State of Linden Lab — Critical, Serious, or Healthy?

This discussion is based upon reports from Hamlet Au at New World Notes.

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I haven’t touched the recent news from Linden Lab until now, mainly because I haven’t been sure what to think about the entire thing.  I’m still not sure yet, even after the passage of a week of time.  But it’s part of the mission of this blog to report on the news affecting the Grid, and offer my own opinions on it, and it’s time I weighed in.  We’ll see which way my thoughts move as I write….

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How is Linden Lab actually doing right now?  That is the very thing that is hard to determine unless — perhaps — you’re one of the 30% of Lab employees that were laid off last week.  That group includes many long-term veterans and beloved Lindens, such as T (Tom Hale).  Concern for these folks has been so high among residents that SLeleb CodeBastard Redgrave built a “graveyard” of headstones for the now avocationally-challenged, which has been frequented by Residents leaving flowers, occasionally dancing on the “graves” (a tasteless thing, even for the terminally dissatisfied among the SL population), or simply contemplating whether this event is an omen auguring the future of the Lab.

The Linden Memorial at Rouge, http://slurl.com/secondlife/Rouge/165/72/22

That’s somewhere in the neighborhood of 90 people, based on employment figures mentioned elsewhere.  Not the same as, say, a plant closing somewhere; but to these folks it still means they’re learning the difference between “recession” and “depression.”

But is this an omen that Linden Lab is in financial trouble?  Mark Kingdon insists no, in the original press release, the Big Blog announcement, and in a talk with Hamlet Au.  According to M, the Lab’s in fine shape, and this isn’t a retrenchment dictated by falling revenues.  The problem with this:  especially as a Michigan girl, living in areas where plant layoffs were all too common in bad economic times, I find it hard to believe entirely.  Labor is always among the top 3 or 5 items in company costs, if not the prime item.  This makes it very easy to target employees when you need to balance the books in hard times.  What I would love is to see the actual balance sheet of Linden Research, Inc.  Being a privately-held company, of course, this won’t happen any time soon.

Hamlet’s (admittedly unscientific) poll suggests that readers of New World Notes are overwhelmingly pessimistic about Second Life’s future following the layoff announcement.  Part of this could be from actual fear of the company having revenue problems.  And, with a free-to-join customer base, this can be understood.  Actual revenue, as I understand the Lab’s business model, comes from Premium memberships (which they’ve been pushing on recently, as you’ll note from their frequent message encouraging upgrading to Premium as you log in); sales of land and regions (including tier payments); and, hypothetically, investment return from sales of Linden dollars purchased by Residents or spent as fees (such as upload fees) — in other words, they take the money paid to them and invest for collection of interest.

The following is speculation on my part, but consider it. Based on charts at Tateru Nino’s Dwell On It, user concurrency has been trending downward throughout 2010, although the decline may be leveling off based on early indications, which suggests to me that regular user numbers are going down due to the economy; in other words, a declining pool of potential or current Premium customers, and (extrapolating from this), fewer people interested in purchasing land or paying corresponding tier for it.  The in-world economy itself has proved resilient, suggested by the user-to-user transaction numbers; but how much of this is coming from existing bank accounts, and how much from purchased lindens, such as I normally do to buy my goodies?  Mark, if you’re reading this, how close am I to the mark, and would you be willing to share your actual financial statements to help back up your position?

Once again, these are speculations on my part.  Kingdon may be giving us the straight dope on Linden Lab’s financial conditions.  The thing that makes me wonder is that businessmen tend to paint the rosiest picture possible in their press statements and annual reports.  Warren Buffet, the master of Berkshire Hathaway, is one of the few people who will admit flat out to his investors when his company is stinking, instead of trying to put a positive spin on the numbers.  While I choose to reserve my worries for now, I would like more provable information as to how things are, and whether the largest and (still to me) the best virtual world offering will still be around in 2011.

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