The World’s First Metaverse: What Happened To Second Life?

Executive Summary:

Second Life is an online virtual world in which players create avatars of themselves and interact with other users.

Second Life failed to become a mass-market product because the game has an extremely high learning curve, it suffered from frequent platform meltdowns, due to consistent copyright infringements, and unrealistic expectations.

What Is Second Life?

Second Life is an online virtual world in which players create avatars of themselves and interact with other users.

In Second Life, players can essentially do anything that they would do in the real world, whether it’s to purchase a house, visit various attractions, or even start a family.

There are also various groups and organizations in which users can engage in. This includes communities for arts, games, sports, education, and more.

In its heyday, even companies like Coca-Cola or universities such as Harvard set up shop in Second Life.

Consequently, avatars can be customized to the user’s liking, for example by altering their gender, height, hair and skin color, clothing, and more.

Customizations can also be done outside of the game by using the Linden Scripting Language (with the name being based on Linden Labs, the developer behind the game).

Moreover, players can purchase plots of land as well as objects using Second Life’s native currency called Linden Dollars. One US dollar normally gives you between 240 to 270 Linden Dollars. Transactions are conducted through Second Life’s online marketplace.

Second Life can be accessed and played by downloading its desktop software that is available for Mac and Windows devices.

What Happened To Second Life?

Second Life, which is built and maintained by San Francisco-based Linden Labs, was launched in June 2003 by Philip Rosedale.

Rosedale, from a very young age, had been drawn to computers and science topics. Classmates of his would later recall how he raved about the inner workings of the atom bomb and other scientific breakthroughs.

On top of that, his computer savviness also allowed him to get a first taste of how life as an entrepreneur could be like.

Rosedale sold database systems to car dealerships and other local businesses while pursuing a degree in physics at the University of California at San Diego. The proceeds from that work effectively put him through college.

As a result of being debt-free, he was able to take some risks right out of college. In 1994, after wrapping up his studies, Rosedale moved to San Francisco to immerse himself in the burgeoning world of the Valley.

Not long after, he launched Freeview, a video compression technology. Two years later, that company was bought by RealNetworks, a Seattle-based developer of streaming software. Rosedale, still being in his 20’s, was appointed as its Chief Technology Officer.

Over the next few years, Rosedale stayed at RealNetworks, which ultimately went public in 1997. However, his urge to branch out on his own again ultimately proved to be greater than his desire of being an employee.

Inspired by the depicted simulation in the Matrix movie and being armed with millions from his tenure at RealNetworks, he ultimately decided to move back to San Francisco (from Seattle) to build the virtual world he always dreamed of creating.

He set up shop in San Francisco’s Linden Alley, which ultimately served as the basis for how he named the studio behind Second Life. For the first two years, the business, which had over a dozen employees, was completely self-funded by Rosedale himself.

At the time, prospective investors simply didn’t believe that something so technically complex could be pulled off. On top of that, broadband adoption was still at a nascent stage. However, with S-D video technology and networking hitting a tipping point in the early 2000s, Rosedale finally was able to convince investors to fund his idea.

In 2001, his long-time mentor and Lotus founder Mitch Kapor became Linden Lab’s first angel investor. Jeff Bezos and eBay founder Pierre Omidyar would follow soon after. Equipped with the necessary capital, Rosedale heavily ramped up his hiring efforts and, consequently, product development.

Finally, on June 23rd, 2003, after a series of private beta releases, Second Life was unveiled to the wider public.

In the beginning, though, adoption was lackluster at best. Rosedale got ahead of himself and, in late 2003, even had to lay off two-thirds of Linden Lab’s staff (from 33 down to 11).

But things took a turn for the better when, around the same time the layoffs took place, the Linden Dollar was introduced to Second Life. This provided players with an immediate incentive to not only purchase land but build attractions on top of it, which ultimately attracted even more users.

Additionally, Second Life added teleporting, which greatly accelerated the speed at which players could explore the world.

A year after launch, the game had grown to about 10,000 users. Growth was still fairly slow, in large parts due to the $9.95 entry fee that the game was imposing on new players. Despite the slow and steady ascend, Linden Labs was able to raise its first public round of funding in November 2004, netting them an additional $8 million in funding.

By 2005, supported by the ascend of other open-world games such as World of Warcraft, some users of Second Life were starting to make enough money to quit their jobs and pursue the game full-time.

Unfortunately, the rising adoption of Second Life also attracted malicious actors. Second Life, by the end of the year, began to crash from time to time due to multiple DDoS attacks.

Despite those hiccups, Linden Labs was able to raise another round of funding in March 2006, this time netting them $11 million in cash. By that point, the game had managed to attract over 165,000 registered users (with 20,000 of them logging in every day).

Brands were starting to take notice as well. In the summer of 2006, for example, fashion brand American Apparel set up a virtual shop within the game. Other established companies, including Adidas, Coca-Cola, Warner Music, or Toyota, followed not long after.

Yet again, heightened interest in the game also led to additional scrutiny. In September, a database breach led to the theft of sensitive user information. Growth, however, remained undeterred. On October 18th, 2006, Second Life managed to pass the inaugural mark of one million users.

In November, Second Life suffered additional attacks. This time, a bot was allowing to copy the creations of other players and sell them without proper attribution.

But all of those attacks only raised awareness for Linden Lab’s game. A month later, Second Life was extensively covered in TIME Magazine, which further added to its hype.

To further accelerate the extension of the game, Linden Labs open-sourced the code of Second Life in January 2007. Additionally, in February, it finally introduced the ability for people to communicate with each other via voice.

Problems continued to plague the virtual world as well. In May, Linden Labs deleted two user accounts after they created a child avatar that became engaged in “depicted sexual conduct” with an adult avatar.

Additional lawsuits also kept piling on after users had their copyrighted creations infringed upon.

During the summer of 2007, Second Life also banned all gambling on the platform after an alleged ongoing FBI investigation threatened the very existence of the game. On the other side, the platform also continued to expand its world, for example by adding a dedicated radio network in August.

That same month, Linden Labs introduced an identity verification system to combat spam and get right of the malicious actors on its platform. On October 1st, just a year after it hit one million members, Second Life had already managed to amass 10 million registered users.

Corporations like Amazon, Cisco, and IBM were using the platform to host conferences and have their employees collaborate with each other. On top of that, world-class institutions such as Harvard were conducting classes within its virtual world. The game was even featured on an episode of The Office.

Things began to take a turn for the worse towards the end of that year. In December, employee number four and Linden Labs CTO Cory Ondrejka was fired after he and Rosedale had a major disagreement about the future of the game.

On January 8th, 2008, Linden Labs also banned all in-word banks that didn’t possess an applicable government registration statement or financial institution charter. The move was announced after various in-game banks, such as Ginko Financial, had not returned customer deposits (made in Linden Dollars).

Then, in March, even bigger news dropped. Co-founder and long-time CEO Philip Rosedale announced that he would step down from his position. He was replaced a month later by digital strategy veteran Mark Kingdon.

In October of the same year, Linden Lab caused another uproar after significantly increasing the price of purchasing and maintaining one’s plots of land. Thousands of users publicly lashed out against the company, prompting it to retract its price hike. 

Over the course of the coming months, more and more seasoned company executives, such as CFO John Zdanowski, decided to depart from Linden Labs. The brain drain, alongside a variety of other technical and business model-related problems (more on that later), caused Second Life’s hype to significantly die down.

Other virtual worlds, such as Club Penguin or Gaia Online, suffered a similar fate as interest in the virtual world genre as a whole began to diminish while players decided to move to mobile and social media games such as Farmville.

In November 2009, Linden Labs introduced a corporate version of Second Life that allowed firms to buy a server appliance with a secure version of the game for $55,000.

However, at that point, many of the shops and venues that the more than 1,400 companies on its platform had set up were largely unoccupied as demand for the game dried up.

Despite the lack of media coverage, Second Life’s economy continued to flourish. Throughout 2009, the game’s economy generated $567 million in user-to-user transactions, up 65 percent from the year prior.

Unfortunately, the flourishing economy did not necessarily translate into real dollar income for Linden Labs. As a result, the company had to lay off around 30 percent of its staff (100 out of 300 people) in June 2010.

That same month, CEO Mark Kingdon resigned from his role and CEO. Founder Philip Rosedale became his temporary replacement until October when he himself stepped down again. In December, the company finally found a new long-term CEO in Rod Humble who had previously worked worked at Electronic Arts where he was leading development on The Sims game.

Over the coming years, Second Life became somewhat of a niche product with a fairly dedicated following. By June 2013, on its 10th anniversary, the company had over 36 million registered users of which one million logged in every month.

Meanwhile, Rod Humble (who was replaced as CEO by Ebbe Altberg in February 2014) and Linden Labs were busy diversifying the firm’s portfolio. In October 2012, they released two games for mobile phones and tablets.

Moreover, with the advent of virtual reality (VR) devices, Linden Labs also began to shift its focus towards a more immersive experience. In May 2014, it released a VR version of Second Life for the Oculus Rift.

On July 31st, 2017, after two years of building up hype, the company released Project Sansar, an open-world game that completely took place in a virtual reality setting. The development of the game was largely funded by proceeds from Second Life, which at that point still had a dedicated following of around 600,000 active users.

In the meantime, Second Life also continued to suffer from the same issues that plagued it right from the start. Cheaters would continue to use a series of exploits that allowed them to copy creations of other players and sell them for a profit on Second Life’s marketplace. While Second Life does follow a strict DMCA process, the masses of copyright theft simply made it too hard to follow up on every issue.

To that extent, in August 2019, Kavyanjali Pearlman, the former information security director of Linden Labs, filed a lawsuit against the company, alleging that it ill-treated private user data and largely ignored simulated acts of child molestation and money laundering.

Despite those ongoing issues, Second Life remained a staple in Linden Lab’s portfolio. In March 2020, the company even sold off all assets pertaining to Project Sansar, which failed to pick up steam, to focus on Second Life.

Additionally, the coronavirus pandemic, which forced billions of people to quarantine at home, led to a resurgence in user activity. For example, Linden Labs worked together with The Peale Center for Baltimore History and Architecture to replicate its museum within the game.

In July 2020, after more than 20 years in business, Linden Labs agreed to sell itself to an investment group led by Randy Waterfield and Brad Oberwager. This proved to be a smart purchase as demand for online worlds and digital assets such as non-fungible tokens (NFTs) greatly accelerated.

Even the tragic passing of CEO Ebbe Altberg, who suffered from a long-lasting illness, didn’t deter its renaissance. One of the smart moves that Altberg led was to invest over $30 million in Tilia Pay, a U.S.-regulated money transmitter, which allowed Second Life to receive and pay out money to creators.

Second Life entered the news cycle again when, on October 28th, Facebook CEO Mark Zuckerberg announced that the company he founded would be renamed to Meta (alongside a shift to VR). Interest in metaverse-focused platforms such as Decentraland or The Sandbox literally exploded overnight.

The resurgence even prompted co-founder Philip Rosedale to return as an advisor to the company in January 2022. Furthermore, his new company High Fidelity, which he started back in 2013, agreed to invest an undisclosed sum into Linden Labs (as well as provide them with access to some of “distributed computing patents”).

Linden Labs even managed to hire Steven Feuling, its first-ever Chief Marketing Officer, back in April.

Meanwhile, Rosedale didn’t just become an advisor to the company but essentially its biggest spokesperson. Throughout 2022, he did not shy away from slamming Facebook for its metaverse efforts during the dozens of interviews he gave.

Today, Second Life has an annual gross domestic product of $650 million and processes around 345 million transactions in a single year.

Why Did Second Life Fail?

Second Life failed to become a mass-market product because the game has an extremely high learning curve, it suffered from frequent platform meltdowns, due to consistent copyright infringements, and unrealistic expectations.

Second Life is not a failure in a classic sense. After all, Linden Labs still does generate tens of millions of dollars in annual revenue from the game. It, furthermore, continues to attract close to a million users every month.

However, when Second Life first entered the public zeitgeist back in 2006, the media often compared it to social media powerhouses like Facebook. Many assumed that a large portion of our lives would be conducted in the game.

Corporations like Coca-Cola and institutions like Columbia jumped at the opportunity to quickly set up shop in Second Life. In the end, these locations were as quickly abandoned as they were created.

While millions of people created an account, the vast majority of them abandoned the game within hours or days. A big reason for that is the steep learning curve that Second Life has. It often would take around 10 hours for someone to become comfortable with all the controls.

Even if you figured out how to control an avatar, one would have problems during gameplay. Back in the day, the game shut down for multiple hours whenever a new update was rolled out. Additionally, DDoS attacks would lead to serious lags, which made Second Life unplayable at times.

Creators would also be screwed over by bots and malicious actors who would copy their creations without proper attribution. This rendered the hours they spent creating something essentially worthless since those copycats simply under-priced the original creator.

One possible solution going forward could be to adopt blockchain-based technology. Non-fungible tokens, for example, ensure that creations cannot be easily forged as well as altered while allowing artists/creators to retain their full copyright.

However, a move towards blockchain technology may simply be an impossible undergoing due to the legacy infrastructure that Second Life is built upon.

Alternatively, Second Life could also open its platform up to developers. One prominent example of a thriving virtual economy is Roblox, which allows game developers to earn money on the platform through its virtual currency Robux.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.