Dusan Writer thinks a lot about the business of virtual worlds and, specifically, Second Life.
He recently wrote a very thoughtful and interesting blog post titled “SECOND LIFE NEXT: 2011.”
In my comment on his post, I said the following:
You also talked about how “user generated content is not a business model.” I’m not sure I fully agree with you on that. The bottom line is, if you’re using a service and not paying for it, you’re not a customer. You’re part of the product. At least that’s how all successful businesses see it.
I’d like to expand a bit on what I said in bold. Because, if done right, I think it’s a very good thing both for businesses and customers.
When I say “Dole,” what do you think of?
Businesses exist to make a profit. That’s the bottom line. I remember many years ago hearing a quote by the CEO of the company Dole. I don’t remember the exact quote, but he basically said that Dole is not about bananas. It stuck in my mind simply because I don’t think there’s anyone on the planet who doesn’t immediately associate the name “Dole” with a banana.
The same goes for any company. It doesn’t really matter to the board what the company is selling. All that matters is that they have a good product, and they are selling it well. Profit is the lifeblood.
So it’s critical to remember this simple fact when you’re thinking about any particular business and what motivates companies.
Which brings us to user generated content. The net is awash with it. Facebook, Twitter, Flickr, Second Life, you name it. Collectively, we generate a ton of user generated content. And we seldom pay anything to do so.
But at the end of the day, all these companies providing platforms for user generated content have to think about how to make a profit. Which leads to an unspoken and fundamental epiphany in the boardroom. The people using our service who aren’t paying for it are not our customers. They are part of our product. And we need to figure out how to make a great product and sell lots of it.
This first epiphany is not a bad thing. It’s just a cold hard fact. But real success is all about how a company acts on that fact.
The best thing a company can do is have a second epiphany.
If you’re developing a revenue model that relies on people freely generating content, and you have ways to monetize things around that content (be it advertisements or licensing or hosting or whatever), then the most important part of your product is the community of people creating the user generated content.
Which means the people who are part of your product are the most important part of your business.
So you should support the heck out of these people. You should cherish and respect them. And you need to make sure they know this not with your words, but with your actions. Listen to them. Give them tools that delight them and allow their creativity to soar.
So that’s why being “part of the product” doesn’t have to be as evil sounding as it may first seem.
Unfortunately, many companies never have this second epiphany. They do so at their own peril. Because, if done right, being “part of the product” can be the best possible thing. For paying customers. For non-paying people generating content. For businesses.
Cherish the people who aren’t paying you a dime. In the end, everyone can win and be happy and make a living.
That’s what a having a successful business strategy is all about.
-John “Pathfinder” Lester
Be Cunning and Full of Tricks 
“You should cherish and respect them. And you need to make sure they know this not with your words, but with your actions. Listen to them. Give them tools that delight them and allow their creativity to soar.”
I used more or less this argument when I was privileged to meet for an hour with a Linden VP (since departed) last year and tried to pitch him the idea of giving away the first region free to education/non-profits because that is where the VW killer app is going to come from.
Instead of which they doubled our tier :p Nice to know my ideas were so far reaching…
Ah – this extended comment makes more sense to me than how I read it on my own blog. 🙂
You arrive at a similar conclusion – pay attention to the folks who are ‘part of the product’ – a lesson that’s as applicable to Facebook as it is to SL. I have a broader problem with the way that UGC is generally discussed and the fact that most business models based on it usually place the ‘users’ (or product) in conflict with the customers (usually advertisers).
The nice thing about SL, in my opinion, is that it has a unique combination of technologies and commerce that allows a convergence of customer and “product” – the people who create are also the customers, and this alignment means that SL doesn’t need to find itself in a conflict between creators and, say, advertisers.
Facebook makes money off of the fact that I post status updates. I’ll never pay Facebook anything, and although they don’t want me to leave, it’s the advertiser who keeps the lights on.
Second Life makes money off of the same people who create content (or what I’d prefer to call ‘experiences’ so that we understand it as a broader thing than 3D objects and scripts etc) and so should be highly motivated to take care of both the “product” (non-paying users) and its customers, with the benefit that the interests of those two constituencies are tightly aligned.
Which makes it all the more baffling when what the Lab seems to care MORE about are non-paying customers who haven’t even ARRIVED yet.
Splitting hairs maybe and yet I resist lumping SL in with all of the other user-generated content business models that are out there, most of which are premised on the idea of having people create stuff for free, and then making money off of that elsewhere.
(See my post for further comments. 🙂 )
I’ve replied to your reply to my reply to your blog post.
And I had a lot of fun just writing that sentence.
http://bit.ly/hzWkMm
The meaning of things, context and culture.
“Dole.” I had to first orient myself to what you were talking about. The brand didn’t immediately pop into my head. When it did, without a breath, pineapples came to mind, not bananas. And an image of canned pineapples to boot. When I read bananas I thought, hmm? Dole bananas?
If my point relates to the larger discussion at all, which I find incredibly insightful and important btw, it’s that I’d characterize myself as one among many who simply don’t respond in the ways business modellers might expect. And I suspect SL Residents, on the whole, are a similar other-oriented breed of folks, which is only to say that I don’t know if LL can turn the profit-generation corner without SL becoming an entirely different experience and thus uninteresting for its current users.
I think you’re right in that many SL users are probably “atypical” in the broad spectrum of “general consumers.” Many of SL’s users are extremely creative and motivated pioneering-types. Especially those folks who create content and organize successful communities and events.
I believe there are many ways LL could make $ while being respectful of all the users of SL, including the users that don’t fit neatly into standard consumer models. Ways that go well beyond LL simply being a “hosting company” for renting virtual land or taking a percentage cut from L$-US$ transactions or charging fees for content creators to list their items on a website. I’ve got many viable and innovative ideas.
And it would be nice to be able share those ideas with LL to help them out. I really hope SL succeeds and grows. I wish SL the best of luck.
But LL decided to let me go. I work with ReactionGrid now. So my strategic business ideas are reserved for a group of people now creating a different kind of platform and business with a very different future ahead of it. A future of *interconnected* virtual worlds that I think will hold many new opportunities for many different kinds of people. Including those people who started in SL. 🙂
Still seeing only “cults”.
Only the move from using “faux customers” to “faux partners”
The “reward”s” and “access to the rewards” must be in the form of a neutral currency for any of this to be a “fair buisness” or trade.
what value is there to being a part of the machine, that only can be fit into that specific machine.
c3
Hi Pathfinder
Sometime lurker, first time commenter. Okay, to get the culturally-specific language usage out of the way; if you ask me what I think of when I hear, or read, the word ‘Dole’ I think only of the English colloquialism for a state payment that is available to people who are out of work.
As to the point of the discussion – well, I’ll fly my flag clearly, I’m not an educational user, OpenSim early adopter or devotee of SL. I owe my move to OpenSim from Second Life because it equipped me with the knowledge to make things, and, then the contact with people to inspire me, as well as giving me the impetus to look elsewhere for a creative outlet. I’m quite used to how Linden Labs operate, it’s their product and choice how that is deployed and developed, just like any other private company with shareholders or investors.
I seriously have to debate the usage of “part of the product” though. People take part in all sorts of events, activities and past-times because they’ve bought into the *platform* that allows their interest or personal expression. That doesn’t equal a business or a business opportunity.
For myself, I left SL when the TOS was re-written to include the use of peoples’ content for Linden Labs potential marketing purposes. Skipping the fact that there would be no grace payment; there would be no credit or acknowledgement of the creator of said item or image that was used. That’s not just providing a product: that is something that court cases are made of on a daily basis.
I acknowledge the part that Second Life played in my creative development over the last three years. I’m grateful for the environment and what it did for me. But I’m not its ‘product’ or anyone else’s, as a corporate entity. I paid my way, and so does everyone else who puts in the time or money, or both, into it. We are the clients.
If someone has directly paid $ to a company for goods or services, then absolutely, they are a customer. But I believe you can also simultaneously be a customer and part of the product. I should have made that point in my blog post, now that I think about it.
It’s fantastic when people embrace a platform that allows them to participate in events and activities with other folks. That’s how communities develop. But ultimately, “content” is much more that just *things.* Content includes events and activities that people create together. People travel not only to look at the buildings or landscape, but to also dine at the restaurants, swim at the beaches, dance in the nightclubs, and meet with the people.
*All* of that is content. And, if a company understands that fact, then I think there are many business models around it. For example, in a virtual world, you’ll have many people attending events that are not paying anyone a dime. But their presence in the virtual world makes it much more interesting to a broader audience, so more people will visit the world. Which means there are more opportunities for enterprising folks to create inworld businesses to sell these people things like clothes or whatnot. Which means the company that owns the virtual world has an opportunity to rent land to these inworld businesses or take a percentage from the inworld financial transactions or sell these inworld businesses tools that will help them grow their business.
The people not paying a dime to the virtual world owner, the people just *enjoying* the world, are part of the product. And they are a priceless part of the product. Which means the company that owns the virtual world should cherish them, because they make the world more interesting to be in. Because without a great product, you have nothing to sell.
And if someone is *simultaneously* paying a company $ while also creating engaging activities for the free enjoyment of other people, then that person is both part of the product *and* a customer. A company needs to seriously support and cherish those types of folks. Because they are both directly improving the company’s bottom line as well as making the product a delight to experience.
I wish LL did see it like this! I’m increasingly frustrated with their attitude. When I was a mentor they told me we weren’t needed, when I was part of a group setting up their own help areas we were told they would be sending people directly to destinations in world. The AVL libraries set up an incredible noob training area to which I could send people, and LL cut subsidies just as educational budgets had been set for the year, so now the area can no longer be supported.
Now I’m getting noobs at my home sim and I’m back to mentoring, and worse, since LL won’t update the Destination Guide as requested, they are landing expecting a different area. The noobs also inform me “SL is all free” and they can do what they want, wherever they want, they get outraged when I tell them how much I pay and ban them. The pleasant, polite people take a lot of time to teach, and since I’m no longer an ‘official mentor’ in a recognized area I can’t choose when to do this work. For this we pay LL USD$125 a month and I don’t make any money in-world.
I LOVE introducing people to SL and having them ‘get’ this wonderful, exciting sandbox we have to play in. I adore mixing with the creative people who inspire me to try things I’d never have attempted otherwise, and I’ve met friends from SL in RL and loved them just as dearly. However I am very tempted to take a small plot of land and stop paying for the privilege of dealing with LL’s preferred customers, the new people. (Whew, rant over! and BTW Dole to those in the UK is unemployment benefit!)
Thanks for reminding me that “Dole” means unemployment benefits in the UK. I totally missed that word association.
Perhaps I should have chosen a more globally familiar company name with a singular product association.
“Coca-Cola” springs to mind…
I often get the feeling that LL not only doesn’t cherish their current customers, they consider us nuisances and wish we would all just leave. Except the “creators” of course, which apparently means just those who make large quantities of virtual things to sell inworld.