PHILIP ROSEDALE ON HOPE, ANXIETY AND VIRTUAL WORLDS

JANUARY 19, 2009

ROBERT BLOOMFIELD: Hello, everyone. I’m your host, Robert Bloomfield, and, on behalf

of Remedy Communications, Dusan Writer and myself, I’m delighted to welcome you to our

opening of the Spring 2009 season of Metanomics and what promises to be a fascinating

conversation today with Linden Lab founder and chairman, Philip Rosedale.

Philip is just the first of a number of great guests we’ll be hearing from this season. Right

now our schedule includes top-ranking executives Robert Gehorsam, of Forterra; and

Ruben Steiger, of Millions of Us; educators Barry Joseph, of Global Kids, and

Tony O’Driscoll, of Duke University; academic researchers Dan Arielli and Tom Boellstorff;

in-world content creators Kiana Writer, of MadPea, and Damien Fate, of Locos Pocos; and

two members of Barack Obama’s transition team Kevin Werbach, of Supernova and

Wharton, and Beth Novak, of the New York Law School.

Metanomics is coming to you from the virtual Sage Hall, right here in Second Life, thanks to

my Real Life employer, Cornell University’s Johnson Graduate School of Management. I’d

also like to give special thanks to Doug Thompson, founder and CEO of Remedy

Communications and author of Dusan Writer’s Metaverse. Remedy, as many of you know,

has taken over management and operations of Metanomics, leaving me some more time to

do what I love most about this series, which is talk with guests and potential guests and

learn as much as I can about the business aspects of Virtual Worlds.

I’ve talked quite a bit with Doug, and I know that he’s firmly committed to developing

partnerships with new sponsors, with the Second Life community and with all of you who

understand that Virtual Worlds are important, exciting and filled with lots of opportunities and

challenges. If you’re interested in becoming a sponsor or developing any other kind of

partnership with us, please contact Doug directly at dusan.writer@gmail.com.

I’d like to offer a very special welcome to everyone at our event partner locations spread

across Second Life. As we focus more on improving the quality of our final video archive of

Metanomics and the broadcast itself, it becomes more important to limit the number of

people who are actually here at Sage Hall on the Metanomics Sim. So I apologize you can’t

be with us right here, but it’s great to have more and more of you out there at the

Confederation of Democratic Sims, Meta Partners Conference Area, Rockliffe University,

New Media Consortium and Orange Island. And a shout out also to Fleep Tuque, Second

Life educator extraordinaire, who I understand has set up some space for her folks at

Chilbo, so hello, Fleep and friends.

Just because you’re all on different Sims doesn’t mean we can’t stay close. We use

InterSection Unlimited’s ChatBridge system to transmit local chat to our website and website

chat into our event partners. I see it is fired up already, so speak up. Let everyone know

your thoughts and feel free to use that to pass questions along.

Before we hear from Philip Rosedale, we have another very special guest today, the dean of

my Johnson Graduate School of Management, Joseph Thomas. Regular viewers of

Metanomics know that the title of our opening segment for every show is On The Spot, but,

of course, I have no intention of putting my dean “on the spot.” So instead, we’re just going

to give Joe a chance to say a few words of welcome. Joe, welcome to Metanomics and

Second Life.

L. JOSEPH THOMAS: Thank you, Rob. I’m delighted to be making my first appearance in

Second Life and on Metanomics. On behalf of Cornell’s Johnson School, I’d like to welcome

everyone out there to the atrium of Sage Hall, for the season kickoff of Metanomics. We at

the Johnson School have watched with great interest as Rob has taken Metanomics from an

informal series of guest lectures for a handful of Cornell students into one of Second Life’s

most respected venues for discussions about entrepreneurship, business and policy and the

opportunities and challenges of this fascinating new industry of Virtual Worlds.

Rob’s guest today, Philip Rosedale, has argued passionately that Virtual Worlds hold

tremendous promise for developing economies and for distance education. We at the

Johnson School share Philip’s focus on these goals. Our Center for Sustainable Global

Enterprise works directly with companies, around the world, to help the private sector solve

the world’s most pressing environmental and social problems. Our board [members of the?]

Executive MBA Program, run jointly with Queen’s School of Business in Canada, uses

internet technology to conduct classes with students spread across the United States and

Canada. Rob’s work with Metanomics has encouraged us to explore how Virtual Worlds and

related technologies might help our efforts, and we look forward to watching this industry

develop.

The Johnson School slogan is Real Impact. Metanomics, along with achievements of Rob’s

guests and many of the audience members here today, have shown that Virtual Worlds can

indeed have real impact on the Real World. So, on behalf of Cornell’s Johnson School, I

wish all of you continued success as you shape the world of our future. Thank you, and I

hope you enjoy this new season of Metanomics.

ROBERT BLOOMFIELD: Thanks a lot, Joe. I start teaching managerial accounting

tomorrow. Can I get you to come in to my first session and give a little speech then too? I

think it’s a good way to kick off.

L. JOSEPH THOMAS: Sure. Absolutely.

ROBERT BLOOMFIELD: Thank you, Joe Thomas. Joe is the dean of the Johnson School,

and I would like to express my appreciation again, as I do every show, for the support that

the Johnson School has given us in Metanomics. There’s a natural educational fit with what

we’re doing at Cornell, with our focus on distance learning and on the use of technology in

particular, to allow for a green, global enterprise, and Second Life certainly has been a boon

to that for us. So again, thank you, Joe. And I’ll see you in B11 first thing tomorrow morning.

Okay. Let’s turn to today’s main guest, Philip Rosedale. Philip founded

San Francisco-based Linden Lab in 1999. And though he’s no longer CEO of Linden Lab,

he does act as its chairman and remains actively involved in the strategy, development and

design of Linden Lab’s products, particularly the World of Second Life and the Second Life

grid platform. So, Philip, welcome to Metanomics.

PHILIP ROSEDALE: Thanks for having me. It’s funny. It’s funny, I feel like you and I have

talked enough over history that I guess this is my first time officially on Metanomics.

ROBERT BLOOMFIELD: Yeah, yeah, it is. And we are pulling out all the stops. You can

see also--and you went through the orientation. We have JenzZa Misfit as our avateer,

animating you to make you look realistic.

Before we jump into the heavy stuff, I do have to ask you about your clothes. If I don’t

change my outfit for a week, then my staff makes fun of me until I do. We have a picture,

and maybe SLCN can pan over to this. There’s a picture just offstage, to my left, from 2003,

where I gather you are--

PHILIP ROSEDALE: Oh, look at that.

ROBERT BLOOMFIELD: --going in-world to talk with people about opening up the

economy and actually having Lindens be real money. I know that took a lot of persuasion

and combing people and so on, but I notice, you’re wearing--you look basically like you do

now. So any plans to upgrade?

PHILIP ROSEDALE: You know it’s great jest. I feel like the day has got to be coming when

I build some sort of a new avatar for myself here. You’re right, I built my current avatar, over

maybe an hour, doing some of my very first work in Photoshop, back in I think it was

probably 2002 actually when we got most of the sort of avatar-look attachment stuff working.

I’ve never changed it because, I don’t know, it has felt so personal, and it has also felt, I

guess, somewhat iconic. Philip Linden isn’t just me; Philip Linden is Philip Linden. So I’ve

never changed the way I looked, and I love that you found that picture because you’re right.

That, in fact, that photo there is one of my most memorable moments, both, I think, as a

CEO and as a Second Life experience, that moment where I was trying to convince

everybody that it would be okay to tolerate basically a more open economy and a land

system in which people could purchase their own land, rather than essentially earning it

through exclusively in-world behavior, was one of the most intense kind of, I guess, political

moments that I personally had ever had. Really something.

ROBERT BLOOMFIELD: Yeah. And I think now it’s hard to imagine. Of course, I’m a

newcomer. I started in Second Life at the beginning of 2007, but really it’s hard at this point,

I think, to imagine it any other way than with that tie to the real economy exchange rates and

so on.

PHILIP ROSEDALE: But it was an amazing transition at the time.

ROBERT BLOOMFIELD: So now speaking of transitions, you made a big transition in May

when you switched; you stepped down as CEO, and you brought Mark Kingdon in to take

that role over, with you becoming chairman of the board. How close are you now to the daily

operations of Linden Lab and overseeing Second Life?

PHILIP ROSEDALE: Well, as I’m sitting here talking to you on Metanomics right now, I

could reach out and grab onto Mark, if I wanted to. He’s sitting about four feet away from

me. He just waved--

ROBERT BLOOMFIELD: Hi, Mark.

PHILIP ROSEDALE: --hello to everybody on Metanomics. But I think that’s a good

question. I have changed my role a lot, obviously. I’m certainly not the CEO anymore. Mark

is, and he’s doing a fantastic job. I can’t tell you how much I’m enjoying sitting next to the

CEO and watching all of the pieces of my job getting done by somebody else, including the

parts of it that, I don’t know, the tough ones. It’s such a fascinating job to be the CEO of

Linden Lab and, through that, to have the relationship with Second Life that one does. I’m

so happy, and, I don’t know, it’s so delightful to see somebody else doing that job now, and,

hopefully, guaranteeing that we’ve built a company where it doesn’t take a particular person

to do a particular job. We can grow and change and survive and flourish.

ROBERT BLOOMFIELD: When we spoke in September and I asked you a similar question,

you talked a fair bit about getting back to tech issues, not having to deal with the day-to-day

and sort of a lot of the executive administration. Just the way you described it, I had this

picture of you out in a garage, surrounded by scattered parts of old Commodore computers,

whipping up a new server. So can you tell us a little bit about any of your newest tech

projects that you’re working on?

PHILIP ROSEDALE: Sure. It’s actually--the timing is so perfect because we, on Friday--so

I’ve been working with two other developers. So part of my job, you’re right, I wanted to

make a transition back toward technology and design. I thought that was the best way that I

could add value to Second Life. I mean I think it always has been, and now that the

company is the size that it is, I think the CEO job is not the perfect job for me, and I think the

last few months have actually been fantastic in terms of proving that to be correct. Mark’s

doing a tremendous job. We’ve got a bunch of new people that are doing a great job. But, I

am getting back to technology, and a good example of that is our web map. If you actually

take a look at SLurl.com, probably a number of people here use at least some, you will see

that, as of Friday, it got some updates.

The web map that we publish is now deployed directly to Amazon S3, meaning that it loads

a lot faster. The overhead images of the grid that you see there will now be updated on

something close to a two-day schedule, where today it’s actually, I think, a couple of weeks,

or previously it was. So when you put a new island online, you’ll be delighted to see it show

up on that map very quickly, and then you can also click anywhere in Second Life, on the

map, and you’ll get a little bubble that shows you the name of the region and gives you a

teleport button. So that technology work was myself and two of our other great engineers

working together, for about the last month and a half we’ve been working on that stuff. So

yes, I am getting back into development, and that was our first project, to try and both do

something useful and also kind of get re-acclimated to the code and the systems and

everything we’re doing.

ROBERT BLOOMFIELD: So first, let me say that sounds great. Yet another improvement. I

feel like every little bit you guys do can make a real big difference, especially when it comes

to helping people find content, find events, find the things to do in Second Life. You

mentioned that’ll be up on the Second Life blog shortly?

PHILIP ROSEDALE: Yeah, I haven’t blogged about it yet. We were putting it up to just see

if it was stable. I just saw in chat somebody was mentioning, yeah, you’ll sometimes see a

message that says it can’t find the Region: Ahern. That comes up sometimes. We’re looking

at that right now, but it’s not really slowing down the performance of the site very much. You

may just sometimes click on an island or a location and have to wait, or you may not get that

bubble for a little bit. But, yeah, I’ll blog on that in the next day or so. So it’s kind of fun. We

actually hadn’t talked about it. It was just a quiet update on Friday, to make sure it was

running okay before we blogged on it. But I guess you heard about it here first.

ROBERT BLOOMFIELD: I only ask that, when you blog about it on the site, you say, “As

heard on Metanomics.” No, I won’t hold you to that. I do want to follow this up with one other

question. When I picture what a chairman of the board would do for a company with--what?

You have somewhere around 300, 350 employees?

PHILIP ROSEDALE: Yeah, that’s right.

ROBERT BLOOMFIELD: And a pretty big executive management team. Everyone’s fine

with you working on what’s a fairly specific, detailed project, not sweeping in its scope, not

talking about business strategy, not out there raising capital or making sure Mark’s doing his

job, though I guess you’re four feet away from so you can--am I right in thinking it’s a rather

non-traditional chairman’s position?

PHILIP ROSEDALE: Well, I think it’s a little non-traditional, although we as a company

have, if anything, been a fertile ground for non-traditional things; Second Life being the big

one. I do spend a good portion of my time both talking to Mark and helping the executive

team as much as I can on strategy, so I am definitely involved in a traditional chairman’s

role. But the traditional chairman role, in a well-run company which I think we are, is one

that is not--if all is going well, it’s one that is not a hundred percent time intensive, which is

why, appropriately, a lot of people have asked me, “Hey, what are you doing? Are you doing

stuff outside of Linden Lab?” And my answer to that has been, “Well, no. I love working on

Second Life.” And so my other job, if you will, is not my next company; it’s just doing things

to make Second Life better. And design and development is where I do the best work.

That said, I think that I’m going to continue looking for opportunities to make Second Life

better, that have the highest they can. The web map, I think, is a great project to add some

value and kind of get familiar with things. I hope I continue to have major impact, if possible,

as a designer and a developer in Second Life. But, I am doing the sort of chairman work and

the consulting with the team and being close to what’s going on as well. But, with Mark there

and with the other members of the exec team that have joined and are there, that stuff is

really pretty well covered. I think things are going quite well.

ROBERT BLOOMFIELD: Great! I’m glad to know that, between you and Mark, you’ve got it

covered, and I look forward to hearing from Mark soon, sometime this season, on some of

the more day-to-day executive management issues.

Let’s move on to what I’m hoping will be the main theme of our discussion today, which is

the two themes of Barack Obama’s presidency: hope and anxiety. We’re quite literally on

the eve of Barack Obama’s inauguration, and he is promising hope and some anxious

times. I know that you see tremendous hope and promise in technology, particularly in the

developing world. There’s an interview with the BBC that you gave, where you end by

saying, “What does the future of the internet look like? It looks like a world map, where even

the furthest corners of the planet are able to get online because of the decentralization of

power generation. What technology is getting me excited right now? Electricity.” So I always

thought, Philip, that I liked electricity as much as anyone could. But what is that gets you so

excited about decentralization of power and particularly electric power?

PHILIP ROSEDALE: Well, I think, like you said, I guess there’s sort of two things there.

There are the specific sorts of technology that are changing things the most, and then

there’s the general observation, which I think is so great to be making on the eve of this U.S.

inauguration. The general trend, I think, in the world is toward technology having a greater

and greater impact on people’s lives. Like it or not, I guess. There are certainly ways in

which that’s tense and stressful, but there are also ways in which it can be wonderful and

empowering. You know, I’m 40, if you go back to my childhood and you look at big things

that changed in technology, there were things like the introduction of ATMs and cell phones,

which, compared to, say, 40 years before that, those were massive kind of cultural changes

in human behavior that were empowered by those technology changes.

But I think today we’re looking at an even more aggressive and accelerating rate of

technology impact. If you look at the impact that Second Life could have on somebody

who’s rurally located, but does have access to broadband and to electricity, as you said, the

impact that something like Second Life can have on them suppose they’re one of the people

who’s making their living working inside Second Life. If you look at the impact that going into

Second Life has had on them, by extension that’s an impact that technology has had on

them, it is really enormous compared to many, many of the ways that technology has

impacted people historically. So I think we’re on an accelerating trend.

On the subject of electricity though, obviously I think computers, communication, cellular

telephones, broadband networks, all of those things are critically sensitive to the availability

of electric power. Additionally, electric power enables things like the desalination of water,

the creation of heat. So electricity can be a key way of establishing the basic human needs

that we all have, and I think that there’s wonderful work going on in technology to

decentralize and extend the access that people have to electricity all over the world. And so,

yeah, whenever I’m asked about technology trends, I look at things like Second Life and

broadly with the internet and global communication is affording us as being a very important

trend. But then I always point out that electricity is still a critical requirement that is missing

in so many places, and I think that the developments around electricity are therefore really

important and interesting to watch. I’m naturally an optimist, so I guess I’ll lead with that

bias, but I think that there’s wonderful work going on around electricity right now.

ROBERT BLOOMFIELD: At the SLCC Convention in Tampa, you talked about the

possibility of having an internet café in a developing nation, that would allow people to come

into Second Life, and I can imagine this fitting very well with what you just said: it’s using

local power generation and so where there are basically no opportunities, you say, “I have

this vision of an individual, an entrepreneur, in a developing country, who serves as a point

of currency exchange and facilitation, maybe a teacher that teaches people in their local

community how to use Second Life to educate themselves, make money, whatever, and

then facilitates the currency exchange and the more complicated things and does that at a

profit. So it’s really a self-perpetuating system.” So I’m wondering, Philip, it’s been five

months or so, have you had a chance to pursue that, and does that look as viable or more

viable than it did when you mentioned that in your keynote at the SLCC?

PHILIP ROSEDALE: I have pursued it a little bit. I can’t point to an example yet of that sort

of imagined internet café, and, I guess, let me back up and repeat what you said, which

was, I have a feeling that because Second Life so generally provides opportunities for

people to learn and make a living in a virtual environment, I think that there is a huge

opportunity around finding simple, repeatable entrepreneurial mechanisms to get more

access to Second Life in, say, developing nations where statistically people don’t use

Second Life and, for the most part, the internet much today. I think the model for that can be

one where, if you imagine an entrepreneurial individual who sets up a little café with 20

computers in it and teaches people, in that café, how to use Second Life on those

computers--and, of course, we have presume this person has some sort of broadband

access as well so they can get those computers online--that individual could essentially

provide both education on how to get into Second Life, how to get through the learning

curve and also could provide a currency exchange for the people who needed it. In other

words, you might, for example, be living in a country where the primary mechanism for

buying groceries is cell phone minutes, as it is in parts of Africa. You can imagine somebody

essentially taking Linden dollars that--that person running the café taking the Linden dollars

that you made in-world and giving you cell phone minutes directly for those Linden dollars.

So that would be a simple entrepreneurial model by which people could do generalized

kinds of work in Second Life and get paid for it in local dollars. And that, I think, is

extraordinarily empowering because, in general and sadly, the Real World still forces people

in many parts of it to choose from a small set of potential vocations, jobs, which is a lot

smaller than the basic sort of capabilities that we all have. I mean we all, as humans, can do

just about anything, but we are often extremely restricted by where we live as to what we

actually get to choose to do. So I think there’s an enormous amount of opportunity there.

I guess if I’d go back being a guy who’s always trying to do too much at the same time, I

would love to say that, in the last six months, I had personally gone out and set up a café

like that and worked hand-in-hand with someone, to see if that model can really work. I

haven’t actually done that yet, but I have taken some steps toward that, in terms of talking to

people who are running other similar operations where they’re reaching out in developing

nations, setting up internet access points, setting up computers. And so I’m having those

conversations, but I don’t have a demonstrative site to talk about here yet, and I wish I did,

but I still am working in that direction.

ROBERT BLOOMFIELD: Okay. Great! Well, I hope we’ll hear an announcement sometime

and not too long on that. Much of the way that you’re describing these efforts, it’s from the

standpoint of working as a basically private industry, solving problems in a somewhat

point-by-point way. But there are also big policy issues here, and certainly some of these

came up in the election. Some of them are just the issues that have been big over the last

few months in the transition team. One of them is debates on net neutrality, for example,

large investments in infrastructure, particularly broadband access for everyone in the U.S.

And I’m wondering, since Linden Lab relies so much on consistent broadband access, if

Linden Lab actually talks with-- you know, do you guys reach out to policymakers and get

involved with these various debates?

PHILIP ROSEDALE: We haven’t really done that to date. There was the time that I spoke at

Congress, on request, in front of the Telecommunications Subcommittee about Second Life

and about Virtual Worlds. I had some great people with me.

ROBERT BLOOMFIELD: Susan Tenby.

PHILIP ROSEDALE: Yeah, Susan. I’m trying to think of them.

ROBERT BLOOMFIELD: Larry Johnson.

PHILIP ROSEDALE: Larry. That’s right. Whose name I was forgetting there. And then Colin

from IBM. So we were talking about what Virtual Worlds could do. That was, I think,

informational. We haven’t reached out, and I’m going to say to my knowledge, because

there might be exception I’m unaware of. But we haven’t really gotten involved in these

policy issues around thing like net neutrality. I do agree though that, obviously, low-cost

uniform internet access is absolutely critical to nation states generally, to technology

advancement, to education. It’s critical to everything. I think the question regarding

regulation though is one of whether we are yet at a point where competition is likely to be

the fastest establisher of those conditions or whether we sort of need regulation to help with

things. And I guess that’s really the net neutrality debate.

I would say, having looked at it as a technologist myself, it’s really hard to tell whether, say,

in the United States, we are yet at a point where the last mile is a competitive environment. I

would say that, if providing internet access to people in that last mile can now be taken to be

reasonably competitive nationwide, then we really shouldn’t need any regulation. I mean I’m

generally of the view, and I think Second Life is great proof of this, that you don’t need very

much regulation. There are certain times in human societies where there are critical things

people need that are inherently monopolistic, say, because they’re very, very expensive to

establish or something like electricity or railroads or telephones. At least my commentary on

it would be that we keep these things regulated for too long generally because the

regulations themselves establishes jobs for people and agencies and all these different sort

of mechanisms that tend to stay in place for longer than they need to. So I guess that’s

more of a lecture on my thinking on the topic than a comment on net neutrality. But I think

it’s critical that everybody have uniform access to broadband. My gut is probably that

technology allows us to be pretty darn competitive on these grounds today, that is, if

somebody’s charging ridiculous fees or tariffs or whatever for net access, there’s probably

going to be competitive providers waiting in the wings to compete with them. But I think that

that’s something that has to be looked at very carefully, and I hope that that’s a major part of

what’s going on with the whole debate about net neutrality.

ROBERT BLOOMFIELD: There were a number of sentiments in there that sounded on the

libertarian side of things, liberal libertarian, and some of them closer to the conservative

side, sort of a skepticism about regulation and a concern that it become self-perpetuating.

Are you willing to tell us who you voted for in this last election and why?

PHILIP ROSEDALE: Absolutely. I voted for Obama. I was I think, like many of us, I was just

moved and delighted when the election happened. I do think we’re going to see some very

exciting changes. I think, generally, that Obama is a guy who recognizes the importance of

technology and its accelerating impact on people, and I think that we’re going to, therefore,

have a government here in the United States that is more sensitive to technology issues

than ever before, and that that’s extremely important. Even discounting something as

game-changing as Second Life, just looking at virtually any issue today, technology

becomes extremely important. So I’m delighted to see that happening.

On the topic of regulation and being libertarian and then how I voted, I think it’s a much

better choice to, I guess, do the right thing, but a bit more slowly than one might optimally do

it. Which, I think, is kind of a world where you’re doing the right things but maybe you’re

regulating a little too much, or you’re incenting this or that behavior, and you generally are

going in the right direction, but you’re accidentally kind of slowing the whole thing a bit by,

say, too much regulation. It’s much better to do that than to do something that’s profoundly

wrong or dangerous or harmful to people, but do it very efficiently. So that’s my thought on

why I would say I am very tolerant of an environment in which there’s lots of transparency,

lots of discourse, good knowledge of the impact of technology and maybe sometimes more

regulation than I would tend to vote for, I don’t think that’s a big deal.

ROBERT BLOOMFIELD: Okay. I’m looking at the backchat. So first of all, it sounds like

people weren’t too surprised by your voting, and also I’m getting chastised for focusing on

local politics, and I am sensitive this is a global show. So actually, if I could quickly ask you

to turn this a little more globally. A question from Fleep Tuque, which is: What impact do you

think Virtual Worlds will have on democracy generally?

PHILIP ROSEDALE: Well, even if you look at, say, the Electoral College process that we

use here in the United States when a President gets elected, that’s, I think, an example.

That process is an example of the fear that people had about whether democracy could

work in the earliest years of the United States. And that was a time when, obviously,

educational levels were enormously lower than they are today. So you were afraid then, in

times like that, how far you could go with democracy, I think, in part because you were

worried that people weren’t broadly well-informed and capable of making decisions about,

say, the governance of their country. I say that because take a look at--what I think

technology does is it equalizes things, it educates, it adds transparency, it adds speed to the

communication process, accuracy, diversity of opinion. All of those things are necessary

components for democratic systems to be successful.

If you create an environment where there is tremendous opacity, nobody knows what

everybody else is doing, you can kind of do game theory to show that you can have

conditions where, even if you establish democratic operating principles for that community,

the lack of knowledge about what’s going on, the lack of education can still create a bad

outcome, in terms of people’s behavior. So I think that technology is primarily an accelerator

and a sort of risk-reducer around whether and how democracy can work.

ROBERT BLOOMFIELD: Actually, I’m going to have some comments at the very end of the

show, in our little opinion piece, Connecting The Dots, that’s going to play on that issue,

and, in particular, technology facilitates markets and economies which are fantastic

aggregators of information. So I think we’re on the same page on that one.

I’d like to turn Linden Lab itself and its business, and that’s going to take us then into the

in-world economy, which I know our viewers are always very interested in. First, I’d just like

to ask: How do you see Linden Lab faring right now in these difficult economic times, at the

corporate level?

PHILIP ROSEDALE: At the corporate level, we’re, I guess, a midsized company now.

We’re profitable, so I think we’re in that realm, as a company, happily, where it doesn’t

matter that much. We’re less impacted than lots of other companies that are broadly and

substantially impacted by changes in the economy. As you pointed out earlier, we’re pretty

global so the U.S. economy doesn’t directly impact us. U.S. users of Second Life are around

30 percent, a minority, and therefore, we’re somewhat insulated from the most direct impact

of some of the economic problems we’ve had over the last couple quarters.

More explicitly though, we just published some data about Q4 and what you can see there is

that user hours in Second Life are up. Dollars transacted between people are flat.

December, relatively flat, are I think one percent down from November. So generally, what

you can see happening is, there is a drop in user-to-user spending in Second Life, that it

seems completely reasonable to say is a result of the overall health of the Real World

economy. But, if you look at the percentage drop, it’s very small. We’re joking internally that

I think most companies, and most countries, right now would give up a great deal to trade

their position with that of Second Life.

If you looked at Second Life’s economy, a drop of one or two percent in spending basically

would be very appealing to most countries right now. So generally, I think that, for the few

months of data we have so far, Second Life seems a bit more recession-proof, as people

say, than other environments, and therefore, by extension, we as a company are

recession-proof or more recession-proof. But it’s still early to tell. It seems very reasonable

to say that Second Life’s economy, which is sophisticated and complicated and has a lot of

transactions in it, could potentially be affected by the world economy in ways that we still

haven’t seen yet.

ROBERT BLOOMFIELD: You mentioned that Linden Lab is profitable. When I read the

papers, I see all this concern about being unable to make money in Web 2.0, Facebook has

huge expenses and has not been profitable. MySpace, YouTube, similar issues. These

firms are getting huge numbers of users. They’re far, far greater size-wise than Second Life,

but they haven’t actually made money. Why do you think it is you are able to monetize your

much smaller membership base while these behemoths struggle to do so?

PHILIP ROSEDALE: The best thought that I have about that is simply that the reason why

Linden Lab is able to make money is because Second Life itself creates value and, in some

cases, real financial value for the people that are using it. So I guess, in a manner similar to

sites like, for example, eBay, Second Life actually provides an environment in which people

can, through their investment of energy and time, make money. Whenever you do that,

whenever you create a broad-facing platform or environment in which people can make

money, and they’re actually provably able to do it, as a company, it’s reasonable to expect

that you can collect a small percentage of that money one way or another, in how you

charge for the service, in a way that keeps you around.

I think, if you compare Second Life to some of the other new uses of the internet that we’ve

seen over the last few years--and this isn’t to slight them--it’s just that, in many cases, you

may create a lot of traffic or a lot of use, but you don’t yet create value for people either

financially or indirectly. And when you don’t create that value, obviously, as a company, you

have to figure out some way to monetize what you’re doing. If you’re not creating value for

people, you have to be fairly clever about how you monetize your business. If you are

creating value for people, then you can just try and collect a fraction of that value as a way

of operating and growing your own company, and that is exactly what we’re doing, and

that’s where I think the difference lies.

ROBERT BLOOMFIELD: We have a question that maybe combines some of the last two

issues we’ve talked about. It comes from Roland Legrand, a business reporter in Belgium,

who asks: Is it possible for Linden Lab to invest heavily now in new technology, or are

important projects on hold?

PHILIP ROSEDALE: Well, we certainly are able to invest in new technology. I think the

broadest answer there is yes, we are profitable, which means we have the ability to grow

the number of Lindens, the number of people we have working on Second Life broadly, and

then also look for investment opportunities more specifically. That said, I think it’s a good

question because the question I would ask myself, if I were sitting in your seat is, hey, is

there a really huge thing that’s wrong with Second Life that you guys think you should be

making an enormous investment in, say, fixing or making better or finding? And, in that

case, I think that the incremental approach that I took during my time as founder and CEO is

one that we’re still continuing to take. That is to say, there aren’t enormous opportunities for

change that we see where we need to make big, up-front investments. And I’m happy that

that’s true because it certainly is a tough economy and a time where every company and

every CEO is thinking very carefully about making sure that they are very sober about the

risks and, in general, don’t make those big, up-front investments. But I don’t think there’s a

particular up-front investment that is large, that we need to be making, that we’re not.

ROBERT BLOOMFIELD: When we talked, back in the fall, you did emphasize this strategy

of what you called small bets, that you would introduce new products or pricing or features,

little things that would help, but nothing that was such a big investment that, if it failed, it

would be catastrophic. I think you used the example of voice then, which was just a small

team of people. And certainly, for me, I view that as money very well spent.

PHILIP ROSEDALE: Right.

ROBERT BLOOMFIELD: You’re talking about the map now. When we spoke more

recently, last week, to go over issues for the show, you also made a very interesting claim.

You talked about this idea of spending a lot of money to change something major, and you

suggested that you thought Google’s Lively, which lived about six months, actually did

demonstrate the correctness of your strategy of small bets, by saying that they were

basically directly going for Second Life’s market and didn’t really produce any breakaway

differences that might have--

PHILIP ROSEDALE: Right.

ROBERT BLOOMFIELD: So did I get you right on that?

PHILIP ROSEDALE: Yeah. I think that, if you look at all of the work that’s being done in

Virtual Worlds right now, and there’s obviously a lot, and Lively from Google is one example

of that--there are tons of other examples that I think underscore this fact as well. When you

look at all of them, you don’t see, even in cases like Lively where there are fairly substantial

teams deployed to do the work. My understanding is that Google’s project there was one

that had a lot of people working on it. It was a pretty big project. When you look at those

projects or when I look at them, I don’t see really critical advancements that they’ve made to

the interface or the experience or the Virtual World environment that suggest that we’re

making a mistake by not doing a huge 2.0 effort.

When I look at something like Lively, what I see is a cool product that had a bunch of people

working on it. It certainly has lots of neat innovation and thinking that went into it, but it

doesn’t cry out and say, “Hey, Linden Lab, if you guys made a similar large investment in

money and new people, you would get some massive obvious improvement to the

experience of the Virtual World that you could give to everybody that was using Second

Life.” So I think that that example of Lively is seen in a lot, you know, that there are other

anecdotes that suggest the same thing. And it suggests that, yeah, it’s the right call for us to

not make massive investments in technology areas because we just don’t yet know, for

example, what the critical steps are that are going to make the interface to Virtual Worlds

really simple.

ROBERT BLOOMFIELD: Now along those lines, I have a question from Sean Cinquetti:

Can you give us any hints on the modernization of the new Second Life viewer and when it

may really come?

PHILIP ROSEDALE: Well, again, I that that is going to be more like small bets and small

updates deployed sequentially. We make changes to the way the website looks for brand

new users. You may not have noticed this as an existing user because, if you hit the

website, it’s smart enough to know you’re you and not show you the new pages. But the

map changes that we made last week. We’ve a team of people working on--as many people

are following along with here--working on revising the information architecture and the

structure of the actual viewer application. I think that we’re going to keep deploying

incremental changes to the UI, the interface, what happens when you click on objects

in-world, these types of how do you navigate. I think you’re going to see us do those in small

steps, and there isn’t a big, “Hey, I can let you guys in on, you know, this is the month when

we’re going to release Second Life 2.0.” I don’t see us doing things that way.

ROBERT BLOOMFIELD: Okay. We have so many questions coming in through the

backchat. There’s a related set of questions I think would be great to get to, and that is,

you’ve made the point that Linden Lab’s profitability rests on the ability of the people in the

Second Life economy to monetize their experience and make a profit. I guess we have a

few people here asking how serious you are about improving the ability of fully in-world

content designers and others and people who are just operating purely in-world. Ordinal

Malaprop is asking are people operating purely in-world still important to Linden Lab, and

how is this being expressed? And then Prokofy Neva is seconding. Mary Ann someone’s

question--actually I don’t catch the last name--on what you’re doing not only with enterprises

but with in-world content designers and land dealers.

PHILIP ROSEDALE: You had that great picture of me. Do we still have it up there? I think

we do. Yeah.

ROBERT BLOOMFIELD: I think maybe SLCN can pan over to that again, if they remember

where it is.

PHILIP ROSEDALE: That picture of me standing there, having that amazing moment where

I was trying to convince everybody at that time; Second Life was less than a thousand

people that were, oh gosh, probably almost less than a thousand people ever, and a few

hundred people who were really actively using it. I at that time, at the end of 2003, had to

convince everybody that it would be okay to allow entrepreneurial in-world--and that’s

exactly the question you were just asking--people that are just working in-world, in Second

Life, to make money. Everybody was saying that that was a terrible idea, and it would kill

Second Life and that all we would care about, as a company, would be then helping those

people make money and that nothing else would matter to us.

And so now the question is, in other words, as every new wave of change comes into

Second Life, there is an appropriate fear that gets voiced by the community, that says,

“Well, all Linden Lab is going to do is care about the new wave, whoever they are.” So I

would say six or twelve months ago, you’d be talking about education. We’re still talking a

lot about education. We’re also talking about groupware, people using Second Life for work

and small teams having meetings. I think what history has shown is that I think we’ve been

reasonable as a company, and we’ve always maintained a balanced approach, where we’ve

assumed that no one application for Second Life will ever be the majority of Second Life

use. I think that’s the clearest way to state it.

Our operating principle and assumption, which I think has always been true and certainly

continues to be proven true, is that no single thing that people are doing in Second Life will

come to be the defining experience that we must, as a company, solely or primarily support.

I don’t think that’s true. It certainly wasn’t true at the end of 2003. It wasn’t true when

Second Life became really well-known, and people started putting up islands in it. It isn’t

true about education and business use today, so I think we have to continue to steer a

course where we support everybody fairly uniformly, with the assumption that, like the

internet, there’s not going to be one killer app in Second Life. I guess, in the strongest words

possible, I would say that is not what we’re doing. We’re not looking at any particular

change in usage and saying we need to put all our resources behind that.

ROBERT BLOOMFIELD: Okay. This hour just totally flies by. We have time for one more

question. This one comes from Daniel Voyager, who actually was a resident of the Teen

Grid, but is no longer a teen and is too old to be in that grid. He has shifted over now to the

main Second Life grid. Daniel, welcome to Second Life. His question is, well, it’s more of a

comment: Linden Lab doesn’t seem to be doing anything these days for the Teen Grid or

stop signups outside the U.S., not doing resident events or advertising the Teen Grid

effectively. So what are your plans with the Teen Grid at this point?

PHILIP ROSEDALE: Generally, I think that the future of Second Life needs to be one where

people of all ages can use Second Life together, and that’s the direction that we’re taking in

our planning and our work. I think that the educational opportunities for Second Life are so

great for all ages that we need to make it as available as we possibly can to people. If you

look at what we’ve done with the Teen Grid, I think we’ve done a good job, as a small

company, of being inclusive and creating an environment in which teenagers were able to

use Second Life, I think, perhaps earlier than, I don’t know, we might have been able to. We

pushed hard to get that working.

But, if you look at the problems with having a teenaged area, which is itself so isolated from

the rest of the World, they’re substantial. There’s an inability for educators to easily interact

with people in there because we’ve made it an exclusively teen-only area. Parents can’t join

their kids in Second Life so problems like that are ones that we think are pretty fundamental

and need to be fixed. We need to stop creating isolated areas that are age specific and,

instead, look at how we can make the overall experience appropriately safe and controlled

for everybody. So that’s the general direction that we’re taking there.

ROBERT BLOOMFIELD: Do you expect any official action or public notice on this anytime

soon? And is the idea--am I hearing you right--that it would basically be to allow people of

any age to come into at least some parts of Second Life? Is that what I’m hearing?

PHILIP ROSEDALE: Definitely. From my perspective, our long-term strategy is that--but I

won’t make any specific “this is what’s coming next and that’s where you can expect it,” in

that regard. We’re still working on how to do that and what to do next.

ROBERT BLOOMFIELD: Okay. Well, thank you, Philip, for coming on to Metanomics for

your first appearance. I certainly hope that it won’t be your last since I have pages and

pages of stuff here that we didn’t even get to and lots and lots of questions from our record

live audience today. So thank you for joining us. Thanks so much to our audience members

for a large number of very thoughtful questions. And, of course, we post not only the audio

and video archives, but the backchat, and so your questions will at least be out there, and I’ll

make sure to pass them on to you, Philip, so you can see them and decide if there’s

anything blog-worthy in the future to address.

PHILIP ROSEDALE: I would like that. It is stressful, even with the speed with which we can

communicate, voice and text right now. I’ve been reading all these questions flying by as

well, and it’s frustrating. I mean it’s great actually that you get asked these questions in an

environment like Second Life, which is one of the things I love about it; it’s frustrating though

to not be able to answer all of them. I wanted to say that the Teen Grid actually had an

international registration PayPal problem that’s been going on for the last six months that we

just fixed. So I’m sorry it’s taken that long to fix, but if folks have had problems registering in

the Teen Grid, outside the United States, you actually can try again right now, and you

should be able to. So I just wanted to throw that one in there because it’s a little technical

note.

But, yeah, thank you very much. I hope I am back on here soon. I also hope, with my new

job, I have a little bit more time to do things like this. It is one of my goals is to be able to

spend more time talking to people and talking more broadly about what we’re doing as

opposed to being in the meetings, trying to help get things done day to day.

ROBERT BLOOMFIELD: Great. Well, again, thank you for your time, and thank you to all

our audience members. As usual, we end our show with a short opinion piece we call

Connecting The Dots. Our plan for this season is to pass this around to different people to

make their points, but I just couldn’t resist making my own connection on the eve of

Barack Obama’s inauguration. Just as the people of the United States are looking to

Barack Obama to strengthen our country’s economy, the residents of Second Life are

looking to Philip Rosedale and Mark Kingdon to do the same for Second Life’s economy.

And, as long as I have Philip right here, it’s hard to resist giving a little advice. I motivate my

advice with a question, which is: What is the first indicator of the health of the Real World

economy? Sure, the U.S. government collects and publishes scads of data about economic

growth, consumer spending, employment, but that’s all old news. We learn about

December ’08’s consumer spending in January ’09. But, fortunately, we can get advance

warning by looking at market prices. Back in September, we could make pretty good

predictions of December’s consumer spending by looking at the plummeting stock market

and behavior of various markets for government and private debt.

Linden Lab also does a nice job of collecting and publishing economic data on everything

from the value of the Linden dollar money supply and the volume of in-world transactions to

user hours and, well, you can go see Zee Linden’s page for the full set. Great stuff. But,

again, it’s just too late. The problem is, we don’t have a market that can aggregate the

predictions of the many, many people who are experiencing the Second Life in-world

economy firsthand. The solution is straightforward, and I actually described this on the

academic Virtual World blog Terra Nova some time ago. I would like to see Linden Lab or

perhaps an outside party run a prediction market that lets people profit from making

accurate predictions about the health of the in-world economy.

Some of you may have heard of the Iowa Electronic Market or Intrade. These are markets

that let people buy and sell shares of securities that pay a dividend based on just about

anything, including the outcome of elections, which is their most popular. Or, the winner of

the Superbowl, also popular. Right now on Intrade, for example, you can buy a share of an

asset that pays off $10.00 if Barack Obama’s approval rating is higher on March 1st, 2009,

than George Bush’s was on March 1st, 2001. Last I checked, the price was about $9.30, so

people seem to think that’s a pretty good bet right now. But any misstep by Obama, he says

the wrong thing tomorrow in the inauguration, that’s going to cause the price to drop, and we

can get a good look today on how Barack Obama is likely to be perceived in March.

How could we arrange something like this for Second Life? Well, imagine a security that

pays a dividend based on Linden dollars outstanding in January 2009, or something we can

trade today, whose dividend is based on the recorded volume of in-world transactions for

the month of December 2009. Or, the number of residents spending at least a dollar or

earning at least a thousand dollars U.S. of monthly Linden inflows. People who are better at

making these predictions will have the opportunities to profit. So the creation of this type of

market gives a lot of people incentive to search out information that will help them predict

the numbers that are most crucial to Second Life’s long-term success. The technology of the

financial market itself aggregates everyone’s individual beliefs into a number that is probably

better than one we could get any other way.

Creating this type of prediction market isn’t a trivial task. You have to find the right

indicators. They need to be relevant, objectively measurable and not easily manipulated.

Linden Lab would need to consider their legal exposure or a third party, if they were to take

this on. You’d have to make the right regulatory arrangements. For example, the Iowa

Electronic Market had to request a no-action letter from the Futures and Commodities

Trading Commission. But, in my view, the benefits of the information we could get from such

a market far outweigh the costs, giving advance notice of changes in the health of Second

Life’s economy to the management of both Linden Lab and the in-world businesses that

form Linden Lab’s basis for survival. So if you find this idea interesting, whether you’re from

Linden Lab or a third party, hey, call me.

Okay. That’s the end of today’s event. See you at Metanomics next week. We’ll be hearing

from David Klevan, of the U.S. Holocaust Memorial Museum; Barry Joseph, of Global Kids;

and we’ll have Connecting The Dots commentary from Second Life educator Fleep Tuque.

See you there. Bye bye.

Document: cor1046.doc Transcribed by: http://www.hiredhand.com Second Life Avatar: Transcriptionist Writer