Growth is out there... really

Much noise was made of Linden Lab's blog post about a month ago, describing how well the SL economy was doing. Especially when considering the worldwide economic downturn. This column is for those who wonder why LL is gloating while your business is not going all that well.

The first and smartest thing I could say is that no matter how the whole picture looks like, some people will be left out in any economic growth cycle. In the 1995-2001 period, the world economy grew importantly. Yet, poverty was not abolished because that never really happened.

Those of you who feel the frustration of being unable to profit from your SL businesses may wonder if the Lindens are lying when telling us that everything is just fine.

First of all, let's separate the land issue from all others. LL did well even when the SL economy was doing badly in 2007. They kept rolling out new continents and the land was snapped up quickly enough for them to increase revenue from tier payments. Only from October 2008 to March 2009 did they see land ownership go down... Given this situation, LL still has a much more important revenue flow from land than it did a couple of years ago.

With that said, the Lindens are still right to pretend that the economy is doing well. The overall state of the grid has made it possible for residents to be more present than ever, as we can see with figures that often reach 80 000 people online. Also, downtime has gone done seriously.

These most crucial numbers give credibility to the "it's going well" theory:

- The value of transactions reached a record of US$120 million in the first quarter of 2009;
- In a survey, 61% of residents said they were either very or somewhat optimistic;
- 68% of residents are either increasing or maintaining their investment in SL business.

So, what's the problem if your business is not doing well? I hate to do this, but I bet that many of you control your own fate. I recently talked to a guy who got back into SL business this year after a year of hiatus. He noticed that competition is fierce nowadays, while it was not before.

This means that strategic mistakes will not be forgiven by the market. When I visit stores in SL, I often find big flaws, from product quality to traffic targeting, that can be optimized. The people who cannot even get shoppers to visit should wonder what they are not doing well.

If you make clothing, you have to find your niche despite the presence of powerhouses such as Armidi, Curious Kitties, Ivalde, Truth, Mischief Fashions and Nicky Ree. This is no easy task, and any mistake will cost you traffic and sales.

Did you come up with a hit? Then, expect your competition to look at what you do and find a way to make a competing product.

In services, rivals will make a pitch to try convincing your customers that they can do better. I've done it, I've seen it people try it. You may not have seen that a couple of years ago.

I can compare this situation to journalism. In the field, we say that the truth is out there. You have to go get it. The growth of the SL economy is there. And you have to go get it... while expecting rivals to make an effort of their own.

Should SL remain a free market?

I have had the debate a countless number of times with a friend. Yet, every time this idea comes up, it stirs controversy and a long argument. I ask it again, but this time here: do financial problems in Second Life make a case for failure of a free market?

The recent collapse of Sarah Nerd's real estate business is a big symbol of what is wrong. Suffering from the scandal of the World Stock Exchange and from Linden Lab's policy changes, it shows how the problems that plague SL are bringing solid and well-managed businesses down.

One can wonder why Linden Lab refuses to regulate its economy better, or at least create an independent body that can do this without a conflict of interest. I agree with people who like free markets on principle. Economic freedom is an awesome thing. Personal initiative remains the best way to make life better. On the other hand, some form of regulation, even if minimal, can be a great thing in a world where too many people got away with theft that gets punished in RL.

When you think of it, companies that cannot rely on stock exchanges in SL deserve some form of justice system so they have a way to recover from the damage. Some light regulation would eventually help to prevent some cases. What do you do when a private company is alone with access to the data of a thieve and refuses to act? Sue in a RL tribunal with a small, remote chance of winning? Thieves love situations like that. The odds are on their side.

The other issue is rather well-known. Free to do whatever it wants with this grid, even if it brings it to its long-term downfall, Linden Lab juggles with policy and drops the ball often. From the laisser-faire and banking ban to European taxes and Openspace sims, LL proved its incompetence. This reinforces my conviction that an independent body would do a better job at "governing" the grid with stable policy.

Another point that gives strenght to that is the current financial crisis. People who operate in SL have little control over their operations and more risk to deal with. SL is discretionary spending in its most extreme form. I can decide to go buy a Victoria's Secret without a learning curve in RL. SL doesn't just depend on spending decisions, but also upon people's will and ability to learn how to "live" on the grid.

All of this together makes me think that at the moment, the virtual economy is even more fragile than the RL economy, despite LL's claim that all is well. The current economic crisis in RL shows that naysayers usually are right when they doubt rosy reports. Remember how asset-backed securities were doing just fine?

This fragility means that a bit of light regulation and a bit of help from a competent pair of hands would be a great deal to go through the crisis. There are some of us who managed their businesses conservatively, especially with their land purchases, and who are not suffering that much. We are just making money at a slower rate. Some of our ventures are even doing better than before.

Sadly, it is not everyone's situation and unfortunately, Linden Lab is not qualified to handle it. An independent Securities and Exchange Commission, light-handed with a mandate from LL, could be the right answer.

Finally, common sense is coming back!

Did you ever go over a long period of darkness and gloom to see the end of the tunnel? I believe that Second Life just did this.

Over the months, developments around the grid and Linden Lab finally bring hope that Second Life has a brighter future.

After much waffling, LL has finally understood the importance of not rolling out new land gratuitously, without considering the interests of established users who already own it on the various continents. Supporting the prices is a welcome idea, especially after the destructive introduction of new continents, European sales tax and the wiping of many SL real estate dealers. A serious land strategy is the only way to make sure that those of us who build around here will stay around for the long haul. It is a key for growth and strategic positioning of this 3D world.

My favorite change is a measure that should have been introduced from the start: zoning. LL intends to introduce and actively enforce residential and commercial zones in the future, which only makes sense. It is incredible to think that you can set up a house and see a strip club appearing on neighbouring land on the next day. Having zones will make Mainland ownership more attractive for current estate owners.

Seriousness to manage the business and enhance customer service are also starting to pay off. The efforts of M and Katt Linden are encouraging. Choosing a real CEO to replace Philip Rosedale was an important move on the part of Linden Lab since great founders and engineers are not always the most skilled managers. Having a communications manager like Katt Linden, who takes the time to listen to the community, also is reassuring.

Disastrous management and communications have done much harm to SL in the last 18 months. It is not too late to reverse the trend but LL cannot afford to waste much time since competitors are surely know that 3D worlds will be important in the future. SL has to keep its stranglehold on the market leader position if it is to survive.

Anyone who has been around the grid of late has noticed that it is becoming much more stable. The unplanned outages have been spectacularly reduced and the planned ones have been very reasonable. This is another key factor to the survival of SL.

A few questions remain, however. How will LL handle finance in the future? Can you have a virtual world without better policy on finance and banking? Is the land supply control only temporary?There is enough land set for sale on the grid to think that holding back on new land should be considered for a long time to come.

More importantly, however: how will Second Life become friendlier to newcomers? We have yet to see decisive moves to make SL more accessible for newbies. In the last months, the growth in time spent online has been attributed mainly to "veteran" users. If SL self-destructs one day, we may look at this issue as the straw that broke the camel's back.