M&A inside Second Life

Linden Labs, the company behind Second Life yesterday announced the acquisition of two inworld businesses – reported here in the LA Times.

These businesses broker the sales of virtual goods – kind of like Amazon market place, but restricted to virtual goods for use inside Second Life.  It seems Linden has a strategy to become a sprawling corporation, as used to be the fashion for real world companies in the 1960s.  For a long time they have made money by selling land and letting everyone else innovate around that.  Now they want to grow revenues and profits by controlling more of the commerce themselves.

One of the products you can buy from these companies is an Obama avatar:

To my mind this makes sense in a short term view, but is likely to stifle innovation over the longer term.  Kind of like if Twitter acquired one of the leading Twitter clients.

Moreover Linden Labs strategy up to now has endorsed this point of view.

So I wonder if this move signals a recognition by them that the economy inside Second Life is not going to be so huge that they can afford to cede large areas of it to other companies and still have enough left for themselves.

That said the economy inside Second Life is still growing well, although not staggeringly fast.  Goods traded (equivalent to GDP) in Q4 2008 totalled $101m, up 54% on the year ago period.

  • HH

    I can't help but feel that the primary reason for Linden Labs to acquire a virtual broker is to help them maintain the illusion that there is a genuinely interesting economy in Second Life – i.e. moving the story on from being “Look, people can make money in Second Life” to “Companies operating in Second Life have been acquired”.

    I find it difficult to get a grip on the realities of the economics of SL, but some clues from http://secondlife.com/whatis/economy_stats.php#… show that, for Dec 08, 940,000 people logged in, of which 60,000 had a 'positive Linden Dollar flow' (ie theoretically made money). It's not clear whether this 60,000 includes the premium members who get given free money each month (my guess is it does), so I reckon we're looking at 20k or so people actually making money (Linden Dollars) in that month (ie 2% of people).

    To me, that doesn't look like an economy (2% of people having net positive cashflow), it looks, at best, like a bad videogame with a small percentage of its users making money from user generated content. Like Half Life, only not as much fun. At worst, it looks like the emperor's got not clothes on and this is just a pyramid scheme reliant upon the brilliant marketing conceit of persuading the press that there's something interesting at work. And what better story in today's uncertain climate than the acquisition of a company in a virtual economy?

  • Thanks Harry – you are right, this doesn't look to good for SL

    Nic Brisbourne
    Partner, DFJ Esprit
    Email: [email protected]
    Tel: 07990 567 993
    Blog: http://www.theequitykicker.com

  • I'm not so sure I agree with you on this one, Nic (which is unusual).

    Linden Labs already offers transactions in-world. This allows customers and merchants to trade seamlessly whether they are in Second Life or in the web. That just seems likely to increase transactions to me.

    It also shows Second Life entrepreneurs that there is a potential exit, which seems likely to promote rather than stifle innovation.

    More at http://www.gamesbrief.com/2009/01/second-life-b

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  • I'm not so sure I agree with you on this one, Nic (which is unusual).

    Linden Labs already offers transactions in-world. This allows customers and merchants to trade seamlessly whether they are in Second Life or in the web. That just seems likely to increase transactions to me.

    It also shows Second Life entrepreneurs that there is a potential exit, which seems likely to promote rather than stifle innovation.

    More at http://www.gamesbrief.com/2009/01/second-life-b