Where Did They Go Wrong?

Looking back on the meteoric rise of Second Life and its almost total failure to meet expectations, I think we can point to four areas of weakness on the part of Linden Labs: 1) a lack of strategic focus; 2) a failure to understand their core customers; 3) a failure to understand basic business principles; and 4)a failure to understand products and marketing. Each will be expanded, in turn, in this post, and further in subsequent posts.

Lack of Strategic Focus - What is Linden Labs trying to do with Second Life? Are they creating a big chat room? Is it a vehicle for self expression? Is it a harbinger of the 3D web? Is it a social interaction technology? Is it the latest thing in distance learning technology? Is is a workflow, meeting, or conferencing technolog? Is it destined to be an open source technology? Nobody seens to know the answer to any of these questions. While it may have the potential to be any of these things, it cannot be all things to all people all at once.

A Failure to Understand Their Core Customers - Who are the customers of Second Life? Is it the large companies like IBM, or CSI NY who buy up large chunks of virtual real estate? Is it the thousands of individual sim owners who own one or more islands? Is it the business people who rent or buy land in order to create a business in Second Life? Is it the premium account holders who pay $6-$9 per month for their Second Life accounts? Is it the basic account holders who pay nothing but populate the world and hopefully spend a little money in support of Second Life businesses?

A Failure to Understand Basic Business Principles - In order to run a sucessful business you have to have a product or service that people want to buy. You have to understand your customers and what they want. You have to know what factors are critical to your succcess. You have to know where you are trying to go over the long term. That is to say, you have to have a business model. Linden Labs fails in this area at two levels. The business model for Second Life is entirely unclear. And they attempt to attract businesses into Second Life who are equally as unclear regarding their business models.

A Failure to Understand Products and Marketing - Linden Labs created a huge amount of hype in the Fall of 2006 with the explosive growth in basic accounts and the news stories about virtual world millionaires. Many very hopeful and now bitter people came to the virtual world attempting to make money and lost money instead. One of the biggest fiascos was speculating in virtual real estate. People who bought land for $L5000 per plot and sold it at the peak for $L10,000 per plot did OK. But people who bought land for $L10,000 were left hold the bag. In order for this scheme to continue working, it would require that there is always a bigger sucker further down the line. And this comes dangerously close to a Ponzi scheme. You have to have a product with inherent value. Selling a product whose value relies on finding a bigger sucker is not a viable marketing strategy.

Over the next few posts, I will elaborate further on these ideas.