Nelson Linden has once again posted some economic statistics: The Second Life Economy in Q3 2010.  This is a more detailed reply to that posting in the SL forums.  I’d love to believe that someone reads it, gets it, applies something from this, even just a part of it.  And I don’t think there is anything special here, except a bit of common sense and compromise, two things that seem to be missing from SL lately, so I have to say it “out loud”.

It is true that I am less engaged with Second Life now, so why should I be so interested in how it is doing?  Like any good Canadian, I recognize the massive sphere of influence my big neighbour to the south projects on my world.  Similarly, Second Life is the reference model by with other virtual worlds are measured and compared.  For now, at least.  Also, repeated failures in Second Life tend to create waves of emigrants, looking for an alternative, which directly impacts my virtual (and real) existence.  Other virtual worlds really aren’t yet ready for an exodus of even 5% of Second Life residents.  In time it will be viable, and although there is still a tremendous amount of work to be done, I feel that this time next year, InWorldz will be kicking SL’s performance and scalability butt, I think at this point most worlds would like to see a nice steady trickle, but no significant flood, yet.

Flat – Like An Empty Sim
Last month, I posted an article discussing “Second Life Growth, Land and Economy“.  Last time, the word Linden Lab used to describe Second Life was “stable”.  This time, “steady”.  Although it’s clear that in some cases, it continues to decline slightly.

As I said in my previous article, these words are great euphemisms for “flat”, which in the online gaming and social networking worlds really means “dying”.  You are either growing, and quickly, or you are dying and soon to be replaced by The Next Big Thing.

Yes, something needs to be done.  They need to keep watering the flowers, and stop the weeds from ruining the view(er).

The Numbers
Once again they have changed the measurements collected, which makes trend comparisons awkward at best, but fortunately the new numbers reported include comparisons with previous values, chosen by Linden Lab.  From my perspective, important numbers are shrinking, the dangerous numbers are growing.

Active economic participants fell 1.0% from Q2 and year over year.

LindeX volume in Q3 fell 3.8% from Q2 and 2.8% from Q3 2009. With fewer economic participants, there was less need to replenish L$ balances from the LindeX.

Hmm.  Participants dropped 1%.  Yet trading volume dropped 3.8% this quarter, and  8.2% over the last two quarters.

Total sales volume on both Xstreet SL and the new SL Marketplace rose 8.5% from Q2 and grew 115.2% year over year.

Yes, activity outside Second Life is growing dramatically, setting new records.  As I blogged previously, I’m sure Linden Lab sees this as a Good Thing.  (More below.)  To me, it’s a failure to recognize that your biggest strength is the people, in-world, in the environment that differentiates your product from others.  Or at least, a failure to cap the leakage away from that in-world activity.  Stop the leakage: 115% increase in outside-world volumes is a Bad Thing!

User Hours fell 3.7% from Q2 and 11.0% year over year.

User hours have dropped about 10% over the last two quarters (116 million down to 105 million).

The most significant quarter-to-quarter loss of user hours was from the heaviest usage segment (accounts logging over 300 hours per month).

So the oldbies are starting to lose faith.  Or at least the ones who have been spending the most time online, the most die-hard addicted SL residents, no longer are such die-hard addicts.  I would imagine that these are more likely to be the store owners, the landlords, the content creators, and those others most deeply invested in SL.

I’m not surprised.  If the current trends continue, we will only need welcome centers.  SL will be nothing but newbs standing around, barking at each other, finding creative new ways to grief each other for the lulz.  Plus the new kids playing Farmville 3D without even known SL exists, or that they might be able to build something, or buy something other than seed and barn materials.

It Doesn’t Have To Be This Way
Linden Lab, you can have it both ways.  You can promote SL to new users through new incentives for the social networking folk, while keeping the existing long-time residents happy just by throwing them a bone once in a while and really listening.

You can introduce catchy new viral mini-games within that include recurring revenues, and you don’t have to narrow that to one brand of bunnies.  Instead, grow the whole industry or genre, the whole category of mini-games within, become THE platform for a richer experience of social and building mini-games.  Second Life would make an excellent platform for “Farmville 3D”.  As well as “Farmtown 3D”, “Farmers ‘R’ Us”, Cornfield USA”, and “Eurocrop 2011”.  As well as Vampires 3D, Mobsters 3D, and anything else you can find weaker examples of on an iPhone.

Recognize that it does not really matter how a virtual world is used, as long as it is used, and that the users feel it is worth their online time.

You don’t have to replace the existing user base, or abandon the dream of providing that rich content experience for all, a place where dreams can become reality.  The existing user base can be the very foundation for providing those millions of new users with a richer environment than just the one mini-app they entered the world to use, because their schoolmate like it and wanted company.

Provide The Structure – Let The Others Decorate The Walls
Those mini-apps need not come from Linden Lab.  Apple is doing quite well providing the platform and the app store.  They don’t need to write every app too.  You can let the third-party developers do all the work providing these mini-worlds within, while taking a cut on all sales and currency purchases, as well as an increasing number of regions for supporting this, growing the economy overall as well.  It’s a feedback loop and the more you provide, or indirectly provide through enabling others, the more new residents will enter, the more existing residents will be retained.

And while letting the others do the work for this, you can fix the underlying base technology, and turn Second Life into the platform of choice.  Making teleports reliable, fixing fundamental issues with rezzing and assets, retaking control of the script engine from MONO so that performance is not impacted, fixing the bottlenecks so that regions properly scale to hundreds of users.

Bring Them Home
You can stop pushing user activities outside of the in-world environments.  Promote in-world shopping, building, and editing by removing the need to do so much outside SL.  First and foremost, fix the in-world search so that the results are not skewed to completely useless by bots (traffic) and bribes (paid ads).  Dedicate development teams to implement in-world editors for animations, mesh editing, and maybe even clothing design (painting).  You did an amazing job on providing prim-based builders the masses can access.  Replicate that same success with the rest of the core functionality…

If you build it, they will come.  Entering the social networking world requires good support from word-of-mouth; if you pepper them with ads and browser plugins, push content creators outside your world, and alienate the millions of existing users who have invested heavily in this world, it will fade away and die.  Treat the residents with respect and given them reason to participate and to believe and they will grow as in previous years.

A Beautiful Garden?  Or a Modern Atlantis
I am saddened by the deep feeling that, now that Second Life has become a huge success, the huge potential there is being needlessly thrown away by those managing it.  The difficult part — attracting millions of residents — has been huge success.  Just cultivate the great achievements already recognized, and water them, and watch it all grow.

Feed it, grow it, and worry less about what it grows into, and more about whether it is growing at all.  And stop trampling on the flowers!  Otherwise we may find whole worlds lost, and forgotten, at the bottom of the ocean.