Linden Labs and the Failure of CRM

A concept that has become increasingly popular in business circles over the past decade is customer relationship management, or CRM. The idea is that it is cheaper to maintain an existing customer than it is to recruit a new one. In order to maintain existing customers you have to understand who your customers are, and how to keep them happy. In an earlier post, I ranted on about how Linden Labs does not seem to know who their customers are. So I won't go into that again. But, clearly, if you don't know who your customers are, it can't possibly know how to keep them happy. And yet, Linden Labs still attempts to do that through two misguided efforts which I will refer to simply as customer service and volunteer management.

Customer service in Second Life is abysmal at best. Polite follow up responses to emails in place of positive actions and good answers do not make good customer service. Solving customers problems does. I, personally, have had several completely frustrating interactions with their customer service. But, my stories pale compared to the one's I've heard from others. I have contacted customer service on some issues that should have been fairly routine. For example, I deleted an account that I wished to recover. The website, at the time, said you can recover deleted accounts for $9.95. I was willing to pay the amount for the specified service so it should have been fairly straightforward. But, after several email exchanges I gave up in frustration. Another time, I was interested in setting up a collection of accounts to use for workshops. Since the policy that was espoused on the website limited the number of accounts, I thought I should contact them and get permission. You would think that it would be in their interests to have people teach workshops in how to use SL. But, I received no response. When I asked in-world mentors (and even an in-world Linden), I was referred back to the website. Eventually, I just gave up. These are relatively minor instances but reflect the inadequacy of customer service. These were opportunities to engage with a customer and develop loyalty. Instead they managed to turn it around and develop alienation. So much for customer relationship management.

Volunteer management is an attempt to engage customers in-world. A team of Linden's called the Vteam manages a group of volunteers called Mentors. The idea is that by engaging volunteers you kill two birds with one stone. The volunteers have something useful to do while in world which increases their enjoyment. And they, in turn, help other, newer, users, which makes it easier for the newer users to become acculturated. In concept this is a great idea. In implementation it is sorely wanting. Over the next couple posts, I will continue ranting about customer service and volunteer management. And, then, I will turn it around and start making some suggestions on how they could do things better.

Linden Labs and the Failure to Understand Basic Business Principles

Most successful businesses operate according to a business model of some kind. The model reveals such fundamental components of the business such as where the revenues come from and the nature of the expenses required to produce those revenues. In the early days of the web, one of the much debated questions was - what business models are appropriate for web based businesses. At the risk of being overly simplistic, we can sort most websites in one of three business models or, perhaps, some combination of those models. First, is the website used to produce sales. The revenue generated from a sales website is a percentage of the sales. Second, is the website that draws traffic somehow and exposes that traffic to advertising. The revenue generated by that traffic draw supports the website. Third, is a website used as public relations vehicle to provide information about a company or agency. The revenue for this website comes internally from that company. The point here is not to catalog websites, however. The point is to say that in order to be successful a website must operate according to a business model and the designers of the website must understand that model.

Unfortunately, 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 which creates confusion on two levels. According to published accounts, Linden Labs has wrestled with the idea of business models. They have made several decisions that reflect this. They decided to allow content creators to maintain the copyright to the things they produce in world. They decided to obtain revenue from the sale of land rather than charging for accounts or taxing sales. These are all business model decisions. Unfortunately (again) these decisions were made in the absence of a cohesive and workable business model and, consequently, appear as random, often confused, decisions.

A business model would help address some burning questions with regard to Second Life. Should users pay for their accounts? Should sales be taxed? Is open sourcing good or bad for Second Life? Should users remain anonymous? If development funds are invested, should they go into better development tools, improving ease of use, specialized infrastructure for education or commerce, and so on. But, since Linden Labs does not seem to understand the basics of business they do not appear to have a workable business model. And since they do not have a workable business model the above questions as well as many others simply cannot be answered.

Linden Labs and the Failure to Understand Their Customers

Sometimes it is difficult to figure out who your customers really are. Universities, for example, will often have vigorous debates over whether their customers are their students, their donors, the employers who hire their students, or the society in which they function that needs educated citizens; just to name a few possibilities. Consider the following two perspectives: 1) Our students are our customers. They pay tuition and receive education in return; or 2) Our students are a raw material that goes into our final product which is an educated person. Our customer is society. Just how different would universities operate under those two scenarios. As it turns out, most universities do not resolve the customer issue. Diversity and richness are far more important to universities than efficiency and effectiveness. And education is so fundamentally important to society that we cannot walk away from these institutions no matter how unfocused or inefficient they may be. But a business such as Linden Labs with a product such as Second Life cannot afford the unfocused approach that a university takes. Their product is not fundamentally important to society. People can walk away. And they do.

Just who is the customer for Second Life? Let's lay out a few possibilities and see how each possibility would have different needs and demand different responses from Linden Labs. Consider the following possibilities: 1) The customer in Second Life is the Basic Account holder; 2) The customer in Second Life is the land owner or business owner; 3) The customer in Second Life is the real life business who wishes to sell their product or service through a virtual world; or 4) The customer in Second Life is the corporate research and development group who is using Second Life to develop new ideas and new products. This list is not intended to be exhaustive. It is only intended to show how these stakeholders have very different needs. Let's consider each in turn.

1) The customer in Second Life is the Basic Account holder: We can dismiss this one from the start. Basic accounts are free accounts which do not yield any direct revenue to Linden Labs. They may yield indirect revenue if advertisers are will to pay based on traffic or if Second Life businesses make money off of them. But, in those cases, the customer is the advertiser or the Second Life business. So free basic accounts are, at best, a means to some other end, although that other end is not entirely clear.

2) The customer in Second Life is the land owner or business owner: This is a possibility. Linden Labs earns revenue by selling and taxing virtual land. If this is the customer then LL would want to provide services to support Second Life businesses and would want to attract high quality residents who are likely to spend money at these virtual businesses. Neither of these goals is met particularly well. While Second Life businesses can down load spreadsheets of their business transactions, that is pretty much it for customer support. Issues like security, performance and reliability, all of which are critical to Second Life business is wanting. Further, the basic account policy in conjunction with anonymity tends to attract low quality traffic thus limiting the revenue potential of the businesses. The basic account policy is like going to a homeless shelter to generate traffic for your shopping mall.

3) The customer in Second Life is the real life business who wishes to sell their product or service through a virtual world: In the previous scenario the customer was a Second Life business. In this scenario the customer is a real life business looking to sell products through a virtual world presence. You can think of this as having an island as an alternative to a web site. While this scenario has promise there are three major flaws. First, as sited above, the basic account policy tends to generate low quality traffic. So revenue potentials are limited. Second, the learning curve for Second Life is very high and customers who are used to the ease of using the web are not going to switch very readily if shopping in Second Life requires a big investment of time in learning how to get around. Third, the Linden economy works well for a fantasy environment; but only for a fantasy environment. Paying L$250 ($1 real money) for an item of clothing encourages one to dress up their avatar and enjoy the fantasy. However, an inexpensive book in a Second Life store would cost L$5000 while a computer would cost L$250,000 and a car would cost L$5,000,000. This scale benefits inexpensive products like virtual clothing but prohibits sales of more expensive real world items.

4) The customer in Second Life is the corporate research and development group who is using Second Life to develop new ideas and new products: This is another, and very different, possibility. These developers would be attempting to use Second Life technology for distance education, business meetings, virtual conferences, virtual tourism, and so on. These are all very promising ideas. However, if this were the customer, then LL would be investing a great deal more in infrastructure, development tools, performance, reliability, training, consulting and so on. And perhaps they are. But, if they are, it is a well kept secret.

The point here is that you cannot be all things to all people. Different potential customer groups have different needs which are often at odds with each other. If you try to satisfy all of them, you land up not satisfying any of them. In order for a business like Second Life to be successful in the long term, they have to figure out who their customers are and make sure that they are keeping those customer happy.

Linden Labs and the Lack of Strategic Focus

If Linden Labs has a strategic focus for it Second Life technology then it is the best kept secret since the Allied plans for D-Day. What are they trying to with Second Life? Where are they trying to go? How do they want people to think about this technology? Five years from now, what will have had to be accomplished in order to call it a success. They appear to be on operational cruise control, with a few tactical initatives, and no strategic direction. This would be like driving your car at a steady 55 mph, stopping periodically for maintenance, while having no idea where you might be going.

At the operational level they generate a snowstorm of statistics. They measure the number of accounts, the number of premium accounts, the amount of land sold, the number of dollars spent, and so forth. Unfortunately, there is no way to tell from these numbers if they are making progress or not. For a while they seemed to be motivated by the 'bigger is better' view and produced graphs showing their amazing growth. But, is this growth good? This is like giving away money and reporting each month on how much money you have given away. You can produce some dramatic growth statistics. But are you getting any where that you want to get? Since they do not seem to know who their customers are, for example, (a topic to be taken up in a future post), they cannot tell if the growth in basic accounts is positive growth or a growing burden.

At the tactical level they have shown a few promising initiatves such as voice chat and open sourcing. But, again, without a strategic direction, these initiative cannot be seen as good or bad. For example, if Second Life is supposed to be a stage upon which people explore their fantacies and self expression, then voice chat is not a good idea as it interfers with the anonymity of the person at the keyboard. If, on the other hand, Second Life is seen as a vehicle for distance education then voice chat is the greatest thing since sliced bread. People have strong feelings about issues like voice chat in Second Life reflecting the lack of cohesion in the strategic focus.

So, what is Second Life supposed to be? A chat room? A social interaction technology? A technological extension of the imagination? The 3D Web? A platform for education and business applications? Who knows? And until somebody figures out some answers to these questions, it is not going any where.