Second Life CEO looks to the future, after massive layoffs

June 11, 2010 12:16 AM EDT

Linden Lab's announcement this week that it plans to lay off 30% of its staff wasn't a cost-cutting measure, but rather a side-effect of an effort to refocus Second Life on the consumer market, CEO Mark Kingdon said in an interview Thursday.

In addition to layoffs, Linden Lab will work to enhance ease of use and beef up its virtual goods marketplace. It plans browser-based and mobile applications, including apps for the iPad and iPhone that are coming soon, Linden Lab said.

But the big news is the layoffs. Linden Lab wouldn't specify how many people it's dismissing, but the company has about 300 employees, according to the Wall Street Journal.

A layoff is often the beginning of a corporate deathwatch. I put the question to Linden Lab CEO Mark Kingdon: Is Second Life done?

"No, Second Life isn't done. Arguably, Second Life is just getting started," he said. The company will end the year with record revenues and record users and high rates of transactions between users buying and selling virtual goods and services using Second Life's in-world currency, Linden Dollars.

Not all good news
More specifically: User-to-user transactions in the first quarter of 2010 totaled $160 million, a 30% increase year-over-year and all-time high, Linden Lab said in April. The number of Second Life users with repeat logins in March was 826,214, up 13% year-over-year.

But the news isn't all good. Concurrency, or the number of users logged in simultaneously, is declining, and Version 2.0 of the Second Life client software, which debuted in March, failed to achieve the spike in user uptake that Linden Lab hoped, according Tateru Nino, who covers Second Life for the blog Massively.

But still, Kingdon maintains Second Life is doing well. Layoffs were motivated not by cost-cutting, but rather by a desire to consolidate software development in the US, where teams in close proximity can work better together, Kingdon said. Also, Linden Lab is combining its product and technology teams into one, and is focusing support on self-service online tools and outsourcing, Kingdon said.

"One of the things I want to underscore: Second Life will end the year with record revenue, I'm pretty sure record users, and records in terms of user-to-user transactions," Kingdon said. "The business is healthy, we have strong balance sheet, and we're well-capitalized."

But is Linden Lab profitable, I asked? Kingdon responded, "As a private company, we don't release financials."

What's coming?
Every other time I've asked Linden executives if the company is profitable, they've said it is.

What of the future? The company is focusing on Web initiatives. A year and a half ago, it bought XStreetSL, a marketplace for selling virtual Second Life goods on the Web. This year, it bought Avatars United, a social medium for online gaming -- sort of Facebook for avatars. Linden Lab will continue to develop those services. Elements of Second Life that are amenable to the Web will be made Web-accessible.

In the future, Linden Lab hopes to release a version of the service that runs in a browser, with no download required. Until that day, it will continue development of the Second Life Viewer software; the company released an alpha version of Viewer 2.1 on Thursday.

The overall trend for Linden Lab is to turn focus from businesses to consumers. Previously, the company pushed Second Life as a marketing tool, and then as an online collaboration and virtual events platform. Kingdon said 1,400 organizations use Second Life for those purposes, as well as education, but the bulk of its business comes from consumers. "The restructuring enables us to focus and put more emphasis on the consumer business, which is by far the biggest business on the Second Life platform," Kingdon said.

Is Linden Lab is looking for a buyer for the company, or planning an IPO, I asked? "We are focused on creating an extraordinary virtual worlds experience with Second Life and that's what we're putting all our energies on today," Kingdon said, not answering the question.

Future looks grim

I'm afraid I don't see much of a future for Second Life.

I think the most likely scenario is that Second Life will go into maintenance mode. Linden Lab will figure out how much revenue it's getting from leasing server space, and declare that costs will always be below that line. Second Life will have a slowly dwindling user base. Online communities never really die; I'm still active on a community that peaked in 1992 (no, that's not a typo -- it peaked 18 years ago); there are about a dozen of us that still log on daily to chat. Second Life will likely remain forever. But its best days are behind it.

I'm not happy about this; I'd love to be wrong. Second Life is a wonderful service and community. Although it never went mainstream, Second Life permitted three things that have never been possible on any other platform:

- A rich, 3D graphical environment.

- The ability to have a shared, realtime experiences involving more than a half-dozen people.

- And the ability to meet new people serendipitously. I use Facebook and LinkedIn to connect with people I already know, and I can occasionally meet new people through Twitter, but Second Life is unparalleled as a way to make new friends and meet people through your computer.

So what happens next? Is there a social media platform that permits shared realtime experiences and meeting new people like Second Life does?

Mitch Wagner is a freelance technology journalist and social media strategist. Follow him on Twitter: @MitchWagner.