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Why Facebook should buy Linden Lab
by Nick Harris on 03/26/14 01:28:00 pm   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.


Myspace, Bebo... many social networks are fashionable for a time, become mainstream and then fall out of popularity with the bright young things that discovered them and drove their initial growth, attracted by the next new "shiny", pulled along by peer-pressure to be "where all the cool kids hang out" and avoiding contact with a generation that they feel has never understood them and that they resent having crashed their party. It seems blunt to put it this way, but everything seems bleeding-edge until your family reminds you to "poke Grandma":

Given that everything is merely a click away (or should I say, a tap I not showing my advanced age by using moribund terminology in a mobile age?), megacorporations are right to fear the ease with which customers can leave the party they are hosting in search of a more fashionable venue. Facebook have tried to retain its dominance through simple critical mass, if that is where everyone is, if you have to join Facebook to not miss out on invites to your friend's impromptu parties then their hope is that you will and you won't mind the data mining they do on you for market research and the targeted advertising. You aren't in a position to complain, really, as it is a service they are providing to you for free.

Alternatively, you could use Google+ and benefit from its ability to separate everyone you know into a set of 'circles': job contacts, work associates, friends and family - yet, despite its superior technology, it lacks enough users to pull people en masse away from the black hole that is Facebook.

Unsurprisingly, Mark Zuckerberg bought a rapidly growing cross-platform mobile instant message service at a cost of around $10 per member. Even if thousands leave in disgust for some other service its growth is unlikely to plateau and the $19,000,000,000 he has spent on WhatsApp will seem more sensible as it ensures hip relevance with the cool kids and their disposable incomes (twentysomething, no mortgage burden and no children to pay for). To put things in perspective, Facebook is worth $161,860,000,000.

So, then comes the aquisition of Oculus VR for $2,000,000,000. Here is what he has to say about that:

This is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures.


There has been a lot of... internet speculation... that this bodes ill for what was once a promising platform with the overwhelming majority of gaming fora stuffed full of hateful messages and regrets that they paid for a development kit (which still works fine, by the way). Despite the fact that Kickstarter pledges aren't equivalent to stock in the company, people have been making out that they were cheated even though it is quite common for a Kickstarter to fail to deliver on any of its promises. Before a rift forms between the once claimed savior of PC gaming and the gaming public that was so hyped about its future potential by magazine covers like this:

EDGE magazine #254 'Believe the hype' The hardware, the vision, the future: how Oculus Rift changes everything

...we should be reassured by this part of Zuckerberg's statement:

Oculus already has big plans [for immersive gaming] that won't be changing and we hope to accelerate. The Rift is highly anticipated by the gaming community, and there's a lot of interest from developers in building for this platform. We're going to focus on helping Oculus build out their product and develop partnerships to support more games. Oculus will continue operating independently within Facebook to achieve this.

Now we won't be getting Minecraft, but I can envision its coarse pixels making my eyes bleed in VR:

On the other hand CCP are still committed to bringing EVE: Valkyrie which looks to be more appropriate:

Indeed, CCP could eventually bring Incarna, Dust 514 and their popular Online MMO onto the Oculus as one unified interstellar experience. However, I feel that there is a more obvious affinity between another online open world that has been around since 2003:

Seconf Life

Not only is this primarily a social nexus like Facebook (a place where you can project whatever version of yourself you choose others to see, either using a younger image of yourself, or making an effort to dress up for the photo when you are actually a slob in real life, or use someone else's image entirely out of low esteem, or some catfish scam), but you are encouraged to create an escapist alter ego through which to indulge your fantasies, to travel without time, cost, or hassle to "see the sights", to meet new people who share your interests unrestricted by enormous geographical separation.

Yet, just as in life your vanity will compel you to seek your desired appearance as you are aware of how others judge you based solely on first impressions, so you visit one of the many shops which sell clothes, or shoes and get a new hairstyle:

Second Life shops

Linden Lab is a private company, but for the right mix of cash and stock they would be wise to allow their world to be sold to Zuckerberg and given past estimates of their worth, there is no question he could not afford it. This would not necessarily precipitate annoying advertising everywhere you look. Google puts a few sponsored links in with its search results and you can just blithely ignore them, similarly you leave a player to go to the shoe shop of their choice and be persuaded therein, or simply remark on how you like another avatar's shoes and instantly find out where they got them from and be able to get them yourself before your impulsive purchase was dampened down by the onerous business of travelling there as you would find would be the case in real life:

"Oh, that's a beautiful lamp"

"Yes, I bought it last year whilst on holiday in Venice"

"Hmmm... can you remember the name of the shop, maybe I can order it online?"

Second Life needs new players, Oculus Rift needs a social nexus.

Facebook could monetize our second life as well as using it as a unified portal to other games.





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Bruno Xavier
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Err... How about 'no' ?!

Nick Harris
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Please give your reasons. They seem like quite a good fit to me and as I don't plan on ever using either (having quit Facebook and all contact with my only friend when he responded with to the news of my father's death with a frownie), I have no objection to one bunch of narcissists buying another's VR hangout.

At present the Oculus is similar to a fairground attraction: all nausea-inducing motion sickness and mild claustrophobia offset by novelty and escapism. I don't think it would suit my ambylopia borne from anisometropic "lazy eye" which leaves me with a lack of stereoscopic acuity, making it especially hard for me to thread needles, or reap the benefits of the latest EyePhone:

However, despite not being interested in the prospect of using VR myself, I am intrigued by the possibilities of new modes of interaction in our medium, find all of these developments fascinating to observe from the sidelines and have commented on how Nintendo should go back to the Wii's super accessible motion sensing interface with their next console, by coupling a pair of wireless Nunchuks to a Cinema style 3D HD TV with inexpensive wraparound polarized glasses that have built-in infra-red LEDs to support head-tracking:

I feel that this modest approach might prove to be less exclusionary and more socially acceptable to the family market Nintendo typically targets. It is also far more likely that they can achieve HD quality graphics in 3D when they only have to convey their easy to render cartoon styles.

Gwyneth Llewelyn
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I fail to understand your reasoning.

The argument for Zuckerberg to effectively buy 400-500 million users at the cost of $40/user (I don't understand how you did your math — 19 billion divided by half a billion is $38, not $10) is reasonable. You might have forgotten one typical rule of big-billion business: buy your competitors to shut them down. Facebook's messaging system competes directly with WhatsApp, and I'd be very surprised if Facebook will remain WhatsApp around. It's more than likely that they will absorb the technology and the users, and the next version of WhatsApp will be... a revamped Facebook app. But... we'll see. Nevertheless, buying users for $40/user is not a bad deal.

Oculus is... an investment in the future. It's probably the most hyped gadget after the iPod/iPhone/iPad and the Segway. Even if Zuckerberg won't make billions with the Oculus Rift, he might make hundreds of millions. And, incidentally, make Google scratch their necks wondering if they're on the right track with Google Glasses. Personally, I have no idea how much of an impact the Rift will really make. The Segway claimed it would "revolutionize the way cities will be built in the future" (which led people like me to believe they had invented a personal anti-grav device...). Nothing even remotely close to that happened, but Segway is still around, not bankrupt, and still launching new models. Apple certainly "invented" the smartphone business, threw the whole phone/carrier business upside down, and shook up the foundations of the mobile business — which is now applications, not communications — but nowadays struggles to keep its market share from becoming insignificant (and hey, I'm an Apple fangirl!). The Rift promises to "revolutionize the gaming industry" but... will that really be the case? I suspect they will have 2-3 years to make as many millions as they can (certainly Zuckerberg will recover his $2B), then we'll see cheap copycats from Samsung dominating the industry. But, again, the investment in Oculus might make sense at this time. So long as a product gets delivered to the shelves. Eventually.

But... Second Life? Linden Lab is a profitable company: it still makes some US$50 million profit (before taxes) every year. They've been in operation since 1999, launched Second Life a decade ago, and might have given a return of 300-500 million USD to the stakeholders, which, at some point in time, included Jeff Bezos and Pierre Omydiar. It attracted some 22-24 million registered users, with less than a million logging in every month, and perhaps 100,000 being faithfully active every day. Linden Lab has diversified their portfolio, joining the gang of mobile game developers, although their revenues from the new platforms is a big unknown. Second Life, their cash cow, generates enough profit to allow them to invest in further development and future games and products without requiring any extra funding, so they have a pretty solid business model. They are facing a serious issue, though: it's hard to admit that not only Second Life is a niche product, but one that has saturated the market, having 99% market share (the rest is on OpenSimulator, a free and open-source viewer-compatible virtual world platform, which is visually almost identically to Second Life – it uses, after all, precisely the same viewers). That market doesn't grow: it requires unique skills and characteristics of its residents, which are not mainstream, and, as such, there is no hope to enlarge their market. As a consequence, because people's attention span rarely extends beyond 2-3 years, there is a slow (but sadly steady) decline in usage (even though in-world transactions remain high and grow ever-so-slightly — less people are actually more involved in the economy and spending more than before).

So as a long-term investment for Facebook... I personally don't see any real interest. Sure, Second Life will be Rift-compatible at some point; there is a promise to do so, but there are a few hurdles to overcome first. But it means a market where there will be no growth. Zuckerberg's acquisition of WhatsApp shows that Facebook's current struggle is "getting more users" (they have saturated the _mainstream_ market). When all else fails, they buy new things that might open completely new markets, which have an unknown size, but which might be expected to grow exponentially for a while. Second Life would be the opposite move.

One might claim that games were niche markets in the 1980s and early 1990s, but they have "escaped" into the mainstream now, and eventually the same could happen to Second Life. I remain skeptic. The "mainstream escape" was attempted in 2006/7, and the lesson learned back then is that virtual worlds with user-generated content and visual contiguity (as opposed to 3D chatrooms) is _not_ a mainstream product. So why would Facebook be interested in that?

And how much would they offer? Linden Lab doesn't operate in "Internet speculation valuation" — instead, they ought to be valuated for their business model, one that generates 30-50 millions in profits every year. So, taking a standard evaluation, would mean offering 5 years of profits for the company — something between 150 to 250 millions. Well, the owners of Linden Lab are millionaires themselves. They would have little interest in getting that much; it's far better to stick to what they have now, and continue to enjoy another decade of profits, without being owned by anyone. They would certainly not reject a multi-billion buyout offer, but Zuckerberg is not stupid: even though Second Life's internal economy generates half a billion USD (yes, USD) in transactions, Linden Lab does not get a share of that. The company is simply not worth so much. Specially because it's unlikely to grow — except by acquisitions (which, in the past, earned them a handful of good programmers but little more than that). But Zuckerberg doesn't need Linden Lab to grow via acquisitions; he has shown that he knows how to do that on his own!

So I'm afraid I don't understand your argument on how Facebook and Linden Lab are "suited for each other". I'd think it would be much more relevant for Facebook to acquire, say, Blizzard or even Electronic Arts — or the more obvious choice, Valve. All of those would be far more expensive than Linden Lab, of course, but at least they have growth potential and have mainstream products...

Nick Harris
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Apologies for the late reply, but I was on holiday. I appreciate your comments and you are correct to suspect my math as being dubious. I regard Facebook's stock price as ludicrously inflated and Zuckerberg as being wise enough to see this as a temporary situation to be taken advantage of, with $4,000,000,000 in cash divided by 4,000,000 WhatsApp users giving a reasonably low cost of $10 per user pulled into his social network when one disregards all fluctuating 'paper' value.

You are also correct to point out that Second Life, though profitable, has few users. However, this could all change with a partnership or acquisition and a significant investment whereby every Facebook user got an avatar of their own design with the ability to customise its appearance and create a home for it without having to find the money for a subscription every month, then Facebook could charge rent for all the major brands that wanted to sell accessories and home decorations to the players which would then act as a form of discreet product placement rather than require traditional "in your face" advertising techniques.

Minecraft is more successful than Second Life because it has gained the required critical mass of users to have plenty of positive word of mouth and thereby gain new users to replace those who grow out of its simple pleasures. It would not be such a success if you had to pay a subscription to make stuff with your friends in its world. Therefore, if Second Life were as (initially) accessible as Minecraft, so that Facebook account gained an avatar and a home to hangout in, then there would be more fun stuff to do as you chatted with your friends even if you didn't own a VR headset to feel like you were in that space. As it stands Second Life is just too expensive to try out properly to see that you even like it and if all your friends are elsewhere in another free to access social nexus you will feel a bit of a wally walking around its currently desolate spaces:

Linden Lab's business model is all wrong, but that could change to something a lot more accessible with the right investment and promotion. I really don't see how Facebook would benefit from buying World of Warcraft when all that they need to do is allow these other companies to connect their worlds to Facebook's and allow your avatar to change into a dwarf whilst you are in that RPG. A bit like I carry all my achievements and party of "friends" with me from alter ego to alter ego on Xbox LIVE through my unified gamertag.

Sony have Project Morpheus and Home, so maybe they'll do it: