METANOMICS: UNPREDICTABLE SPACES

NOVEMBER 10, 2008

ROBERT BLOOMFIELD: Good afternoon. I’m Rob Bloomfield and welcome to the 55th

edition of Metanomics. Last week we took a good look at the economics of the Real World

when we hosted Dahlia Khalifa, of the World Bank. This week we’re turning our attention

back to the Virtual World, and, in particular, we’ll be examining some of the challenges of

doing business within Second Life. As every teacher knows, the best way to make a general

point is with a specific example, so we’ll be starting our show today with the example of

Rezzable Productions, as we hear from Jon Himoff, managing director and founder of

Rezzable Productions Limited. We’ll take a look at what Rezzable is doing in Second Life,

the opportunities they’ve taken, and the rocks and the rapids they see ahead.

I will then bring in Dusan Writer and Nic Mitham, to get a broader perspective on the issues

at hand, and, yes, I know many of you want to talk about the controversy surrounding

Linden Lab’s changes to land pricing. So we will get there. But first, we’re going to place that

issue in some context.

As always, thanks to our sponsors: InterSection Unlimited, Kelly Services, Language Lab,

and Learning Tree International, and special thanks, of course, to Cornell University’s

Johnson Graduate School of Management. I always used to say “my own institution, Cornell

University’s Johnson Graduate School of Management,” but then someone said, saying I

had an institution gave the wrong impression, so I’m changing my wording a little bit.

I would like to say hello to our viewers at our event partners: Orange Island, Colonia Nova

Amphitheater, Meta Partners Conference Area, Rockliffe University, New Media Consortium

and JenzZa Misfit’s historic Muse Isle. We are broadcasting from Sage Hall here on the

Metanomics region of Second Life. I am sitting in the real Sage Hall here in Ithaca,

New York, and I think the biggest difference that I see between the two is, mine is the one

that it’s snowing on, so that’s November in Ithaca, New York.

Today we are using InterSection Unlimited’s ChatBridge system to transmit local chat to and

from our website and into our various event partners. So this great technology from

InterSection Unlimited helps bring you in touch with people around Second Life and on the

web, wherever you are. And I think there’s going to be a lot of conversation going on,

especially when we start getting into Linden Lab policy. So feel free to speak up and let

everyone know your thoughts, and you can use for questions for our guests as well.

We start our show by putting Rezzable’s Jon Himoff On The Spot. Jon is the founder and

managing director of Rezzable Productions, which is self-proclaimed to be one of the largest

public entertainment areas in the Metaverse. Jon, welcome to Metanomics.

JON HIMOFF: Thank you very much.

ROBERT BLOOMFIELD: I am surrounded, as you can see by some of Rezzable’s

creations, probably your signature creation is the Greenies, these cute little characters. One

of them looks like he’s had a little bit too much coffee to drink out of our coffee mug here,

the Metanomics coffee mug on the table in front of me. You got a little creature helping you

give this talk right beside you. So obviously, your business is all about creating compelling

and new content. I’m wondering if you can just give us a little context on where Rezzable

got to where they are today and how you’re producing value really for Virtual World

residents.

JON HIMOFF: We started Rezzable with the idea that Virtual Worlds would become a big

thing, and I think, in general, we’re still very optimistic that Virtuals Worlds, 3D Web,

Metaverse, whatever you want to call it, is going to be something that’s a major part of the

online future and how people will interact with web information and also with the social side

of it. Two years ago, when we started this, we really had the feeling that there would be a

battle for the platforms which we’re seeing really starting right now. Once the battle for the

platforms’ Virtual World technology kind of played out, the big question would be, “Okay, so

there are a few Virtual Worlds just like there are a few browsers. But, what really is the

compelling content that’s going to make interesting experience for people to actually come

online and see all the stuff?”

So we set out two years ago to start building Virtual World content and creating real time

experiences and what we call the shared experiences, shared experience being a very big

part of that. And learning about it and trying to deliver it and experimenting and making

some mistakes and taking some changes and really trying to find something that was not

just replicating what already exists online, but to create native things that really make sense

in the Virtual World. That’s really kind of our mission.

ROBERT BLOOMFIELD: So I have to ask, well, first of all, would you agree with me that

the Greenies are sort of your signature piece? Was that your idea? Who came up with that?

JON HIMOFF: Well, I think for sure that Greenies is one of the most popular brands and

destinations within Second Life. The way it came out, I think, is typical of how we work.

Someone had a spark of an idea, and the first idea, of course, goes all credit back to

LightWaves, who is actually the builder who created not just the Greenies but also some of

the really magnificent sculptures that the Greenies are used to kind of showcase. And then

we were also working with actually one of your sponsors, the guys from Language Lab,

David Kaskel, who is probably one of the original Second Life residents. We came up with

the idea that we should do things that are not just realistic, to copy shopping malls or to

create things that are kind of mirrors of the Real World, but to do something that was

surprising and fun and challenging, but also could be a platform to have experiences.

Strangely, one of the most exciting things about the Greenies’ destination, the Greenies’

home, is just flying around. There are not a whole lot of places in Second Life where flying

can be that much fun, and the whole sense of scale is a big surprise. So that was kind of

how--we started with an idea, and then we also put a team around it, and I think we’ve had

about eight or ten different people actually contribute to the Greenies project over time.

ROBERT BLOOMFIELD: Can you give us a sense of scale, I guess maybe first on the

production side? How many people do you have working with you to pull it together? How

much land do you have in Second Life?

JON HIMOFF: Right now we have about--I can tell you exactly. We have about 12 Sims

that are fully content and open to the public. We’ll actually bring that back down to about

eight in the next month, so we’re actually downsizing now our operation in Second Life.

ROBERT BLOOMFIELD: And how about traffic? How do you keep track of the resident

attention that you’re getting, and what do those numbers look like?

JON HIMOFF: We put in place a series of sensors that keep track of visitor counts 24/7, so

our estimate is that we’ll have about two million unique avatar visits across our various Sims

this year. A lot of people get concerned we’re doing something with those sensors. We

don’t. We just use it to count, just to see how popular the various areas are.

ROBERT BLOOMFIELD: And are you counting unique avatars as well as repeat avatars? I

mean do you distinguish between those too?

JON HIMOFF: Yeah, we do. Honestly, the numbers aren’t big enough to really make a big

deal out of it. We think about 30 percent are recurring, so 70 percent are first-time visits, and

the other 30 percent are people who have come back.

ROBERT BLOOMFIELD: Okay. So now you have this compelling content and these very

interesting and unpredictable spaces that people can come to. I guess my next question is:

How do you actually turn that into revenue? One model is to work with sponsors, and you

actually have a great page describing some of the opportunities for companies that want to

engage in in-world product placement contests and events typically tied to that placement or

festivals. And then you refer to projects that have never been done before, “innovative

promotions limited only by your own imagination and your budget.” Can you walk us through

some of the things that sponsors have done in working with Rezzable?

JON HIMOFF: Big credit to Nic who’s sitting on the panel tonight. I think probably the most

interesting brand promotion we did was with Nic and the L’Oreal promotion, which really

took great advantage of a very popular space. I mean that was fun. It was engaging. For

me, that’s the best thing we’ve done so far.

Some of the other promotions, we did a very nice promotion for Language Lab, which was

also great, and that was a grid-wide promotion. We used a thing called a global music

festival, and we had about 20 different concerts, some with multiple DJs, and this is a great

way to get word out across the entire grid to promote--Language Lab teaches languages

in-world, but it’s also pretty cool stuff. So the global music festival was focused on

non-English speaking DJs and world music, so it was a nice fit.

ROBERT BLOOMFIELD: Now you also have tried to get some revenue directly from the

residents. I don’t know if this is a first. It was the first I had seen this done. On your Black

Swan Sim, you require people to wear some jewelry. They can get a wristband or something

like that, that keeps them from being booted out. I actually had a little fun today as I was

doing background research for this show, so I went into Black Swan, and I ignored all of the

warnings I got that said I needed to pay or bad things would happen. After a few minutes, a

giant magnifying glass materialized over my head and set me on fire with the sun’s rays,

and the next thing I knew, I was sent home. So kudos to you for a creative way of getting

your point across and no doubt entertaining the other people who were there watching. How

successful has that been as a method of getting revenue for your content?

JON HIMOFF: I think on Black Swan it’s been about as good as we thought it was going to

be. A lot of people are very accustomed to having free access to content on Second Life.

We just don’t see that as a sustainable business model to give stuff away. We’ve been very

lucky to work with some of the best artists, and we actually pay most of them. Some do it

just for fun, but, in general, we pay most of the artists to make stuff for us. And, really, the

issue is how do you build a business model around keeping the stuff current and changing it

and doing innovative stuff. We have two fairly new pieces over at Black Swan. One is called

Nubility(?), which is really a pretty amazing thing. It’s a mathematical model that builds and

destroys itself every hour, and it’s really a spectacular thing.

We also just put up a new show from Bryn Oh, which is a narrative story where you have to

climb up a tower, and each level of the tower gives you different parts of the story until you

get to the top, and then you understand what the whole thing’s about. These are really the

kind of things we want to do, but, in order to do that, we have to get support from the

visitors. There’s really just no other way. The art pieces themselves are too expensive for

most people, and we just don’t see any appetite from corporate sponsors to come in and

actually pay monthly sponsorship fees to make it interesting for us.

ROBERT BLOOMFIELD: And is that simply because there aren’t enough people yet?

JON HIMOFF: Well, I think the problem specifically for brands in Second Life is really risk

and reward. If you think about the reward side, I think the big thing that the [AUDIO GLITCH]

were looking for in 2006 was getting a big PR uplift on being part of a unique platform. Well,

two years later, that’s just not there anymore. They don’t get the reach because, even a

place like Greenies, which is quite busy, it’s very hard to understand what part of the world

people are coming from. So the brands struggle to understand what budget to pay for stuff

out of. And then just the reach doesn’t really match against the kind of things they could

spend their online budgets on. I mean you’re talking about everything that we have is two

million visitors this year. The big brands are used to getting 200 million visitors for an ad

spent. So I think that reach is probably the big problem.

Then when you look at some of the baggage that Second Life has with it, I think most

brands feel that that’s really not a fair tradeoff, that they don’t see what they can get as an

upside, and they feel that they have a lot of brand exposure on the down side.

ROBERT BLOOMFIELD: I’d like quickly to run through some of the numbers on Second

Life’s growth and in-world economy, and I know we’ve got a series of some graphs that

SLCN can pop up now. So first, we have land sales which have probably been, over this

year, one of the bigger success stories in Second Life, with a particularly large increase in

the second quarter of 2008. Linden Lab also tracks user hours quite closely, and user hours

per quarter, if we just track them on a quarterly basis, are rising more linearly. Not that much

of a rise, but we’re still looking at slightly under a 100 million user hours per quarter. And

then finally, we can take a look at resident-to-resident transactions, which again have grown

steadily but not stupendously. We’re up close to the million-dollar per-day mark so that’s

one million U.S. dollars changing hands within Second Life from resident to resident. I

guess, Jon, my question to you would be do you see this growth--is this going to be enough

for Rezzable to actually be a long-term going concern where you would like to see it?

JON HIMOFF: I think Rezzable’s future is not pinned to Second Life. That’s probably my

first and most important answer on that. Going back to these statistics the Linden spews out

on kind of an irregularly, almost monthly, basis, I think there’s a huge amount of noise in

that. For me, the most interesting statistic is the number of avatars that spend money each

month. And, more or less, within ten percent, it hasn’t grown since this time last year. So

their latest report was 419,000 avatars spent money back in October. That’s avatars. That’s

not humans, so you could slice through that and say that probably a lot of people who spend

money have more than one avatar not attached to the same account. So what’s really inside

the 419,000? Three-fifty? The 350,000 people who--and that’s our definition of engagement

is that you spend or receive some money from somewhere, someplace. So that’s been

pretty flat since last year.

And really what I think happened last year was a real defining moment for Second Life that

that was a party that no one came to, and that’s the CSI--I call it the CSI flop. But I guess it

was a defining moment where Second Life could have gone really big-time mainstream, but

instead didn’t. There’s a lot of impact out of that, the biggest of which has been that they

haven’t done any major new user promotion since. I think when you look at the data that

Linden does have, the user hours I think is a bit misleading because there’s just a huge

amount of camper traffic and bot traffic. Who knows what people are doing, but they’re

certainly not engaged. They’re certainly not doing anything. And the other side was that

Linden had information that they could tell us within some reasonable guess just how many

of those monthly hours are, in effect, campers or bots, which I think really masks the fact

that the Second Life platform is not growing in terms of new users. It’s not growing in terms

of engagement. And I think this is a fundamental problem.

ROBERT BLOOMFIELD: We have lots of questions coming up in backchat, and I’m going

to actually hold off on those just until we get to the panel. You said something very

tantalizing about your future not being in Second Life necessarily, but, before we get there, I

do want to turn to the fact that you’re dependent, to the extent that you stay within Second

Life, you’re dependent not only on the growth of the user base, but also on the policies that

Linden Lab sets. And so one policy change in the news these days is the engine pricing for

so-called Open Space Sims. So what I’d like to do is just give a quick review for those who

haven’t been following too closely, and, Jon, then get your take on this.

JON HIMOFF: Sure.

ROBERT BLOOMFIELD: Back in March, Linden Lab allowed people to buy Sims or regions

of Second Life for a price of about a quarter the cost of a regular Sim, but it only provided

about a quarter of the support for prims which are the building blocks of Second Life. These

Open Space Sims were extremely popular, and it’s possible that a great deal of that spike in

growth in Second Life land mass is actually due to people getting a bunch of these Open

Spaced Sims. However, Linden Lab felt that many people were using Open Spaces as

places to build giant edifices rather than having them be the open spaces that they were

intended to be. So on October 27th, Linden Lab announced they were going to raise the

price of Open Space, the monthly tier, from 75 to $125 a month. And this created an

enormous furor, enough so that Linden Lab actually backpedaled on a publicly stated policy,

which is pretty rare for them.

So the key elements of the new policy are that, if you actually keep your Open Space as

open space and use it in the minimal way that those spaces are intended to be used, then

you’ll be charged the original $75. They’re also introducing a new class of land called a

homestead that will allow more functionality than Open Spaces, not as much as regular

spaces, and the price of those will rise. There will be a partial increase from 75 to $95, and

then there will be another increase; that’s in January. And then, six months from now, an

other increase to $125. So this has not been popular despite the backpedaling.

You can actually see on the wall of Sage Hall here--hopefully, SLCN can get a shot of

this--we’ve got a picture of a resident protest, the group SOS, which I guess, give or take a

letter, stands for Save Our Open Spaces. And let me just read from resident and Second

Life financier IntLibber Brautigan sent me a message today saying the following, “Save Our

Open Spaces has organized as a nonprofit charitable corporation in the state of Iowa under

the name ‘Grid Representation Foundation.’ The Foundation is launching its legal fund as

an IPO on the Ancapistan Capital Exchange in Venture Square, to raise an estimated

$10,000-U.S. in legal fees to pursue a class action claim and injunction against Linden Lab

for its bait and switch tactics.”

So first of all, let me say we’ll have to get our legal correspondent, Ben Duranske, on here

sometime soon to talk about the legal danger of a class action claim like that. But someone

who’s actively running a business here in Second Life, Jon, my question for you I guess first

is: Do you see this pricing increase having a substantial impact on Rezzable? And second,

just what’s your take on the policy and Linden’s role out of it?

JON HIMOFF: We feel very strongly about this. I think it’s a scandal of the highest order

that, on the one hand, Linden, for the last six months, has been claiming that the platform is

growing. The CFO, the CEO, everybody who has a chance to stump for Linden, has been

saying that the land mass growth justifies that Second Life is more relevant, that there are

more people coming and all this kind of stuff. It’s just nonsense. We saw that it had to be a

flipping of full Sims into void Sims and transferring these things that was driving these just

gigantic numbers.

Since August we saw that the grip has grown 40 percent or 30 percent, just massive

increase, and we have not yet found a new business that's come to Second Life. So where

are the Sims going? Who are all the new people? It's really just outrageous that they were

able to--and up until two weeks ago just before they made the announcement they were

saying everything was great. The CFO for Linden had the audacity to say that Linden’s

immune from the financial crisis in the whole world. It’s a shocking thing for someone to say,

given the difficult times that everybody is going through, somehow Linden’s in this bubble

where they’ve perfected everything.

So when they backtracked on the OpenSim thing, we knew that had to happen, the bubble

had to burst. We didn’t actually think they would burst their own bubble, but that’s Linden

Lab for you. But let’s just drill into kind of our take on what exactly happened because I still

think most people really don’t understand it. In fact, we understand it. We don’t understand

why.

So they had a product that we bought earlier, even in 2007, which was the void Sim. Now a

void Sim was a very simple product. A full region runs on a CPU. Right? It’s a little bit

technical, but a CPU is [one to one?] with a region. So they said, “Well, actually, wouldn’t it

be nice if you had more space but the same CPU?” So they split a CPU down into four void

Sims, but you had to have the same owner and the prims were allocated across the four

Sims fairly evenly. Now the prims is actually not the real issue here. It’s the fact that there’s

still only one CPU. So whatever happens on any of those four voids, the CPU has to kind of

deal with that and share the processing capacity. Right. So when you own the four voids,

you have a chance to figure out if one activity on one void is slowing down the other three or

whatever; you have a chance to manage all that. Largely, they’re yours, and you can look

around and see what’s going on. Right?

So what Linden did in March is really astounding because what they did was, they broke up

those four Sims and let different owners own each one of them. But now, unlike mainland,

which basically a mainland region is still sharing one CPU, at least you can look on the map

and see who’s around you, if there’s some casino doing something or an ad farm or

campers or whatever, and then you have some chance to either move or file an abuse

report. You have something because you can see what’s going on. But once these voids

were split up, no chance at all to figure out what was lagging out your Sim because you

have no visibility and no way to communicate. That’s not possible to deal with it.

So eventually the contention on that CPU forced Linden to do something. I’m sure they

didn’t really want to do it because, in doing this, they basically blew out the whole land

pricing and the capacity. Because basically what was happening, I think--and you’d have to

really look at the numbers, and it’s really not that interesting for us--but they were seeing a

lot of mainland sales move off mainland and either back to the land barons who provide a

better service than Linden does or out to these void Sims, but now they’ve thrown a spanner

in the whole thing.

That’s kind of our view on it, but the real issue is not so much around is the pricing

reasonable because it’s simply not. You would expect to see the cost of a region go down

over time and the performance go up over time, not the other way around. So I think that

just goes to show that Linden’s really struggling to scale out their platform. The real issue for

me is where’s the growth. So if the OpenSims were not in fact, it was a big charade and

there was no growth, what exactly is Linden going to do? Are they able to do anything to

actually bring on new users and create a viable platform here? I think that’s really the

question that we’re not comfortable about the answer over the long term.

ROBERT BLOOMFIELD: If you get an answer that you don’t particularly like, then I think

you’re going to be looking at the next question that Olando Decosta, Roland Legrand in

Real Life, is asking in the backchat, which is: Are there similar worlds with similar

demographics and open-ended user-generated content that would be better for your

purposes than Second Life?

JON HIMOFF: Yeah, I mean we’ll looking at stuff actively right now I can tell you. I don’t

know that the OpenSim, which is the most obvious next step because, on the surface, it

looks like we can reuse our content. I think this is what Linden doesn’t understand is actually

they create the platform. It’s the people who run communities and have the content that

actually have the sticky connection to the visitors. We’re trying to figure out where we can

best reuse our content, and we can create as good if not better user experiences.

I’m not overwhelmed by what I see out on the OpenSim platforms, the other OpenSim

platforms, but OpenSim itself looks very interesting. Because I think what we’re seeing now

is that IBM is involved supporting the OpenSim code base, and also Microsoft is getting very

interested because a lot of the OpenSim stuff runs on Windows. So I think we expect to see

a lot of stability and a lot of activity towards OpenSim the same way in which IBM supported

Apache, and now Apache basically runs 90 percent of the web servers in the world. So I

think that’s where we’re most interested in. I don’t know that--good, bad or indifferent, we

know Linden, and we know what they’re capable of. I’m not sure I’m willing to jump straight

off into an OpenSim platform until we have a better due diligence on what those are all

about.

ROBERT BLOOMFIELD: Okay. We’ve got a couple other experts on the panel, and so I’d

like to turn to them at the halfway point through the show. And so thanks, Jon, for giving us

some great insights into Rezzable and your take on some of these issues, and I’m sure we

will hear from you again on the panel. But I’d like to turn now to Dusan Writer. Dusan is

Doug Thompson hailing from Toronto, who has his own business up there, actually as an

expert in marketing and communications, a Real World enterprise that now is developing a

more significant Metaverse Virtual World focus. So I guess first of all, Doug, welcome again

to Metanomics, my neighbor to the north.

DOUG THOMPSON: Thank you. And no snow here, so you beat us to it.

ROBERT BLOOMFIELD: Yeah, well, sadly, Ithaca often does that. I guess I’d like to start,

Doug, with what’s your take on the Open Spaces dispute. I guess, for starters, we can talk

about the substance of the policy, and we can also talk about their communications practice

in presenting it. So either of those, or both, hopefully, you can shed some light on.

DOUG THOMPSON: I think it’s a disaster, and there are probably as many theories about

why and how it happened as there are residents of the grid, whether it was a conspiracy or

a bait and switch or just pure incompetence. I kind of look at it a little bit of a larger

perspective, which is that it’s a demonstration of concerns I have with the platform, which is

a lack of predictability. And predictability doesn’t mean that things need to stay the same,

but rather, that if there’s going to be change, it needs to be organized and executed in a way

that residents can understand it.

If I’m going to make an investment in my business and something that I need a return on

that investment, let’s say, over a year, I need some kind of assurances that, where I’m

putting my money, my rent isn’t going to increase, isn’t going to double next month. If this

happened with my office space, if I had moved into some office space and, two months after

moving into my office space, they jacked the charges up 66 percent because they said I was

using too much electricity, I would be very pissed off because they rented this office space

out with lots of plugs in the office space, and they knew how much electricity I could use. So

I think that lack of uncertainty--whether you have a small business or just want to use

Second Life as a platform to enjoy yourself, to explore, to have a host, whatever, I think we

all would like some predictability. And, if there’s going to be change, some kind of sense of

where that change is coming from.

I really pick up on what Jon was talking about with risk and reward. I mean I can make my

own judgments about what risk I’m willing to take. What’s not clear to me is--sorry I got a

backchat saying that my sound is a bit off. I’m going to tweak it here. What’s not clear to me

is what Linden Lab’s metrics are, how they’re measuring risk and reward. Are they

measuring based on user hours, land growth? I think Jon touched on some really important

points. I don’t know where they feel they’re getting their value from so that we can

understand what their future plans might imply for where they’re going to develop and what

kind of price structures they’re going to have for their products.

ROBERT BLOOMFIELD: We also have with us today Nic Mitham. Nic Mitham actually was

mentioned earlier in the show as being the person behind the L’Oreal association and

sponsorship in the Rezzable’s Greenie Sim. Actually, if you’re interested in seeing some of

that very creative product placement, we had Nic on the show back in August, and you can

take a look at that archive. But really, Nic, first of all, welcome to the show.

NIC MITHAM: Hi, Beyers.

ROBERT BLOOMFIELD: It’s great to have you back. I have you on here today because

you have much more of an outside view these days of Second Life and Linden Lab since

you’ve really established yourself as an expert on the Virtual Worlds landscape and all the

Worlds that are out there now and the ones that are on the horizon. What’s your take on the

pricing policy that you see, and, more generally, are other Virtual Worlds handling this type

of thing better?

NIC MITHAM: I think, in the short term, taking a short-term view, I think that’s what Linden

Lab has done. It’s a poor move. Content, community and creation I think are kind of the

three cornerstones of Second Life, and those three elements have made it what it is. So

anything that negatively impacts the ability of the people to come together and the ability of

the people to make things inside Second Life is a really, really bad thing. When you kind of

try and take a more holistic view than you’re sort of questioning what’s the business model

behind Linden Lab. You look at them and try and compare it to, say, another Virtual World

such as, say, IMVU. Well, their model is virtual goods and less about land. So I think that

Linden has moved to really up land prices is going to basically [AUDIO GLITCH] well, they

are a real estate company. That’s how they’re viewing--they’ll make their money moving

forwards. In my view, that’s not where the market is going.

We see worlds like, say, Mycosm, which again is going to be a user-generated content

platform, but they’re going for small controllable spaces. So I think, ultimately, anything that

hampers or holds back people doing things inside Second Life is only, and obviously it

sounds obvious, it’s only going to hamper growth, and growth is what they need.

ROBERT BLOOMFIELD: Well, I guess, first, what’s your take on the status of growth here?

Are you as pessimistic as Jon?

NIC MITHAM: Well, I think, obviously, we all know Second Life’s had fantastic growth in

terms of top-level numbers, people trying it out. Jon would know probably far better than

myself the issues that Second Life has with retention. I’ve read a few stories recently about

some companies being brought in to sort of try and sort out the whole orientation and vital

first hour. But I think, on the whole, I think growth in Second Life has been pretty flat lately.

So again, the issue with upping land price is going to amplify issues with the residents and

might not help continue to grow, so I think it’s a step back not a step forward.

ROBERT BLOOMFIELD: Let’s take the question of what other Worlds are out there. I know

we’ve got a graphic of what is now--you’re very famous for these maps of the Virtual Worlds

dimensioned in different ways. I think the one we’ve got is showing the color indicates

what’s already active and what’s not yet in an Open Beta, and then the different uses of

those Worlds and how old they are. What I can’t figure out is, if I’m Rezzable, if I’m

Jon Himoff, and I’m looking around for a better platform, I admit I’m not sure, for all the

complaints that we hear about Second Life and Linden Lab, what is the alternative?

NIC MITHAM: Firstly, I think what Rezzable have done has been absolutely incredible

inside Second Life. Jon’s realized the importance of having the highest quality content, so

that’s clearly one of the sort of the main attributes of the Rezzable brand. So if the question

was where should Rezzable go next, well, it has to go into platforms that allow high quality

content. And I’ll break that down to two. So by “allow,” what I mean by that is allowing third

parties to actually create things. So straightaway that kind of limits the selection to a certain

degree. In terms of having quality content, there needs to be a platform that can actually

allow the creation of objects and experiences and places which are great fun to be in and

great fun to interact with. Sure, that’s not a massive list. We’re seeing the rise of the

brand-driven Worlds. We’re seeing the success of things like, say, Barbie Girls, the MTV

Portfolio. And Lego Universe coming down along, which is going to be quite strongly brand

controlled. I’m sure Jon’s looked at these.

What I think of those platforms, such as IMVU which--I mentioned, Mycosm, which again

I’ve mentioned, I think potentially one area to possibly look at is actually working with Worlds

which, say, at first glance, might be tightly controlled but actually would allow a company to

come in which is clearly the leader in content creation. So that might open up things into

Worlds such as something like, say, Football Superstars, which I think is just to about to

enter an Open Beta. So again, there’s not a whole lot of choices. Second Life is clearly the

right place to be for now. But, people want to find interesting places in Virtual Worlds. Being

in a Virtual World is not enough for retention. So that’s an upside, and I think, for Virtual

World operators outside of Second Life, they have to quickly recognize the importance of

creating something that’s engaging, has a story to it and will actually encourage people to

come back. It’s not a long list.

[ROBERT BLOOMFIELD: Well, so first of all, let me just say you mentioned Football

Superstars. I was so excited when I heard about that, until I realized it was the wrong kind of

football for me.

NIC MITHAM: The wrong sort of football, yeah.

ROBERT BLOOMFIELD: But I hope that that succeeds, and then I can look forward to

American Football Superstars in not too long. I guess I also would like to give a shout out to

Xan Linden, who is in the backchat, who wants to--oh, now the backchat is going so quickly,

it’s hard to keep track of his line. He just says, “I’m sorry there’s so much anger about the

Open Space pricing communication and increase. I just want to say everyone here at

Linden Lab is intensely focused on the resident experience.” Which I do think we all

appreciate. Jon, I’m just curious to here your take--yeah, go ahead.

NIC MITHAM: I mean I think, without trying to sound facetious, they’re probably about

12 million accounts too late.

ROBERT BLOOMFIELD: Point taken. Jon, I’m wondering if you could just react to Nic’s

sort of casting of the possibilities out there, the Worlds that you could view as alternatives. I

don’t want you to give away any secret negotiations or anything you’re actually working on,

but whatever you’re willing to say.

JON HIMOFF: Yeah, I mean we’re obviously looking at the space. I think Nic did his

presentation with that radar chart which you need to get your 3D goggles on to kind of

understand. And I think what struck me most about his whole presentation was when he

finally gets around to talking about Second Life. They’re one little dot on part of his map,

that’s all by itself. I think that’s kind of where Linden is right now. They are out there all by

themselves, and, in fact, they’re being attacked both from the Tweens and the 2-1/2D

Worlds that are becoming more realistic and building stronger user engagement and more

brand loyalty to their brands, like Habbo Hotel, which is five and a half million online per

month versus Linden which is reporting 900,000.

And then, on the top end, you have Grand Theft Auto and all the Xbox and Sony PlayStation

games, which have significantly higher level of detail, much better physics. And, for that kind

of stuff, people are willing to spend real money on that, and the content producers are

making, you know, they’re making a blockbuster movie making Grand Theft Auto. There’s

no question that the audience is going to pay for that content. I mean they stay in the street

overnight to get it first. So where really is Linden within the online gaming space and within

the 3D space? I mean the answer I don’t even know. I really don’t know. I haven’t heard

anything from the new management that would give us a clue that they have any idea.

We hear a lot of noise about immersive workspace and enterprise offerings. It doesn’t make

any sense to me. We hear about government activity. They’re going to sell Sims to the U.S.

government. I don’t know. I guess that’s possible. We know that they had had some

success with education and with selling into universities, but guess what? That’s at a

discounted rate. So they’re working harder for less money when they sell into the education

market. How viable does that make their business? I don’t really know. But the net net of it

is, and we sit here as a full-value paying customer. I ran our numbers, and, since we started

with Linden, we spent more than 250,000 U.S. dollars with them, and I can tell you that

we’re just not happy customers. We don’t get service. We don’t get response. And then

we’ve been subject to several price increases. This, by the way, is not the first price

increase. And I just don’t think that’s good business.

ROBERT BLOOMFIELD: Let me ask; I’m seeing in the backchat Temporal Mitra and a few

others are also talking about the price decrease that we saw a few months back, where, if

I’m remembering my number correctly, it used to be $1,600 to buy a Sim, and then they

dropped it to a thousand.

JON HIMOFF: Seventeen-fifty because I bought a whole bunch; I think it was $1,750.

ROBERT BLOOMFIELD: Okay. Of course, they had made what they viewed as an

investment in land in Second Life, which was devalued overnight.

JON HIMOFF: Yeah, I was very unhappy about that. I thought that was outrageous. So

they took our money on the front end, and then they increased our monthly fees on the back

end. And when you still look at people, like some of the sweetheart deals, whether they

were for education deals or for people who had land that’s grandfathered, there’s a huge

amount of land barons who pay a fraction of the price we paid for Sims. So really, what all of

this noise is about, and this is where I scratch my head and think to myself maybe I got this

wrong with Second Life, is really the fundamental questions: Who does Linden view as their

key customers? It’s certainly not Rezzable. God, I hope it’s not because, if they think we’re a

key customer, they’re even worse at customer service than I thought.

I think the real issue is what are they focusing on? Why can’t they be more transparent

about it? And then we can all go off and make our own decisions. But instead, they tell us

noise about, “Hey, the platform’s growing,” which is a signal to say, “Stick around,” when, in

fact, it’s a big land charade. They say, “Hey, the concurrency’s going up to 70,000,” but so

what? What has that got to do with anything? How much of that is bot? How much of it is

camper? How much of it is traffic that’s on pornographic areas? What has that got to do with

the mainstream adoption of the platform? They talk about growth of the Second Life

economy. Sixty--seven percent of what? I don’t see it. We’re not seeing 67 percent growth

within our customer base. That isn’t happening to any merchant on the grid. So really, I find

the whole thing to be just a huge amount of noise and just really gives me a headache. And

then when you try to ask sensible questions to people like Mark Kingdon, they don’t answer

it. They avoid it. And they throw spin and hype back in your face, which I think is really

unacceptable.

And I really just say to Xan, you guys at Linden Lab shouldn’t feel all bad about it because,

in fact, we know that a lot of you really believe in this, and you’ve done a lot of great work.

But I think the real issue is, this is business; this isn’t just a science project. Dealing with the

land guys, it just doesn’t make sense. I’m sorry. I’m getting frustrated again. I was trying to

calm myself down over the last week, but you’ve managed to spike my frustration again.

ROBERT BLOOMFIELD: Well, clearly looking at the backchat, you’re not the only one that

is frustrated and concerned. I’d like to move to a slightly different topic that touches some of

the same buttons. Dusan, I’d like to turn to you. You wrote a very interesting article about a

recent announcement--actually, just to read from your blog for a minute, you write, “Linden

Lab has announced a partnership with Rivers Run Red and has launched immersive

workspaces--that’s a trademarked name. These spaces can be hosted on an enterprise’s

own servers so everyone has privacy,” and they’re segregated from parts of Second Life

that might not be business appropriate. Actually, I am now in my text. I didn’t want to

confuse people. This could be a nice product. On the one hand, I think a lot of us should be

very excited about this, that Linden Lab is moving forward with a behind-the-firewall

business-oriented product. I mean this isn’t Rezzable’s situation. This is more what I’m

interested in as an enterprise adopter myself.

But I’d like to read also a comment that, Dusan, is on your blog post. This is by

Jon Brouchoud, Keystone Bouchard, an architect in Real Life and in Second Life. Here’s his

comment. He says, “I may not fully understand how this works, but it sure seems like a

crippling blow to all of the other solution providers who have been pining for this feature,

from Linden Lab, for years. Toiling away on the consumer platform, you know, the regular

Second Life, Linden Lab finally offers a solution we’ve all waited so patiently for, but then

they funnel every ounce of new business through a single developer? Am I missing

something,” Jon asks. So, Dusan, I guess I’d be very interested in your take on this

movement. Do you see this as a mix of good and bad? And what advice would you give to

Linden Lab on this front?

DOUG THOMPSON: Sure. And actually it fairly picks up on Jon’s plan, in a way, because

again it’s a lack of predictability about what this might mean for the future of the grid. But

what’s very clear is that the Lab is making business decisions based on metrics that might

be invisible to us. I mean we don’t know how many of these private Sims are being sold. We

don’t know what the services and consulting economy might be outside of the grid. We don’t

know even if the Lab has that data.

I’m impressed with the platform that Rivers Run Red has put together. I think it’s a platform

that I could see a client saying, “Yes, I will get a return on investment.” It does not need to

be associated with the Second Life brand. In other words, it’s weight-labeled. And I can see

that I can actually save money. It’s a simple platform. It’s behind a firewall. All of their

corporate data is secure. The implication, of course, is that this means that there are two

grids. There’s a grid of corporate customers that’s behind a firewall. And there is the main

grid.

What’s unclear is me. If I’m a content developer, if I’m just somebody who’s like Keystone

who’s doing work on the main grid or who just lives here or who just is here for

entertainment or whatever, it’s unclear to me what does this mean about the Lab’s focus?

Where are they putting support? And where do they see the economy growing? Maybe they

don’t see the economy growing by having 50 million users. Maybe they see the economy

growing through the user hours. They would rather have corporate people in, sitting in

endlessly boring four-hour business meetings. I have no idea. But, I don’t know.

The challenge I think to content creators, to the rest of us, is, yes, it’s a great business

application. At least it’s a first step on the adoption curve so, yes, it’s a great business

application, but what does it mean for the rest of us, and where is this all going? And I agree

with Jon, when you talk to the Lindens, they’re obscure about some of these developments.

They’re still obscure exactly what that firewall means; how separate is it from the grid. They

won’t comment. Are they planning to provide this service to other people, or is it exclusive to

Rivers Run Red? Unknown. I don’t know.

JON HIMOFF: I mean I think they don’t know, to be honest.

DOUG THOMPSON: Yeah, I think they really don’t.

JON HIMOFF: I think River’s just bullied them into it, so they probably don’t even know

what they agreed to.

DOUG THOMPSON: Yeah, it could be.

ROBERT BLOOMFIELD: Nic, what’s your take on Virtual World enterprise spaces? Do you

see that as having a lot of promise in the industry? I know that when I went to the Virtual

Worlds Conference in L.A., the enterprise track was one of the quieter ones. All the people

wanted to see about the Kids Worlds. And I’m wondering what your take is on that aspect of

the space, and, of course, if you have any thoughts on this particular entry, immersive

workspaces.

NIC MITHAM: Well, I mean I don’t really get too involved at all on the enterprise side of

things, so I can’t really speak with any kind of authority just because, as you just pointed to,

there’s just so much going on, on the consumer side. I think it’s a bit of a kind of a catch 22

with enterprises because you look at the credit crunch and the current economic

environment and carbon footprints and cost control and all those kind of things, you can

build a really, really strong case for business activities in Virtual Worlds actually being

meaningful and being of value. I’m not seeing the pull-through. I’m not seeing the take-up.

I’m not even seeing the press releases about companies doing stuff. Now that might be

because it’s behind the firewall and behind the communications department. Who knows.

But I don’t think that’s the case because I think companies like to kind of show off their cool

and progressive, just as we saw with all the stuff in Second Life last year.

I think, to offer my view, and it’s a simplistic view because I don’t look at the space too

closely, I think in terms of more mainstream business adoption, I think people still have a

hang-up with avatars. I think they have an issue with kind of a quirkiness that’s not a good

quirkiness, but kind of a bad quirkiness of, “That just looks weird,” or, “Isn’t that a little bit

strange, me controlling an avatar.” So I think that’s, again, just my view. I think that’s a

potential issue for enterprise take-up which then, if you kind of follow the argument through

to the end, then perhaps a neater solution might be kind of like a first person enterprise

Virtual World, where it’s less about the avatar and more about the engagement and what

you’re actually doing. Can I comment on the Rivers initiative? Not really because I haven’t

seen too much about it, I’m afraid.

ROBERT BLOOMFIELD: Okay. I appreciate those comments, and I guess one of those in

particular: the quirkiness of the avatar. It definitely resonates with me as, over the last month

or so, I have been bringing accounting professors and accounting standard setters into

Second Life, to discuss policy-oriented research. I know these are people who most of them

have never been in Second Life before. They have basically no interest in Virtual Worlds as

Virtual Worlds. It’s just I’m pushing this as a convenient way to do something we really

couldn’t do otherwise, which is, bring people together from across the globe to talk about

revenue recognition and lease accounting and other fascinating stuff like that. I think the

quirkiness of the avatar in the space raises lots of real eyebrows.

NIC MITHAM: I think it takes the focus away from where it should be. It should be about,

“What shall we do in this space together?” That’s the thing with enterprise usage, and it

shouldn’t be, “Well, I’ll have to make myself look cool,” or “Why is half of my body white?”

It’s the wrong discussion to be having in a business context, and then it loses credibility.

DOUG THOMPSON: I’m not entirely sure I buy that argument. That is the stumbling block.

On the other hand, you can also invest more per avatar in that orientation curve. You have

casual users coming into Second Life. You can’t invest 150 bucks or 200 bucks of training

time and orientation time and cultural acclimatization time. The other thing about the Rivers

Run Red deploy, I guess for lack of a better word, is that it really is stripped down in a sense

of--I don’t want to say it the wrong way, but stripped down of some of the distractions, for

lack of a better word.

NIC MITHAM: I haven’t seen it, as I said.

ROBERT BLOOMFIELD: Well, we will be covering the Rivers Run Red and immersive

workspaces in detail in the month of December. And actually, Doug, Dusan, we can thank

you for that, for helping us secure Justin as a guest for that, so I really appreciate that. I

believe I will be doing that show from Brussels so that’ll make another global expedition for

Metanomics.

Well, we are pretty much out of time so I’d like to thank my guests. We had Nic Mitham of

K Zero; Doug Thompson, Dusan Writer of Dusan Writer’s Metaverse the blog and Remedy

Limited, the marketing and communications firm; and we started off the day with Jon Himoff,

founder and managing director of Rezzable Productions. So thanks to all of you for joining

us. It always seems like we never have even close to enough time to get through all the

topics, but I appreciate your time. I really appreciate the wonderful, very active backchat.

Feel free to keep it going for a little while.

Before I end, I do, since it’s my show, I get an opportunity to say a couple closing words in a

segment that we call Connecting The Dots. The title of my Connecting The Dots is the same

as the title of this show, Unpredictable Spaces, an inspired title from my producer,

Bjorlyn Loon, Lynn Cullens in Real Life. I loved the title because this show has really been

about two very different forms of unpredictability. First we have the unpredictability of the

best content creators in Virtual Worlds. Look around this set, and, SLCN, feel free to pan

around and get some shots of these wonderful creations from Rezzable Productions.

You can see one reason that as many as 75,000 people are in Second Life at any moment.

We can complain about the growth, but they’re here to enjoy the unpredictability of the

spaces that people have created and perhaps try their hand at creating such spaces

themselves. But there’s another way in which Second Life is an unpredictable space, and

that’s that the environment can change at a moment’s notice. Linden Lab might raise their

prices. They might lower their prices. They may ban your form of business, as in the case of

gambling or regulate it so strictly that they practically ban it, as they did in the case of

banking. This type of unpredictability violates one of the most basic tenets of business

regulation. If the first rule in medicine is, “First, do no harm,” the first rule in business

regulation is, “First, be predictable.” Who will make a long-term investment if they can’t trust

their government not to make major changes in the short term?

Now every business faces risk, but the risk of a quasi-governmental intervention, as Linden

Lab does, is really very different from a statistical perspective. We can view most business

risk as being just the outcome of a large number of independent events, all of which could

turn out one way or the other, and we need to protect ourselves against that risk. But, at

least it’s predictable because we have so many different things that we don’t know how to

predict. In the case of government regulation, or Linden Lab policy, it’s a very different type

of risk because you have a single decision maker who can make sweeping changes that

completely alter the viability of business models. So we’ve got unpredictable spaces, in their

good and their bad sense, right now among businesses that are using Second Life. And I’ll

just leave that as an observation and let people draw the conclusions that they will.

Thank you so much for coming into Second Life to watch Metanomics or joining us on the

web. And please do come back next week. We’ll be taking a look outside Virtual Worlds with

Electric Sheep Company’s Sibley Verbeck. See you next week. Bye bye.

Document: cor1040.doc Transcribed by: http://www.hiredhand.com