over-reported.

Meeting this "demand" , Linden proceeded to build out server infrastructure for their projected rise in user accounts based on that account growth. This new land that they introduced caused the value of land in-world to decrease by simple law of supply and demand. Most actual players, had several accounts. A large number of people play, and then leave the game. But the account is still deemed active.

This could have been compensated for, if it were not for the fact that decisions made by Linden Labs during the evolution of their environment - were largely unilateral in nature. In the best example - Gambling was one day, simply made illegal. No election. No legislation. No public debate. Simply, one day, a unilateral change to the in-world economy was made. Picture Las Vegas, suddenly without any casinos. What would you do? You could go to the show..

Traffic decreased. It never really spiked. Linden guards their reports and by my estimate the growth pattern at linden has been mildly flat for the past two years. But the oversupply of land was en-route. The blade servers were on order and pending delivery. They had been limited by powersupply issues, and were ready to install them. They knew what would happen next.

Facing the land devaluation, and in my estimation through tacit means since the beginning of the game - Linden chose to artificially fix the exchange rate of the Linden to Dollar. This is accomplished by the fact that there are a limited number of exchanges, and the exchange itself operates only on a per-transaction fee basis. The buy and sell orders that are placed are quietly regulated by the injection of new currency into the market to match order at specific price points.

This makes it difficult to justify investment in any in-world venture. Why put real money into virtual money, if the transaction itself is fake?

Ansche Chung - at or around this time made the cover of Newsweek. This was a PR fiat - her article was entitled "Virtual World, Real Dollars" and it caused a stir. A few companies set up shop. Much to Linden's delight. And then, in what seemed like a very short time indeed - much of it was abandoned. Corporations, like savvy players - sensed there was an unseen hand in all of it. They needed basic business structure. Basic governmental structure. Instead , they found a technocracy controlled by a company that by its very presence in the game - they could not trust. Too much was left open to manipulation. Not enough determination was given. And these were big companies. Linden wanted them to stay.

So as companies are leaving for the door - they re-brand the environment as "The Grid" and attempt again denying them the basics of arbitrage (which is in essence, gambling), the constancy of a semi-regulated market (meaning, that no artificial price fixing is allowed), and self governance. These basic elements being absent, the grid becomes a silent place populated by relatively few companies.

Labor establishes possesion. The residents worked hard building this space. And then the slow realization dawns upon the residents that their self-made world is in fact, not their own. Countless hours of work building, scripting, and creating are lost as sim after sim are shut down and residents depart. Again, Linden scratches their head in wonderment. They run focus groups. And the focus groups do what they would have done to the American revolution - they tell them to re-brand, when the Boston Tea Party is happening. Residents left. Revenue drops. To counter the loss in revenue, Second Life raises prices.

And even more residents leave. Its a big question as to what people will use - and alot of times, the basic interface or the marketing can't really draw people to your product. Alot of times, its just a simple feeling of quality that can't be found unless its discovered.

At present, it is likely that SL will continue its downward spiral. In uncertain economic times, SL top management can claim with some reason - their need to establish the basic parameters of the world and secure their company against lawsuit.

That set of rights, however, that engage creativity and democracy - are at times opposed to profit motive and corporate return. A non-intuitive leap of understanding would save the company, and its product. A bill of rights delivered to the residents - that has meaningful provisions including the right of self governance including laws that can be made to be at odds with the political systems of other countries real world. A chance to determine their own fate economically. And the right to express oneself without spying or monitoring.

Statistically speaking. SL will be gone in two years. Tops.

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