Metanomics and Rosedale's future vision

Robert Bloomfield forwarded me some exerpts of his recent interview with Linden Lab's founder Philip Rosedale asking for me to publish my feedback.  I think that Philip's viewpoint has really evolved over the last two years from his early unbridled enthusiasm to his middle unbridled enthusiasm to his more recent tempered enthusiasm.  He deserves credit for driving popular opinion in the virtual worlds market with his bold pronouncements, and his recent proclamations have been no less controversial.

The exerpt that Robert sent is below with my thoughts on Philip's most recent interview.....

PHILIP ROSEDALE:  Well, so if you look at Second Life and you go back two years, and you look at the number of distinct well defined things that people were doing, and you look at the number of things people are doing today, it seems to me at least that the use cases are broadening. This is interesting. Sometimes you have a product that starts out kind of diffuse, and then it focuses itself on one use case so that would be like if Second Life was all live music; something like MySpace or something now where everything that was going on in Second Life was basically around live music. And if you just did the numbers, it was all there. Well, that’s not true. What it seems to me has happened is, we’ve seen a significant broadening in the large use cases, so education and business are now something that people are actually doing in Second Life, where two or three years ago, they really weren’t. It was playful. People talked about it maybe being useful for education and business, but there was certainly no actual pragmatic use.

So why I say that is, I think where the industry is going in the next few years is a gradual broadening of the capabilities and the use cases of virtual worlds, to support a lot of different stuff that people are doing in the virtual worlds. I do believe, as I said today, that it’s difficult for me to see why it won’t be the case in a few years’ time that virtual worlds are not used for a very broad set of utilities and use cases and that that will bring them into a place of probably dominant use in the computing environment, meaning that more network traffic and more computers are basically deployed to enter and interact in virtual worlds than we are, for example, using them for the web today.

<snip>

So I think you can explore certain use cases, and you can explore some of the UI problems in these other very purposeful worlds, but until you get into allowing people to create their own content, fundamentally create their own complex content, you haven’t even begun solving the big problems that are going to be daunting.

I mean it’s a little bit like the difference between the chat rooms in AOL and a web page. Chat rooms in AOL were highly structured. They were purposeful. They were highly utilitarian. AOL built a great business around those chat rooms, but they were a very simple and controlled incarnation of a broader phenomenon, which was people’s ability to arbitrarily create content and deploy it to each other. And that happened in the mid nineties with the emergence of web pages. And the set of technologies and policies and practices and economies that were built around those web pages, that was the real robust solution that was complicated, and that we all kind of gradually moved over to there in the mid nineties.

So I think that chat rooms and these more controlled environments, the CompuServes and the Prodigies and the predecessors to the internet as we know it today, they provided very valuable learning and use cases and, in some cases, businesses and business models. But there was this transition that happened to the more generalized environment, and I think that we represent the same sort of thing, the more generalized environment which is just letting people be able to create anything they want, but now in a 3D environment rather than a 2D web environment. 

<snip>

I hear people say all the time, and I think there’s a common thought that there are these very narrow use cases that will dominate the early stages of virtual worlds and that those use cases will be very robust and that you’ll have a very, very isolated and specific virtual world that’s just for teenagers. And then you’ll have another completely different isolated virtual world that’s just for business collaboration. And I actually think what we learned from looking at the internet is that that’s very unlikely to be true. That because there’s some efficiency that can be gained, say, from building the content the same way in both those cases, large scale economies tend to really take advantage of those efficiencies.

And so our belief as a company and our strategic direction has and will continue to be that we think it’s really likely that these different solutions will be rapidly compressed together and unified into some sort of a standard. I think that, if you look at a use case like the historical uses of Second Life experientially in its first years, the ways people have used it to create content, to create homes and experiences and community experiences together, and then you look at education and business collaboration as two new spaces, you can ask the question: Well, is there going to be reuse of content to enable these two applications? Are the people that built great content in Second Life two years ago going to be highly advanced in their ability to build education content in Second Life or collaborative workspaces? The answer is yes. They’re highly empowered now to do that. And so that really suggests that there’s going to be some sort of a unified environment.

Although I agree with Philip's comments pre-Internet, my perspective is that the chatroom and research applications were created for specific use cases, and thrived because they did those things well. Then the wave of the Internet hit and there was the opportunity to unleash the 'network effect' of magnitudes of more people participating, which directly correlates to utility and value.  The single-purpose applications that were ported to the Internet saw amazing growth.  What we didn't do was start with a general purpose Internet without applications......there were a number of applications on the Internet (Newsgroups, Gopher, FTP, Telnet to research applications) long before the advent of the Commercial Internet Exchange (CIX).  When the Web appeared, it simplified and harmonized what had been an increasingly fractured application base for each application being ported to the net, at the same time the CIX made it viable for non-government/non-research entities to play in the Internet sandbox. A perfect storm.

What we have in the case of virtual worlds is a hybrid of these models.  We have platforms optimized for specific applications such as education or training or avatar chat, and we have general purpose social worlds that have more subscribers than the specific-platforms. None are truly open like the Internet, just degrees of open-ness of their APIs or portions of their source code.  There is no backbone for everyone to interconnect to like the Public Switched Telephone Network (PSTN) or the Internet.  There are multiple open-source efforts, even more walled gardens, and business models ranging from the fidelity of their visual environment to currency arbitrage.  Far from standardized.

Ideally, these separate proprietary worlds would harmonize into one foundational technology, like HTTP was to the Internet, however there is no clear leading technology to do that in. The platforms focused specifically on enterprise collaboration or education/simulation are heavily invested in functionality that differentiates them from general-purpose social virtual worlds, and this is their key competitive advantage that is allowing them to close deals.  They aren't going to throw that away in the short term, although in the long term they would be best served to become that specific component in a broader non-walled-garden ecosystem to reap the benefit of the network effect.

Net-net, it's always the case in technology that there are larger generalist players (think HP, Cisco, IBM) and smaller focused startups that are able to out-compete the larger players due to their laser-like focus on a specific market segment.  Eventually, their competitive advantage is diffused into the broader market, but not before they've tried everything in their power to squeeze every bit of value out for their shareholders and investors.

Robert's next series of questions were along the line of financing and venture capital....

…for all the excitement around Second Life, this has been a company that’s been well financed. Everything’s been done in a simple straightforward way. Interests have been well aligned all the way along. In other words, all the investors have had a very similar view of what we were doing, what the longevity of the project was, what kind of metrics and outcomes we were looking for. You know, it’s been a pretty comfortable process. As a technology entrepreneur, actually I hadn’t been on any other technology company boards in a startup sense. But I think the process we’ve gone through over the last... Well, we raised our first round of venture investment in March of 2001, and I think from then to now it has really been a pretty friendly environment. We’ve had our ups and down, but...

ROBERT BLOOMFIELD:  You obviously have had access to capital given what you’ve been able to do—

PHILIP ROSEDALE:  Well, the other great thing was that this was always a project where we took careful little steps and tried to see what we could achieve at each point, in my opinion, rather than over investing and then being wrong in a costly way. So the capital cost of bringing this company to profitability, in terms of investment, was in the neighborhood of like 20 million dollars. What’s nice about that is, it’s just fortunate to be involved in a project where the cost to reach profitability, more or less, was 20 million bucks. That’s appealing because you don’t have the highest levels of tension in that environment. That’s not a huge amount of money, in the technology world, to invest in a company. I’m really proud that we got from inception to basically to operational profitability without spending more money than that. I think it’s a delight now. And basically the same group of investors. I mean we had some great angels in the beginning, and we added a couple of venture capital firms, and basically that’s it. Benchmark and Globespan. 

ROBERT BLOOMFIELD:  Mm hmm. You talked about some of the wish list of things you’re working on and things that the company wants to do. Do you see a need for a lot of new capital to accomplish those?

PHILIP ROSEDALE:  No. I don’t anticipate, really. We have been fortunate enough to be able to put money in the bank. Again, I think that we’re still in the early stages of this category, this industry. I don’t see a place where we would need to make massive investments way ahead of our operating capabilities or ahead of our cash reserves. So we’re not out looking for additional opportunities to raise money. 

Good for them! Philip is right, $20M is not a lot of coin in Silicon Valley to do the things that Linden has accomplished, and they should be recognized for that.  They have been able to address a number of early-adopter applications with the benefit of their user-created-content and the communities they have established.  The challenge that they now face is in taking their efforts to a new level of adoption and utility, which requires significant changes.  The retention rate across social virtual worlds, something near eight percent last time I did the math, is testament to the lack of 'curb appeal' to the everyday user of the current UI paradigms.  We've seen numerous examples of companies trying to take early success in the enthusiast community and translate that into mainstream success, and failing to both draw the mainstream to their platform, and alienating their installed base in the process.  This is a very delicate dance, and requires laser-like organizational focus and execution.  I hope Linden is able to make the transition, for not only their sake but for the technology industry as a whole, because those earlier attempts were almost entirely unsuccessful.

Robert has more of his interview available at the Metanomics site at www.metanomics.net

Comments

[Robert Bloomfield]

Great comments, Christian. The specific post with links to the entire interview, along with links to insights from others can be found here:

http://metanomics.net/19-sep-2008/philip-rosedale-interview-and-expert-reactions

[Yohan Launay - ConceptSL]

Interesting post. Thanks for sharing your thoughts.

[Jeff Paul Big League Players Club]

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