Linden Lab has finally done it. They have successfully managed to cut the one straw that was holding up the camel’s back: Education and Non-Profits. The unfortunate part is that I do not believe they understand what that straw was.  To be clear – it was not the recently announced removal of the educational and non-profit discount that is to blame. The problem is far more serious than that.

Somewhere between 2007 and today Linden Lab has lost perspective. Up to about the fall of 2007, Linden Lab was fostering a community based approach to content development. They put programs in place to help education, government, and healthcare. There were mentoring communities which supported the introduction of new people into the Second Life environment. Linden Lab appeared to be focused on two major initiatives: platform tools to support the user community and information telecommunication communication convergences.

The success of the approach was to a certain extent its downfall when you have a group of investors however that are intent to push an aggressive pricing policy on an unfinished platform that is aimed more towards national and multi-national firms rather than grassroots organizations. In 2008-2009, changes at Linden Lab appear to be focused on this very thing: the monetization of the platform to large corporate entities. While the potential of the platform was certainly there, the reality of its popular acceptance wasn’t.

Innovative concepts in human interaction require at least two generations in order to establish a beach-head from which business process innovation can thrive. We’ve seen this in almost every ubiquitous technology which has been developed since the later part of the 19th century. New ideas take time to take hold in the general population. It is only once the value proposition is overwhelmingly in favour of the new paradigm that societal change takes place. You can’t push a society faster than it is prepared to go otherwise what you get is a backlash against those ideas which, at best, delay their introduction and, at worst, bury them for decades if not longer.

The “game” is not played by aggressively pursuing a dictatorial winner take all approach to the market. The game is played by being strategically positioned so that once that social change begins to happen, your organization can leverage the best in technological, social, and business processes to meet the needs of the emergent customer base. The secret to surviving in business for the long haul is, and always has been, about developing deep personal connections with your customer base to satisfy their needs.

Once you lose that – you’ve lost.

Linden Lab’s fatal flaw is not a desire to increase its revenue stream. It is that it lost focus with its customer base in trying to achieve that aim.

Case in point:

1. Introduction of VAT with 1 day’s notice;
2. Removal of the Second Life Mentor’s group with little to no warning;
3. Layoff of +30% of staff, including Enterprise & Education evangelist/coordinators, and closure all International offices with little or no warning;
4. Layoff of Commerce Director just before a scheduled release of a new online Marketplace;
5. Elimination of the Enterprise business product without warning;
6. Reduction of both premium and standard support to US business hours, outsourcing of helpdesk staffing, increase in wait times for live support to 1/2 hour or more, and handling of tickets to 8+ weeks;
7. Elimination of the Teen Grid at the start of the school year with 2 weeks’ notice;
8. No transparent or visible plans for addressing an official policy of allowing minors on the grid;
9. Termination of Community Gateways with less than 24 hours notice;
10. Elimination of discounted pricing for Universities and non-profits, with insufficient notice for budget planning;

There are far more issues coming out of the Lab that just these. But at its core is a fundamental pattern of behaviour where Linden Lab is assuming the role of a dictatorship rather than a social governing body which works in partnership with its citizens. And while the Lab may not like to hear this – they are responsible for the citizenship since they were the ones that created it.

I hate to bring in the old clique but you can’t have your cake and eat it too. What made Second Life a social Mecca for virtual collaborative environments is not what makes ROI’s in the 50%, 100%, or 500% category. Its fate by nature of the social change it is leading is (or was) to become a commodity service which means high volumes and low mark-ups.

• That takes time
• That takes vision
• That takes balls

It also takes a backbone to stand up to your investors and get them onside with a future that is still 4-6 years away.

The non-profits and educational customers of Linden Lab which are now disenfranchised with having watched so much of these draconian measures are in all likelihood going to take that negative message out into the greater business community. You don’t get that type of brand loyalty back once you have broken trust with your customer base.

More so than that, the Lab is now going to have to wait for a new crop of middle and senior managers to take positions of spending authority before they will be able to build that brand loyalty back up. Existing organizations that were skittish to begin with may continue to look at virtual worlds for enabling business process innovation but after the past 18 months of bad decisions by the Lab, there is a good bet that they will be pointing to Second Life not as the model to follow, but the one to avoid, despite its obvious advantages over other comparable 3D-VCE platforms.

The damage has been done. Even if the Lab back-tracks they have finally alienated the one group of customers that could have helped them salvage their bruised reputation.  Whatever it is they think they are hoping to accomplish it better be beyond spectacular because nothing short of a complete re-invention is likely going to help them for the next 4 years after this.

— Kevin Feenan