M Linden announced massive, thirty-per-cent lay-offs at Linden Labs, the parent company of SecondLife, yesterday. At the same time, he maintained Linden Labs was in solid financial shape.
If Linden Labs is in solid financial shape, well past the nadir of the current recession, why enact lay-offs now? Although seemingly incongruous, there is a scenario where both of these statements make sense.
Linden Labs is a closely held, privately owned company. This means Phillip Rosedale used some of his own money, along with money from other private investors to start the company, and together they own the company. Rosedale apparently owns a minority of the stock in the company.
It's possible these other investors thought their investment would have paid off by now, either by a direct buy-out of Linden Labs by a larger company, or an Initial Public Offering of Linden Labs stock. This was a common scenario among tech companies at that time.
Since that didn't happen, the owners may now be pressuring management to increase the value of their investment in other ways, namely by increasing the book value of their stock and/or increasing dividend payments. If this is the case, then a staff reduction could be a logical step in increasing company profits to the level desired by the investors.
Another factor to consider: Second Life experienced unprecedented user growth during the early years of its public release and management may have responded by increasing staff levels expecting similar growth to continue. Now that user growth dropped to a more normal level, reducing staff to fit the current needs is logical. Management by "irrational exuberance" followed by a painful "morning after" has been a common pitfall for companies involved in the internet revolution.
A lot of people lament the changes brought to SecondLife by M Linden's leadership, but it's easy to forget sometimes that SecondLife is, after all, a commercial venture and governed by those rules and goals.
You also have to consider that unless M Linden can get the company to the profit levels desired by the investors, then they may seek to sell the company, and who knows what SecondLife might be like if it gets eaten up by some larger company.
M Linden also announced something a lot of people already knew, or at least strongly suspected -- that Linden Labs hopes to make SecondLife accessible by web browser in the next few years. This would make it possible to integrate SecondLife with other popular platforms like Google or Facebook.
A browser-based interface for SecondLife wouldn't necessarily mean the death of better, faster interfaces like Emerald or even Viewer 2.0, but it would make it easier for new users to begin using SecondLife, which current management sees as a primary objective.
It may be current and past users of SecondLife were something of a niche market. These niche markets are mature now and they may have gotten most of the growth out of them possible, meaning the only way to continue growing will be to open SecondLife up to the mass market. To do that they have to significantly reduce the obstacles for mass market new users, who in the past simply found SecondLife too difficult or too confusing to use.
This suggests future noobs will be a whole lot dumber than they were in the past. While frustrating, this is a pattern repeated many times in the online world and I'm sure we'll muddle through.
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