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110507 Second Life's Economic Architecture Metanomics Transcript


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Metanomics is a weekly Web-based show on the serious uses of virtual worlds. This transcript is from a past show.

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110507 Second Life's Economic Architecture Metanomics Transcript

  1. 1. GENE YOON - NOVEMBER 5, 2007 ONDER SKALL: Hello, everybody, and welcome to another session of Metanomics, part of the Metaversed series of events that we hold in conjunction with Cornell University's Johnson School. With us today is Gene Yoon, aka Ginsu Linden, Vice President of Business Affairs at Linden lab. He'll be introduced and interviewed by Professor Robert Bloomfield of Johnson School at Cornell. The main sponsor of Metaversed Island is the Otherland Group, Making Sense of Virtual Business. I'd also like to take a brief moment to thank the sponsors of the Metanomics series and all the Metaversed events. They are Generali Group, Cisco Systems, Sun Microsystems, SAP, Kelly Services, and Saxo Bank. And, of course, none of this would be possible without the good people at SLCN who are absolutely the ones to talk to when it comes to working with video and virtual worlds. Avatars across the grid at all event partner locations can join the conversation by joining the Metanomics Group. And also remember to join the Metaversed Group for all future Metaversed business events. If you have questions today for Ginsu Linden or Gene Yoon, please IM me directly in-world. That's Onder Skall. The economic policies within virtual worlds strongly influence how economies take shape. So without further ado, I would like to introduce you to Robert Bloomfield, who will be talking with Gene Yoon of Linden Lab about that subject.
  2. 2. ROBERT BLOOMFIELD: Thanks a lot, Onder. And welcome, everyone, who's both here on Metaversed and on our many partner sims. Please, all of you be sure to join the Metanomics Group and use that for backchat now, since that's the best way for you to communicate with us, the speakers, to get your questions to us so that we can talk about them. And then, also, to just build community with other people who are interested in the same types of topics you are, because you're all here. So we're here today with Gene Yoon, Ginsu Yoon. Welcome, Ginsu. GENE YOON: Thanks very much for having me. ROBERT BLOOMFIELD: Yeah, well, we're honored to have you. You're my first live Linden that I've had on the show. So I'm delighted. Before we jump into the topics for the day, I'd just like to give people a sense of who you are. So my understanding is you have a background in basically venture capital law on the technology side. Is that right? GENE YOON: That's correct. I was a lawyer earlier on in my career. I was a venture capitalist myself. Actually, looked at investing in Linden Lab at one point. And now I'm running business development for Linden Lab.
  3. 3. ROBERT BLOOMFIELD: Yeah, and your official title is Vice President of Business Affairs, which I assume puts you mostly on the outside of Second Life, dealing more with Linden Lab's business strategy. Is that right? GENE YOON: Yep, that's right. Actually, sometimes I feel like I miss all the fun stuff because a lot of the interesting thoughts, commentary, and content certainly go on inside the world of Linden Lab--inside the world of Second Life. But I'm mostly dealing with our external business relationships. ROBERT BLOOMFIELD: Yeah. But you used to be dealing with the internal side. I've heard you called the architect of Second Life's economy. And that's actually where I'd like to start. So let me just map out for you and for our viewers where we're going to be going over the next hour. I'd like to start by talking about economic policy inside Second Life. You know, monetary policy, land, intellectual property, dispute resolution. And then we'll move on to, I guess, what you're doing more currently these days, thinking about the challenges and the opportunities that Linden Lab is confronting. So let's just, you know, start by talking a little bit about macroeconomics. So when I think about macroeconomics in the real world, you know, governments are setting goals for investment output, inflation, interest rates, and, you know, there are clear senses of what macroeconomists believe are the goals of economic policy.
  4. 4. And so I guess my first question is, do you think we can just import traditional macroeconomics into a discussion of Second Life's economy? GENE YOON: I think it is great to have an understanding of a lot of general fields, including economics, when we're trying to understand how to shape what's going on in Second Life, because it really obviously is a product that takes into a lot more than just the technology. As a social product, it has a lot of social elements. That said, I really--this is a thing I have, you know. I just think that the--you know, viewing what's going on in the virtual economy primarily through the lens of economics is a little bit of taking the metaphor too far. What we've got here in any particular element, say the Linden dollar, is a product. It's an element of what our offering is. And when we thought about how to put together the offering for the Linden dollar, it was more in the sense of a product team. We did retain economic consultants. But that was just one input. It was more trying to understand a particular product offering and not trying to understand the world of macroeconomics. ROBERT BLOOMFIELD: Okay. So I guess we should think of Second Life as being a technology offering or web service just like any other. And monetary supply, then, would be like a feature of that. GENE YOON: Right again. You know, the term monetary supply, it takes the metaphor of the virtual economy and assumes that that's essential way to understand what we're doing. And you have these thoughts about how to balance the money supply with monetary policy.
  5. 5. I find that those are not the ways that are most useful for us as product managers to understand what's going on. When we talk about trying to manage the pricing of a product, it's about--maybe it's more simply about microeconomics. It's about the supply and demand related to the attractiveness of a particular product offering we have. And because we allow this one particular product feature to be priced by market forces, it feels a little bit like--more like a macroeconomic policy. But it's really not. It's just, you know, market determinant of what the price is for your product. ROBERT BLOOMFIELD: Okay. Well, so that's interesting because certainly to me--and I know I am basically an economist. And boy, these metaphors are very natural and very powerful. So I guess maybe what I'll do is push them a little bit, and you can tell me where you see the cracks. And I guess I'd like to start by just talking about the policy that you guys have regarding the exchange rate of Lindens, which I gather unofficially has basically been around 260, 270 Lindens to the U.S. dollar. And so I guess--I mean--so I'm seeing that as maybe a policy of improving--I'm sorry, improving consumer confidence and people are willing to keep their money in Lindens. But you would have a different take on why you have that policy? GENE YOON: Oh, sure. You know, the idea of again trying to manage a monetary policy to me seems like taking the metaphor to a place that's not effective when we're thinking about product management.
  6. 6. Overall, Second Life as an offering for consumers has obviously a number of different elements, but one of which is the ability to create your own business, to use a medium of exchange for transaction in your business. You know, because of this feature of our product, it is important for users of the product to have stability in the medium of exchange that they're using. So that's the reason we manage to some particular stability level. It's not about trying to manage the whole economy. It's trying to, you know, in my mind, it's trying to keep that element of the product attractive. There's a lot of questions. I see some in the crowd now. There's a lot of question about-- ROBERT BLOOMFIELD: Yeah, I’m seeing those, as well. GENE YOON: You know, control on Linden dollar supply--I know you should manage the question stream, and I shouldn't jump too far ahead. ROBERT BLOOMFIELD: Oh, no, jump in. Jump in. GENE YOON: Okay. Well, this is definitely one that's always seems to me--has an unnecessary amount of confusion around it. People continually ask, “Well,” you know, “why shouldn't we fear that these guys will just print an unlimited amount of Linden dollars and cause the whole economy to crash?”
  7. 7. Well, that is--again, it's sort of a standard fear when you think about macroeconomic policy, particularly maybe in examining certain histories of Banana Republics where people take advantage of their--governments take advantage of their _____ ability. But here, you know, again, if you understand what the core elements of our product offering are, it would be just ridiculous for us to print an unlimited amount of Linden dollars and thereby reduce the attractiveness of our core product offering. Maybe it's a little bit similar to the--gee, I'm going to jump into another metaphor, which might also not be right. But if you think about the diamond industry, the entire industry has a fairly tight control over their supply. They have quite a great ability to have a much larger production of diamond supply than they currently allow into the market. But they hold that fairly close in their oligopoly, I suppose, in order to maintain the attractiveness of their overall product consistent with the way they market it and the way consumers perceive it. So that's the first time I went into that metaphor-- ROBERT BLOOMFIELD: Yeah, well-- GENE YOON: --so hopefully there's elements of that [CROSS TALK] ROBERT BLOOMFIELD: So now I've got you off balance, then, and I can push on that one a little, and you won't be prepared.
  8. 8. GENE YOON: Excellent, excellent. ROBERT BLOOMFIELD: So it's interesting. GENE YOON: There's no assumption I was prepared in the first place, by the way. But go ahead. ROBERT BLOOMFIELD: Well, I think that actually is an interesting metaphor because they do have--you know, they've got--I don't want to call it a monopoly, but they have some monopoly power because they've worked very hard to make it clear that there's--you know, you don't love your wife if you don't buy her a diamond. You know, an emerald, tanzanite, none of these other things are actually going to be perfect substitutes. Now, it seems to me that there really would be an easy, perfect substitute in Second Life for the Linden dollar, which would be all of these, you know, many other ways of having micro transactions. So things like PayPal, for example. And so I'm wondering--well, one basic question I've had is, why use Linden dollars? I mean, where is the--you know, you're talking about this in terms of products. So why Linden dollars? Why not just having people use U.S. dollars or PayPal and, you know, let someone else deal with the exchange rates? And I guess, final question on that is, do you disagree? Do you see that, in fact, there is product differentiation between the Linden and these other methods?
  9. 9. GENE YOON: I do think that the primary value is in the convenience for micro payment transactions. It certainly is the case that there are great online payment products, and certainly PayPal is one of them. But what PayPal is, is a very convenient online payment product that hasn't necessarily solved the micro transaction issue because--at least the way they currently configure their offering--there is a minimum charge for use in, at least--let's see if I remember correctly--from a--maybe from both the buyer's and the seller's perspective, although I think it's primarily more rated towards the seller. But because of that, it's not easy to engage in, say, one- or two-cent transactions. And there are a great deal of transactions in these kinds of virtual products that have very small values. So the convenience of having this other medium of exchange is something that makes the product attractive. ROBERT BLOOMFIELD: Okay. Well, let's-- GENE YOON: Oh, as well as just the convenience of it being, of course, built into the platform. ROBERT BLOOMFIELD: Right, right. So at this point, unless someone else--presumably someone could come up with some type of product scripted into Second Life. But then, I guess, they would also face some of the counter party risks that people do in so many Second Life transactions. I don't want to get ahead of myself, actually. That's another topic I hope to get to in about 15 minutes.
  10. 10. Before we do that, let's talk about the other major pillar of--well, again, what I think of--and you're making progress. I'm still going to think of this as macroeconomics. I'm not yet in the product feature world. But we'll see what you can do. Let's talk about-- GENE YOON: Well, whatever you said in that last 30 seconds is going to go uncontested because I lost audio and I didn't hear what you said. ROBERT BLOOMFIELD: Oh, oh, okay. Well, that's--I'm sure there's a wonderful joke for me to lay out there right now, but I won't do that to you. GENE YOON: Okay. ROBERT BLOOMFIELD: Let's talk about land supply. Let's talk about--I mean, to me--and I still, you know, I still basically am buying into the macroeconomic perspective, and never really believed that Lindens were all that much like money. But boy, land seems a lot like money to me when I think about Second Life's economy because it's something you guys basically issue. You print it. But it has some real backing to it. You've got server space. And I know you're worried about your main product. Can you talk a little bit about your land policies? GENE YOON: Yeah. You know, here again, I might have a different perspective than you'd expect. And by the way, I wouldn't say that I necessarily represent the unanimously unified perspective of everyone at Linden Lab. I do have a fairly cut-and-dried view of some of
  11. 11. these things. In fact, it's so cut-and-dried that I think that people just don't really enjoy talking to me about them. Because you have all these powerful and interesting metaphors about the way users experienced these features. And, you know, I tend to really just throw aside a lot of these metaphors. Now, with the land business, of course, the powerful metaphor is the experience of virtual real estate, virtual land. Your discussion of it as a more, I think, powerfully backed form of currency is one that I hadn't really heard before. But I guess what I would say is, you know, there again, you know, the metaphors distract a little bit from what I think is really the most simplest way of my understanding what's going on. Because the dynamics of, as well as the economics of what the business is, aren't anywhere near the same as, say, real real estate, of course, because it's not a scarcity-based resource. Also, I'm not sure how it's like the governmental activity of issuing a backed currency. I think it's basically quite a lot like, if not exactly like, the hosted software business or maybe what people are more these days calling software as a service. You know, we have a server infrastructure. We continue to bill it out while there's demand for the software service that's running on top of it. You know, when there's more demand, we are able to put up more product. It's fairly simple. Again, and I think--yeah. ROBERT BLOOMFIELD: Well, one thing that makes it more complicated is that I can't--if I set up a blog, I have some hosted services from Tight Pad or someone like that. You know, there isn't a liquid market in selling those to third parties. Of course, many people are
  12. 12. coming into Second Life. And, you know, maybe you believe that they're taking the metaphor too seriously. Many people are coming in. They are buying-- GENE YOON: Oh, well, let me just say [CROSSTALK]-- ROBERT BLOOMFIELD: --land and they're going to turn that around. GENE YOON: Yeah, I don't want to say about anyone that you're taking the metaphor too seriously. The metaphors are extremely powerful in describing elements of the user experience. I'm just saying, you know, when I'm trying to understand what's going on with our business, when I'm trying to understand what kind of decisions we need to make from a product perspective, from a pricing perspective, those aren't the metaphors that I rely on. You know, if I was trying to describe a lot of things about the user experience, they're absolutely the right metaphors. ROBERT BLOOMFIELD: So then are you--there is quite an active speculation market in land. There's an active development market in land. People buying land, building--you know, just this is--seems very similar to the real world. You buy some Second Life virtual land. You put content on it and then you rent to people, and so on. So presumably you're--yeah, you have to take their metaphors quite seriously when--if that's why they are buying your product. So you must--I mean, do you then have a stabilization policy for land prices to make sure that the speculators are happy?
  13. 13. GENE YOON: I think again we want to try to manage some stability of, you know, manage to some stable pricing in terms of, again, supply and demand of the product because we are aware that a lot of people take their enjoyment in the overall offering from things related to the transferability of virtual land. But I wouldn't say--you know, going back to your earlier comparison that it's entirely different from, say, the blog-hosting business. It's true that people--you know, the blogs don't experience the actual transferability that is done within virtual land for Second Life. But that's because in their nature as a user experience and as a production experience, blogs are not highly transferable. It doesn't have much to do with the dynamics of--or the economics of the product offering. What it has to do with is the fact that the value of blogs are often that they're written from an individual perspective. And so transferring to another person doesn't tend to maintain that perspective. You know, when you're talking about the development of virtual land, quite often the development and the operation on the land is such that it can maintain value when transferred to another landowner or land manager. So that's why the transferability happens. ROBERT BLOOMFIELD: Okay, very interesting. We've got so many topics to cover. Let's move on from land. And I'm sure--looks like there are a fair number of questions on their way, so we will come back to that.
  14. 14. Let me encourage those who are watching this live on one of the many SIMS in Second Life, please do pass along your questions. You can send them directly to Onder Skall. And you can also backchat in the Metanomics group chat channel, and we can, for the most part, pick those out. Let's move on and talk a little about intellectual property. I'm sure you're aware that there have been some high-profile lawsuits on intellectual property, and certainly many, many disputes in-world. And actually, we already have some questions. You know, when you were talking about Linden Lab's main product, I think it was Dizzy Banjo pointed out that the web site says, “Your world, your imagination,” and it used to--that slogan used to refer to ownership, as well. And now Dizzy is saying, “Your world, your imagination, our product,” which is an interesting little twist. But what is your perspective, first, on the intellectual property rights that Second Life residents have, relative to Linden Lab? And then, second, how they can protect those rights relative to other residents? GENE YOON: I think that a lot of the interest, and in some quarters, amazement, around intellectual property in Second Life grows from the historical fact that Second Life is regarded as a game offering by almost anybody who perceived it, who foresaw it. And when we made policy decisions around our Terms of Service, when we made product decisions around our offering that went away from the game industry, a lot of people were
  15. 15. quite shocked, and it made a lot of news. And so this description of having users of Second Life own their own intellectual property, you know, was one of those things. But if you look at it in the context of what is clear overall that we're trying to accomplish today, it's really not that unusual. Again, from my point of view, what we're trying to accomplish is--at least in a significant portion of our effort--is to become a continuation of a communications medium that's evolved over the Internet over these last 15 years. So when you look at us as a communications medium, it's not really unusual what we're saying here, you know. Think about something like hosted email. It's entirely unexceptional for any hosted email product to say, hey, you know, if you use our service to send an email, you know, you're the IP owner of what you've made, you could write a whole book--you know, you could write your whole book in email or as a document on a hosted document service, and send it over to another user. And just because it's on our hosted service doesn't mean we claim any meaningful ownership right in the intellectual property here. It's still your book. On the other hand, it's also quite clear, I think, to everybody who uses an email service that just because you use the email service to write or send your book, it doesn't mean that the service guarantees in any way that your book is going to be stored there forever. If for some reason the only copy of your book is on that service and that service ends or goes down or reconfigures in any way, I don't think anyone would have any confusion about
  16. 16. the fact that that's not something that the service has a responsibility to maintain for you, unless that was part of their offering. So the main problem we have here is that users can't easily back up their own property. And I'm quite aware of that element of our product offering, that isn't sufficient for what the desire of our users are. But it's not the fact that we won't guarantee to store things that is the problem. The problem is that it isn't easy to come up with good ways for people to backup on their own local systems, their own content. A lot of the reasons it isn't easy is because that kind of backup could lead to each _____ to violate each other's IP rights. So there's both technical and product policy decisions that are difficult to make and difficult to implement in order to give people what they really want. ROBERT BLOOMFIELD: So yeah, that is--now, that's interesting. I've heard some--we basically have a fight between two metaphors here regarding intellectual property. One is, as you said, it sounds like, you know, so much of the community of people who initially got into Second Life, you know, it really came through the game world. And so people are bringing game metaphors. And you're saying, “No, let's think email.” Now, I thought your argument that you just made was really pretty straightforward and convincing to me. And I guess I'm wondering if you have thoughts on why--I mean, I would say nine out of ten people I talk with do find this a challenging issue, and largely because they're still stuck in saying, “Wow, it's World of War Craft, but you get to own stuff.”
  17. 17. So I'm wondering--I mean, do you guys have a strategy then for trying to hammer home your perspective on this and sort of get over this hurdle? GENE YOON: Well, you know, I think a couple things are going on here. One is that really understanding intellectual property rights is--it's very complex. It's not something that I think can be easily communicated through continual education. I mean, you know, my God, people go to school for years to try to get even a fairly well working, rudimentary understanding of what's going on with respect to a variety of complex intellectual property issues. So that's one thing. The second thing is that first thing would just not be an issue if we were giving people what they wanted from a product perspective. I do think that Linden Lab has got a--if not a responsibility, an opportunity to satisfy user demand by giving people the kind of product _____ that they want. Again, if it was easy to do, we would have done it already. There are difficult things to implement from a technical perspective. There are difficult things to implement from a product configuration perspective. You know, we are working on them, but it's not something that we're holding back just out of intransigence. I do understand that we're not satisfying user demand at some elements here, and we've got to try to figure out ways to do that.
  18. 18. ROBERT BLOOMFIELD: That's probably an issue for another show. And maybe we'll have to have one of the techie Lindens on, or one of the open source Lindens on to talk about some of those issues. Let's move on and talk a little bit about dispute resolution. So as I'm hearing you--I mean, you're--the main point I'm taking away so far is that you are primarily focused on what is the core product Linden Lab is offering Second Life residents. And it sounds like it's the ability to engage in economic pursuits within a hosted platform. Am I--well, I guess maybe that puts too much emphasis on the economy because they're also looking just for a social experience, as well, in the ability to create content, use their imaginations. Am I getting close? Do you have-- GENE YOON: No, I think you've pretty much touched upon the main elements of our Second Life offering as a user experience. You know, I should say that we have not in the past distinguished fairly clearly from the product offering, the user experience product offering nature of Second Life, that kind of eye-and-hand, mystically all-encompassing immersive experience. And I think the more straightforward description, the Second Life grid as a combination of technology infrastructure services that enable other people to run more differentiated experiences on the platform. But in terms of the major element of Second Life, the user experience, the product user experience, I think you did capture them pretty quickly and correctly there.
  19. 19. ROBERT BLOOMFIELD: Yeah. So then, one of the things--to make that a good experience--one of the most interesting features of Linden Lab's policy regarding Second Life has been the really very hands-off approach to dispute resolution. So this is everywhere from complaints about intellectual property, which I know many of our listeners who are builders and creators are very interested in, to disputes over, you know, I gave someone money and they gave me a TV that doesn't work, or I gave money to a bank and they never paid me back. So I guess, you know, my first questions is, am I right in characterizing Linden Lab's policy on dispute--resident to resident disputes as just hands off? GENE YOON: Yeah, I would say that, you know, that's not a bad way to describe it. I don't like, necessarily, though, the words hands-off. I feel like it's a little bit--what's the word? Oh, I don't know, judgmental. But here again, the level of dispute resolution that's being done is--it is a product in cost decision. The closest analog to this kind of business that everyone's familiar with is eBay. You know, eBay operates a large market of, if not user-created content, user sound-in-their- attic content, which everybody, you know, builds on, you know, brings into the platform and uses the platform to engage in a huge volume of transactions with each other. And eBay, in terms of customer satisfaction experience, you know, has made certain historical choices and existing choices about how much dispute resolution to build directly
  20. 20. into the product, and at what point and in what way dispute resolution goes off with their product offerings and off with their tools. I think we've made a different set of choices but, you know, in the detail. But in the big picture, it's basically the same thing. I mean, if you really had an issue with somebody who frauded you on eBay, ultimately you end up having to go out into the courts to resolve it with them. You don't have eBay, you know, being a court of final resolution. But they do have a larger infrastructure of dispute resolution as a customer satisfaction choice, as a product offering choice. You know, we've got a different level. And I think it can always be argued whether or not we're providing the right level in order, again, to give the kind of experience that people want. You know, we certainly have a position now where there's a certain kind of a experience that people expect, that people understand the limitations of what we're willing to do. So maybe from that sense the product positioning is--you know, has been successful. ROBERT BLOOMFIELD: Okay. So let me push on the same point but I'll try not to use that judgmental term, hands-off, and instead--well, maybe outsourcing is too touchy, as well. But maybe the best way to put this is that you are--you're leaving a lot of power in the hands of your customers, of the Second Life residents, to manage their own disputes. And we've seen a number of these groups come up. Everything from the Second Life Business Bureau to a variety of mediation and arbitration groups run by lawyers in-world. The Second Life Exchange Commission trying to provide more transparency in the Second Life stockmarkets.
  21. 21. I mean, what's--first, I guess--again, would you agree with my basic description of that as leaving more of the hands in--more of the power in their hands than in yours? I would say eBay, right, has more--more of it is their own power. They have their own rating system, which they've implemented. Whereas, in Second Life, there are other people who are doing that. And so, I guess, again, two questions. One is do you think I'm characterizing it appropriately? And two, do you have a view on some of these in-world organizations, some of which, like SLBB(?) is quite controversial. I see already some people are saying, “Oh, there goes Rob with the SLBB again.” GENE YOON: Yeah, I think that you have a correct characterization in that we do see lots of resident efforts to try to organize useful services in these areas, and I think that it's likelier that there's going to be a successful service coming out of the efforts of residents working together than it is likely that Linden Lab would be able to impose something across the entire product offering that everybody's happy with. The other comment I'd make is, you know, when you have people trying to put together efforts that, essentially, are meant to replace real-world regulation, you know, it's unlikely to be successful to the extent that real-world regulators are interested in regulating. So I think a good example would be securities regulation.
  22. 22. You can say all you want whether it's Linden Lab or any resident-run service, oh, you know, we'll decide what the securities laws are. But the fact is, you know, we won't. We can't. In the United States the FCC is going to decide that. Nobody else will. And in various other jurisdictions around the world, they have their powers, as well. Again, it's a bit of a case where the--that the power of the metaphor sometimes distracts from how to make decisions around the offering. There is this powerful metaphor being immersed in experience, where there is--there's so much of an all-encompassing feeling from the product offering that you say, well, you know, the Lindens, they must be the government. No, they must be the gods, in fact. But the reality is, you know, there are real-world governments that have more power than we do. In fact, if there are real-world gods, I'm sure that they have more power than we do, as well. ROBERT BLOOMFIELD: So let's make the switch now from the interior view of Second Life to Linden Lab's business strategy and how you're dealing with the real-world pressures that you have. And, in particular, I guess, I'm thinking of your corporate business strategy and seeing the competitors that are moving on to the scene. So right now--I don't know. It seems like there are maybe 50 virtual worlds in some level of development, depending on how you define them. Few of them right now seem to me to be serious contenders for providing the type of offering Linden Lab has.
  23. 23. But I'm wondering how you are--you know, how is it that you're going to carve out and maintain this rather unusual space? And where do you see the competitors and the opportunities coming from? GENE YOON: Well, I'd say we don't do a large amount of regular analysis of competitors. Our perspective--now, our perspective might be wrong, but our perspective is that, you know, we're engaged in a pretty ambitious undertaking that is comparable to the kind of change we saw in people's communications over the Internet, generally speaking, over the last 10 or 15 years. So when we look out to the future and see the breadth of that opportunity, as well as the difficulty and complexity of it, we don't think that the keys to success are in trying to make day-to-day adjustments or week-to-week or quarter-to-quarter adjustments versus what competitors are doing now. I would say it's more important for us to try to understand where the long-term vision is going and what we need to do to continue to be aligned with it. Again, you can make the comparison back to the Internet opportunities of the mid and late '90s, the people who ended up long-term winners in this space: the Yahoos, the Amazons, eBays, Googles. They didn't do so by elbowing out competitors. I don't think any of them did so by making specific changes in what they were doing in direct competitive response to other offerings that were considered similar. I think, instead, what they did is, through a combination of good foresight and sometimes luck, managed to succeed to remain aligned with where the future of Internet communication was going.
  24. 24. ROBERT BLOOMFIELD: Okay. My big concern--you know, when I look at that Linden Lab and my big concern is that you have--you've scoped out a really fascinating space and set out to do something that really--you know, you can compare it to email servers and say this is just a natural next step in communication. But it really seems like you did much more than that. And I don't know how much of that is protectable through intellectual property rights. And so this raises the possibility that some very well-funded, large organization--you know, I've been reading recently more murmurings that say Google is going to create their own virtual world. And so my concern is Linden just ends up getting leapfrogged by someone who sees what you have done and then just throws enough money at it to do it much more smoothly than you've been able to. GENE YOON: Yeah. And I appreciate the concern. It's certainly one that we should not dismiss. You know, the presence of large, well financed interests are something that we ought to be aware of. On the other hand, if you do look back through the history of computing technology, it's very rarely been the case that a large, well-funded competitor has been able to win just through the sheer application of their financial resources. Those companies I named earlier, they all came out of nothing, and they were certainly growing at a time when everybody was aware of certain kinds of opportunities. But if all it took was money, then maybe DEC would still be the biggest computing company in the world right now. You certainly--
  25. 25. ROBERT BLOOMFIELD: Who? GENE YOON: Right. Exactly. You certainly didn't see some of the large players succeed in taking over what everyone knew was a huge opportunity in the Internet. You did see things like Microsoft using the power of its entrenched position, its platform, to be able to really outcompete Netscape. But there I would argue it wasn't the application of sheer financial resources. It was leveraging the power they already had--realized that they had in their desktop platform. ROBERT BLOOMFIELD: Okay. Well, let's see. So I see we have about 15 minutes left. We've got lots and lots of questions. So let's go to some of these. And some of them actually are on the issue of the grid. And this--I would view this as a business strategy question. It appears that part of Linden Lab strategy is to separate, I guess, the content from the platform on which the content is resting. You have open sourced the client. You have made moves toward getting closer to open sourcing the server side. Can you just talk a little bit about your strategy for starters? Why are you moving this direction, and what advantages do you see there? GENE YOON: Well, you mean in terms of the general open source strategy?
  26. 26. ROBERT BLOOMFIELD: Yeah. Well, I guess I'm seeing them as somewhat related. As I see it, they're sort of a package of an open source strategy, a separation of the grid from the land, and then the ability, eventually, possibly for people to actually host--you know, have their own hosting servers. GENE YOON: Sure. I guess the thing that I would point out here is, you know, when we talk about Second Life as an example, if not the immersive experience in a computed 3D environment being something that is part of the evolution of the Internet--you know, I think the thing to understand is just really what kind of a statement that is, in terms of scale. You know, we think that everyone is going to be interacting in this kind of environment. Well, everyone is maybe a broad term. I don't mean every single living human being on earth. But I do mean everyone who is interacting in a computed environment. Right now we can say that that number is comparable or is the number of people who are using the Internet today, and that's somewhere in the range of 900 million, maybe a billion people right now on earth. So I think that everything that I just said there is, you know, pretty obvious that we've been saying for some time. But what I think is--it's pretty natural to ask the question, well, you know, do we really think that we, or frankly any company in the world, is going to be able to service, say, a billion different end users? Do we really think that we're going to run the server infrastructure for the entire planet of a size that's comparable to the Internet today? You know, it would be folly for any company to believe that it's possible for them to scale in that manner.
  27. 27. So what does that mean? It's going to have to mean, isn't it, that there are going to be quite a large--if we're successful in our vision, there's going to be quite a large number of other people who are offering end user experiences. There's going to be quite a large number of people who are hosting servers comparable to the number of people who host Web servers today. So again, come back in from that. Well, what does that mean in terms of our business strategy, in terms of our licensing strategy? Well, it's--you know, we have to look to examples of what's going on today in Internet communication. And what we do have is a huge heterogeny of server operations. We do have quite a lot of open source code that is important for running a Web server infrastructure. So if we believe that that is the path to achieve our vision, you know, those elements have got to make some sense in our business strategy. ROBERT BLOOMFIELD: So following up on that, you know, you talked about making this future of such interconnectedness through virtual worlds. That would require a fair bit of interoperability--I guess is the buzz word of the month--interoperability among different technological platforms, not just world to world but--I mean, I know people like Motorola and Samsung are saying, you know, we want people to be able to--you know, without their cell phone and start--you know, and have their avatar do something in Second Life for there or wherever it is.
  28. 28. You recently did--Linden Lab worked on at least some technological--you know, agreed to work with IBM on some technological issues, and interoperability is floating around in there. Can you talk a little bit about that initiative and where you see that fitting in? GENE YOON: Sure. We are trying to understand what points of our infrastructure are things that people are going to be able to leverage to do more interoperability across different kinds of virtual world experiences. And what we've talked about with IBM and others is, you know, working in certain elements of our--at least in the beginning--our Web services protocol, our sort of avatar definitions, certainly unified log-in or common log-in systems like open ID. You know, these are the first baby steps towards moving towards a place where, yeah, you can take this avatar and move it across a lot of different experiences. ROBERT BLOOMFIELD: Okay. Let's see, we've got--oh, we've got another question actually taking us back to some topics toward the top of the hour, some questions on the money supply. And at this point it does seem like your policy has been to tie the Linden to the U.S. dollar. Do you see that continuing? Do you have any intention of linking to other currencies instead or in addition? GENE YOON: I have not really thought very hard about it, although I'm certainly not on the day-to-day product management of the Linden dollar anymore. Commenting off the cuff, I can imagine there being situations where some combination of more than one real-world currency is going to give us some better stability to manage to,
  29. 29. especially as our user base continues to reflect more and more international usage. But those are not decisions that I'm personally making here. ROBERT BLOOMFIELD: Okay. And let's see--so I do want to tell our listeners this is probably your last chance for questions. I've got a couple more. But if we've come up with anything in the last few minutes that you'd like to ask about, you can IM Onder Skall or you can simply type it into Metanomics chat. Actually, while we wait for a minute--so Ginsu, can you--what topics--I mean, is there anything that you believe that our listeners would really be very interested in hearing that I'm not coming close to that you'd want to talk about? GENE YOON: I don't know. I feel like--you know, like I was saying earlier, I tend to have this cut-and-dried way of looking at things that makes people kind of go, “Ah, that's boring.” I can't ask the question--so I'm sorry about that. Certainly, I will entertain any kind of question from the audience. ROBERT BLOOMFIELD: Okay. Well, now I've got--let me--this is, I guess, a somewhat self-interested question. But I think a number of our listeners know that I have been talking with people about something called the Metaversed market index, and that the goal of this is to provide sort of a reliable metric of user populations and activity within virtual worlds. And I guess--you know, there's been a lot of talk about how actually to measure the total population of active Second Life users, the total--well, and then the populations of people who are doing specific Second Life activities. I mean, what do you--what measures do you
  30. 30. personally believe are the most reliable for understanding Second Life's population and engagement of their user base? GENE YOON: Well, it really depends on what purpose you want to measure for. I think most of the people who are interested in getting consistent measurements across a lot of different kinds of experiences are advertisers. And, you know, advertisers are used to a certain--they were used to in the past a certain kind of measurement for radio, for TV. You know, as web sites became more and more of a consumer phenomenon, they started to really work on it and develop, and are still having conflicts about the appropriate kinds of measurements for web sites. And now you have a new area coming up in virtual worlds, and people are trying to understand what things are relevant for advertising industry purposes. From our point of view, we've published a variety of different numbers, and really depending on the audience, you're always going to find people who are not satisfied with what you're saying. And I'm sure you're aware, you know, at this point, we publish I think pretty much everything that I might imagine is relevant, although I don't know, again, what a very specific purpose would be. But we obviously regularly publish our registered user number, our logged in last, you know, 90, 60, 30 days-- ROBERT BLOOMFIELD: Right. GENE YOON: --spending more than one hour a month in there. The amount of information that we publish around our offering, I believe--although you probably know this better than I
  31. 31. do--but I believe that it far exceeds the amount and quality of information that any other virtual world service publishes. Nevertheless, we are the most criticized, I think, for what we publish, perhaps, because nobody else is even engaging in a dialog. ROBERT BLOOMFIELD: Yeah. Well, certainly publishing a lot of information is not necessarily the way to get people to stop talking about it. GENE YOON: Right, right. ROBERT BLOOMFIELD: There's a double-edged sword there. GENE YOON: Well, certainly, if people are asking us to go opaque, you know, that might be something we'd consider. But no, we wouldn’t; not seriously--I mean, the reason we started publishing that information is not actually to satisfy the many, many demands of journalists and people interested in advertising industry. We published that information because--you know, again, going back to what I said earlier, one of the prime attractive user experiences in Second Life is around building an in-world business. That being the case, you do want to get people the information that they need, that they demand, in order to make rational capital spending decisions and planning decisions about how much time and resources to commit to their in-world activity. So in order to get people the quality of information they need to have an enjoyable experience, it's really, again, practically part of our product offering to put out that kind of information. We feel like we need to do it for the service that we're offering.
  32. 32. ROBERT BLOOMFIELD: Yeah. Well, I know one of the things that I keep seeing as being a hurdle to real-world businesses investing in Second Life is that there will be a small--you know, one or a few people at a big company who see some opportunity. And it's not too hard to sell them on it. But then they have to go through the more traditional channels to prove the idea, to prove that there's going to be a return on the investment to their superiors who actually hold the purse strings. And I think for that you just need a much more traditional set--you know, data set, which I think is extremely valuable, that you are publishing everything you are. And hopefully, people will ultimately figure out what to make out of it. I guess we have time for one more question, and here it is. Going back to your law background, which is--so we've seen the--we've seen Linden Lab take pretty strong steps in two areas of real-world legal restriction. One is child pornography, simulation of underage sex. And the other is gambling. There are very strict laws in the U.S., and some other countries have even stricter laws. And you have stepped down on those pretty thoroughly. What's next? Where do you see the next push coming from real-world legal or regulatory bodies saying, “Hey, guys, you need to deal with this”? GENE YOON: Well, that would be hard to guess. I guess if I--you know, again, I'm not in charge of our governmental relations practice. But I guess if I were going to try to speculate about it, I would look at the history of the Internet and the challenges facing large online services today.
  33. 33. Because again, you know, from that perspective, we're not very different from what we see in service, global services like Yahoo, like Google, eBay, you know, having to deal with many of the same--or, frankly, exactly the same issues over the last 10 or 15 years. So I'd guess if I were trying to study that issue, I would dig down into what's happened historically and look at that. I think there is a misperception, again, that what we're doing when we're responsive to these issues is deciding how to manage the world in our role as the government of gods. But that's not my perspective at all. What we're doing is responding to realities of how good corporate citizens manage their obligations in the maze of existing governmental regulations in this country and others responsive to our own business and industry practices. ROBERT BLOOMFIELD: Okay. Yeah, so--and I guess, you know, if I had to then fathom a guess based on your history, sounds like taxes and money laundering are going to be the two things that the real-life governments are going to be worried about you guys doing your part to help out with. GENE YOON: Yeah. I would say, though, I'm not sure that those are extremely interesting. You know, again, because people who come from a game metaphor go, “Oh, my goodness, are these game gold pieces? Are they taxable? What's going on?” But if we're coming from a communications--not metaphor but reality--you know, business platform reality--if you look at something like eBay, there again, is a good, relevant example, there isn't any question about whether or not you're income-producing activity on eBay is taxable in this country or
  34. 34. others. The only questions are around the reporting systems, auditing systems, you know the-- ROBERT BLOOMFIELD: Mm-hmm. GENE YOON: --you know, those kinds of requirements, which are frankly sort of the kind of detail in the tax and accounting structure that aren't that interesting. The only thing interesting up front is, oh, really? You know my activity here is taxable and I think--like I said, that seems not to be an unusually interesting question to me, unless you're looking at it from a game perspective. ROBERT BLOOMFIELD: Yeah. Well, I'll try not to be insulted. I am, after all, a former tax accountant and current accounting professor. So-- GENE YOON: Oh, I didn't mean they're not interesting-- ROBERT BLOOMFIELD: And you say those are so-- GENE YOON: I don't mean that they're not interesting-- ROBERT BLOOMFIELD: And I'm sorry, we're going to have to-- GENE YOON: All right.
  35. 35. ROBERT BLOOMFIELD: --leave it there, actually. But anyway, I'll say this hour has been extremely interesting to me. I really want to thank you for coming on the show and, quite frankly, making some things that seem a lot more interesting and complicated really seem fairly simple and straightforward. And I'm going to have to think about how much I buy these metaphors. But that--it really has been a very different perspective. And I appreciate you for taking the time to share it with us. So-- GENE YOON: I very much appreciate you inviting me. Thank you. And I'm sorry for boring-- you know, the boring perspective. ROBERT BLOOMFIELD: I'm used to it. I'm used to it. But--you know, as an accountant. But let me just say, you know, signing off to all our Metanomics viewers--so thank you all for coming. Next week we are going to have a mix of real-life and Second Life stock exchange and investment banker--stock exchange CEO is an investment banker. So from real life, David Karsbol of Saxo Bank will be joining a panel with a variety of in-world stock exchange leaders. And we're going to be talking about a lot of the different challenges facing these companies that are trying to run stock exchanges in-world, and also understanding what real-world investment banks are making of it, and why they are investing in Second Life to see if there's a future for them in the Metaversed. So thank you again, Ginsu, for joining us. Thanks to all our sponsors and event partners. This is Rob Bloomfield, Beyers Sellers, signing off for Metanomics. [END OF AUDIO]
  36. 36. Document: cor2009 Transcribed by: Second Life Avatar: Transcriptionist Writer