Second Life Tribble Trouble

Tribble trouble is coming to Second Life, the "online society within a 3D world, where users can explore, build, socialize, and participate in their own economy." You play in this world by adopting an avatar, a virtual identity complete with three dimensional body. Playing is free, but owning land is not. Second Life's owner, Linden Labs, primarily makes money by selling and then charging monthly maintenance fees for virtual property.

Second Life just announced a substantial price increase for some virtual land, the so-called "private islands." These islands are more desirable than property on the "mainland." The site has become very popular, with over 1.2 million users, and big companies like IBM, Starwood and GM have gotten into the game as private island owners. The new fee structure comes on the heels of a new $9.95 charge for users who add accounts. Second Life has also publicly floated the idea of charging for technical support.

All of this has started to make some Second Life players, landowners and those who provide them with services (it is quite a complex virtual world) nervous. While the fee increases for private island owners are a kind of "tax-the rich" ploy that mainly hits those with deep pockets, the "community" is correctly concerned about what may happen as Linden Labs furthers its efforts to increase its revenues and profits. What is happening is that Linden Labs and the Second Life community are facing the problem I described in Tribble Traffic.

When the entrepreneurs who build these companies finally figure out how to monetize their ideas, they often find they are trapped by tribble traffic. They discover that they can build a viable business model around only a subset of their users. The problem is that they cannot just beam the rest of the traffic into space. They cannot segment the valued traffic without alienating most all of their users. They similarly cannot capture enough demographic information to segment their traffic for advertisers without user rebellion. The tribble traffic is increasingly costly to serve due to diseconomies of scale. They must often finally sell to a big, well established concern, which can afford to dump the tribbles, reframe the proven concept and reap its value.

As Second Life's new CFO, John Zdanowski, said, "I'm not sure we know yet how it [the fee increase] will affect resident behavior and growth patterns, and I think anybody who thinks they can doesn't understand how complex the system that the in-world economy is."

It isn't easy being a tribble. As Captain Kirk discovered, hosting them can be tricky too.

Copyright © 2006 Philip Bookman

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