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.