EXCLUSIVE - Rosedale to step down as Linden Lab CEO
By Adam Reuters
SECOND LIFE, March 14 (Reuters) - Linden Lab Chief Executive Philip Rosedale said on Friday the company he founded has begun a search for a new CEO with more operational and management expertise.
Rosedale will become chairman of the Linden Lab board when his successor is found, replacing Mitch Kapor, who will remain a board member and the company’s largest investor. Rosedale said he will also keep a full-time role at the company working on product development and strategy.
“This is my life’s work,” he told Reuters in an interview. “I’m not going anywhere, and I’m still full-time on this, probably for the rest of my life.”
Second Life’s growth has slowed after a period of rapid expansion. Rosedale’s replacement will face the difficult task of regaining that momentum, working within Linden Lab’s idiosyncratic corporate culture and winning over Second Life’s impassioned users.
The shift from a visionary founder to an operations-focused CEO is typical for technology start-ups, with eBay and Google as prominent examples. A recent Harvard Business Review study found that 50 percent of founders were no longer CEO by year three, 40 percent remained by year four, and fewer than 25 percent led their companies’ initial public offerings. Rosedale, a former chief technology officer at RealNetworks, has been CEO since founding Linden Lab in 1999.
“It was not precipitated by a crisis,” Kapor told Reuters. “We had always anticipated that there would be a time when he’d decide he no longer wanted to be a CEO.”
Kapor added that the management change is not a prelude to a sale of the company or an initial public offering, though he acknowledged that an IPO was an option under consideration.
“We always knew this was a long-term project, operating on a different time frame from (other) venture-backed startups. At some sense it will make sense to go public but there’s no rush to that,” he said. Linden’s venture backers include Benchmark Capital and Omidyar Network.
“The company has the type of financial performance that if it wanted to it could become a public company,” said Benchmark’s Bill Gurley, who sits on the Linden Lab board. “I certainly think at some point in the future — and I’m certainly not announcing anything new here for the next 12 months — that’s on the company’s ambition plan.”
FROM HYPE TO BACKLASH, AND BEYOND
The new Linden Lab CEO will be tasked with reviving the growth that once made Second Life a pop culture phenomenon.
The virtual world’s subscriber base and user hours are still increasing but at much lower rates than in late 2006 and early 2007, when a surge of attention brought droves of new users to Second Life. Worldwide brands including Reuters and IBM set up shop within the virtual world, but many like Time Warner’s AOL have since left or radically scaled back their participation.
More than 12 million Second Life accounts have been created since the world was launched, although the vast majority of accounts are no longer active; there are thought to be roughly 500,000 hard-core users. Month-on-month registration growth, which peaked at almost 50 percent in October 2006, had fallen to 4.6 percent by January, 2008, the most recent figures available.
Aside from hype and the subsequent backlash, much of Second Life’s difficulty in retaining new users has been caused by difficulties in scaling its platform and making the software easier for novices to use, which Rosedale said would be helped by bringing in a new CEO.
“We’re looking for someone who has experience with and a passion for growing this type of company — a software platform company — from 250 people to thousands of people, which is where we think it’s going,” he said.
A UNIQUE CORPORATE CULTURE
The new Linden Lab boss will have to balance the need for more efficient management with the company’s idiosyncratic culture and decentralized structure. Employees choose which projects they want to work on, and bonuses are assigned by a system called the “Love Machine,” which lets employees praise their co-workers for completed tasks.
“Every company that starts small and grows bigger has apprehension as you layer in management and processes that young entrepreneurs aren’t excited about,” said Benchmark’s Gurley. “I don’t know there’s a magic formula there — it’s one of those dilemmas everyone faces.”
The new CEO will also have to win over Second Life’s enthusiastic and fractious user base, which has created all of the content within the virtual world and in effect serves as a massive, revenue-generating workforce.
Linden Lab is using an executive search firm to find a new CEO, a process that Kapor could take “anywhere from soonish to many months.”
“Legally, the board hires and fires CEOs,” he added. “Process-wise, this is going to have be someone Philip is incredibly enthusiastic about.”
IPO in… how many months?
Fri Mar 14, 2008 9:03am PDT2007 was a difficult year for Second Life. 2008’s not looking much better.
The establishment of anonymous accounts in June 2006 opened the doors to underage players. This resulted in international legal scrutiny, increased exposure to legal liability and damaging media coverage. Linden Lab responded by intruding into residents’ sexual relationships and expelling two consenting adults for underage roleplay - even though no underage players were involved. Refusal to close the anonymous accounts and dogged insistence on an ineffective and unsound ID-based age verification system cost Linden Lab considerable political capital with no benefit. ID-based age verification is no better at screening underage players than credit-card verification, nor is it more ‘fair’. It rarely works for residents outside their home jurisdictions and, in many countries, it may not even be legal.
While anonymous accounts may have launched Second Life’s dramatic growth phase (October 2006 to June 2007), failure to formulate a land management strategy resulted in a speculative bubble as Linden Lab first starved and then flooded the mainland market. Islands ceased to be an attractive alternative when LL raised tier charges from $195 to $295 early in the cycle. Worst affected were the very residents who comprised the growth phase. The unexpected policy reversal on gambling in July further undermined Linden Lab’s credibility. Growth stopped. Premium accounts and total hours remained flat throughout the second half of 2007.
The overnight imposition of VAT (15-25% sales tax) on European residents (40% of SL’s population) in September not only trashed European landowners, but it caused considerable friction between European and North American residents as Linden Lab, a supposedly global company, began charging based on regional factor prices. It also led to the crazy situation whereby European landowners (some owning dozens of islands) who shifted their tier to North American business partners lost access to Live Chat support.
Longstanding problems of asset management, grid instability and poor customer service have undermined residents’ confidence in Second Life’s entire technological and managerial infrastructure. While organic development was the correct approach to building Second Life, expectations of success amplified perceptions of failure. The year ended with the resignation of CTO Cory Ondrejka due to “irreconcilable differences” with CEO Philip Rosedale.
Just days into 2008, without consultation or discrimination, Linden Lab banned all banks, regardless of their history, reputation, structure or business practices. In a matter of minutes, SL’s evolving financial system was demolished as sound and responsible banks closed their doors in the ensuing panic. More residents lost money because of LL’s clumsy intervention than from all bank frauds combined. Good businesses were crippled and good people hurt - not so much by scammers as by Linden Lab itself! Now it is Philip Rosedale’s turn to step down.
So, what went wrong?
Philip Rosedale and the Board of Directors are highly skilled engineers with little or no knowledge of economics, economic history, strategic planning or customer relations. As Second Life grows from a technological startup to a mature business, they are out of their depth. They are making serious mistakes. They are destroying the wealth and confidence of the entrepreneurial class who risked enormous time and money to build Second Life in the first place. More importantly, they have lost sight of their original vision.
Second Life was about user-generated content, remember? It was about “your world, your imagination”. That was the business plan and founding principle: to create a world that was VIRTUAL, VOLUNTARY and ADULT - framed by the philosophy of individual liberty and responsibility. Second Life was NOT intended to be a pale imitation of real life. It was NOT meant to be a playground for Republicans and Democrats to ‘govern’. It was NOT about majority rule through public opinion. Yet this is what has leaked into Second Life since 2007, drip, drip, drip. The sad irony is that now, out of ignorance and a naive desire to ‘do good’, Linden Lab is poisoning the very world they created and seek to protect.
How do we fix it?
Linden Lab is a private company, so they can do with Second Life what they wish. We ‘residents’ have the choice of being here or not. At the moment, there is no viable alternative to SL as a comprehensive virtual world. Therefore, Linden Lab still has time to prevent Second Life from becoming the ‘Lotus 123′ or ‘WordPerfect’ of the virtual universe.
1) Regain integrity of the system. Announce the closure of all anonymous accounts on 1 March 2008. ‘Anonymous’ accounts may now be described as accounts without payment information on file or have not been age verified through the ID scheme. Keep the ID scheme during the transition process, but consider phasing it out by the end of the year and returning to credit card verification.
2) Stabilize the financial system. Lift the ban on banks. Present the following message on the login screen: “Rate of return (interest or profit) on any investment is proportional to the amount invested, the length of time invested and the RISK OF NONPAYMENT.” Give residents information, not regulation, and the system will evolve in a healthy and productive way. Reputable businesses providing good customer service will always prevail against fly-by-night operations.
3) Reassert the founding principles of individual liberty and individual responsibility. Resist the temptation to sanitize Second Life. The road to hell is paved with good intentions; the desire to protect residents from themselves will only lead to a downward spiral of regulations to offset the harmful effects of other regulations. Also, Second Life is NOT real life. It is NOT a nation-state. Second Life is virtual, voluntary and adult. We are here by choice precisely to escape the restrictions of real life - and there is no Berlin Wall to prevent us from leaving. As for those who want SL to become more like Disneyland, well, Disneyland already exists. We don’t need another one.
Fri Mar 14, 2008 10:03am PDTHopefully this CEO will listen to the paying clients, and stop allowing freeloaders to sponge off of the paying.. Not saying to make it pay to play only, but make it easier for non U.S. players to put in money.. and offer better incentives then a 300L a week stipend to premium members
Fri Mar 14, 2008 10:03am PDTWay to go Philip. I know that is a difficult step, but it was the right thing to so. It is great that the board is in support.
Fri Mar 14, 2008 10:03am PDTI sincerely hope that FINALLY a wind of change based on frequent long term user advice may take effect. I know many players that have spent hours and hours building and scripting some amazing content , some are very close to leaving due to seemingly constant lack of attention regarding player’s wishes and issues.An example of a seemingly simple thing that used to work being permissions settings was a major recent thread on the slx forum. I have suffered this problem wasting hours trying to find a way to make a simple passing of full perms creations to my business partner. Ontop of trying to get new designs into the market , there seems a dramatic drop in sales figures these last 6 weeks ,for what reason I do not know .
Fri Mar 14, 2008 11:03am PDT@ Deltango: You hit the nail on the head!
Fri Mar 14, 2008 12:03pm PDTDeltango:
(1) Credit card information is flawed. There are kids wandering around with credit cards in their name - or in the name of their parents.
ID Verification: Same problem.
(2) Life the ban on banks? Please, put the crack pipe down. That is a big, glaring legal issue.
(3) If you want a Utopian world where you can do what you want, it isn’t Second Life or any other virtual world (even in your imagination) - unless, of course, you’re willing to risk international law issues. And international law issues set precedents. I don’t think you want to be the precedent when SEC decides to make an example of someone. This would mean going to jail, more than likely.
There is a reality here that cannot be ignored. It is the real world. If you want to own your creations, guess what? Real world copyright. That is law. An economy, even a barter currency, attributes value - and value is not something easily explained away in a court - especially when that currency of value is used to buy something that comes with its own law: Copyright.
I’d go on, but there are just too many holes. I’ll let your points sink now.
Fri Mar 14, 2008 1:03pm PDTThis can only be good news for Linden Labs as their ‘Second Life’ product seems to be in a constant state of bug-ridden disarray and appears to have garnered very little customer satisfaction despite enjoying a near monopoly in its market segment.
Coupled with the earlier departure of CTO Cory Ondrejka it most certainly will signal a change in corporate culture within Linden Labs. Perhaps the end of the previously touted “Tao of Linden” will come about as Linden Labs attempts to get a handle on their growth.
As the competition increasingly looks to oust Second Life from it’s current ‘king of the hill’ position this will certainly be a story to follow.
Fri Mar 14, 2008 3:03pm PDTWhere do I send my resume?
Fri Mar 14, 2008 3:03pm PDTWell here we are halfway thru March and finally I’m catching up on the news. Sadly I have to agree with most of what Deltango said. I joined in Feb 07 and just as I was getting my fledgling sl business to a point where I was about to go grid wide I was hit by revenue loss during the gambling ban and the collapse of Ginko. So I decided to let go of some of my land assets only to discover they weren’t worth the pixels they were carved from. I have stayed inworld and fought on due to my stubborn love for Second Life. All that aside I have to deal with continual crashes and bad lag even on a good day. As a New Zealander I have to connect to SL via Australia and then Asia adding layers of net bottlenecks that amplify any technical issue that SL may be experiencing. One simple thing would make my SLife easier. A less than 3 hop connection with SL.
Fri Mar 14, 2008 4:03pm PDTDeltango Vale, I understand that you are passionate about your beliefs. However the mere existence of “banks” and the so called “consenting adults” thing you speak of are some of the things that tanked Second Life’s retention rates (along with the API, a more resource demanding viewer from Sculpties, Shiny, voice, and windlight, and the awful Linden owned orientation revision). Perhaps you should look at the situation again, instead of just copy/ pasting your same thoughts in every article you think predicts the demise of Second Life.
Fri Mar 14, 2008 5:03pm PDTSLOW SALES RATIONAL:
1) Its Tax Season! Yuck!
2) The US economy is hurting
3) Low low low moral leads to high levels of negative content - chat, whining griping and less product being put out - who has time? Everyone’s crying in their beer too much.
I’ve been calling for Mr. Rosedale to step down for a whole year. I am glad he’s finally see the wisdom of such a decision.
I think we can all look forward to a much more responsible and responsive team that is accountable to their main clients …. US! We’ll finally be recognized as the customer and duly listened to and worked with. I could not be happier.
Its time this company grew up and too stock of themselves and took the path they’ve started and the client’s much more seriously. The lack of growth in the user base is because their needs no longer matched Phillip’s vision. Its time that the Tao team realize that, yes this isn’t the Secondlife ya’ll dreamed of. It what your audience has dreamed of. If you can’t stand behind them and support them, then you need to step aside and let the story unfold. Its much like a writer who releases his child, the book, out to the general reading audience. Can he control how people interpret his story? Everyone will see something shade different in his words than the next person. The story and its meaning take on a life of its own, open to new and scewed interpretations, based on everyone’s background, culture and motivations. Accept that … please … and lets get back to work on making the new evolution of the 2d web … the 3D Portal. Its time has come and it has the power to truly change each and everyone’s lives and possibly even be a solution to some of our world’s greatest problems.
How so? How about getting the governments of the world to hand out a mandate to corporations to send 10 to 20% of their support workforce home to work, to report to their virtual office. Parents could work flex hours and be there for their kids when the come home from school. They not be driving daily, saving gas and lower pollution by unprecedented levels. Work would be more productive cause there are less distractions when you work from home, IF trained right. The purchase of high powered computers would put a huge surge of money into the economy. Companies could downsize their real estate investment without downsizing their staff. AND O-M-G!!! WE COULD ALL FINALLY HAVE RELA TIME LIVE HUMAN BEINGS TO PROVIDE US WITH IMMEDIATE AND RESPONSIVE CUSTOMER SERVICE VIA EVERY COMPANY’S 3D WEB PORTAL!
Open up the broadband market by ceasing to promote protected territories for huge companies like Time Warner and AT&T and you’ve got the speed you need to compete with Europe. Allow all the market to compete to offer cost effective high level broadband available to the masses. Want you dollar to bounce back? Wake up! This is one part of the equation.
Listen … Dream … Act on those DREAMS! This is the time to make this happen. The 3D Web is a living breathing techo-organism. Feed it and watch the world change grow and heal.
Fri Mar 14, 2008 6:03pm PDT@deltango
I agree with most of what you said but the following:
1)bank bans have little to do with anything. LL was right to ban them, they served no legitimate purpose in Second Life
2)The two people banned for age playing were rightfully banned. Whether they are underage or not has little to do with anything. In come countries that behavior is illegal whether they be real images of real children or fake pictures of pixel children.
LL has to abide by those laws or risk losing much more users in those countries as those governments would crack down.
3)I myself have an unverified account, yet I am a content creator and I do make a reasonable amt of money. I would verify unquestioningly but the problem is that LL knows my RL identity and being that I am one of the most well knowns (ex)griefers that SL has ever seen I would be found and banned even though I am no longer breaking the TOS.
I disagree that banning unverified is a solution to anything.
We have seen a huge decline in griefing and the free accounts are a good marketing strategy. People get to try before they buy and many people do eventually go from basic to having premium accounts.
4) Your complaints about VAT are also absurd, LL has to abide by law in those respective countries. No amount of pleading will change that situation. Paying tax sucks, I agree but there is nothing anyone can do about it and LL is not going to tax Americans until the government tells them too. Thinking that Americans should have to pay taxes just because Europeans do is very unreasonable.
All that aside I think that
1) reducing tier
2) Bringing back 1st land
3) working on making SL more user friendly
and stabilizing it
are all going to cause the economy to improve drastically.
Expect to see my own Op/Ed at the Herald where I write in the near future.
Fri Mar 14, 2008 9:03pm PDTThere are also technical issues with Second Lifes very basic design that will hamper it. The sharp divisions into sims with only so much resources available makes any large gatherings impossible. Granted, large gatherings would have other issues as well, but as long as any “geographic location” in SL is dependent on a fixed amount of power and bandwidth there will be issues with lag and other problems that plague the population - and underutilization of the available computing resources to plague profitability for Linden Labs, for that matter, when sims are empty.
The whole thing needs a redesign where you have a situation with distributed processing that allows the power to flow to any point where you have a hotspot of activity… though I have to wonder if that can even be done without scrapping a lot of what is already there.
Such approaches are being developed however, Sun’s Project Darkstar being a prominent one to mention.
Either way it will be interesting to see where SL is headed.
Sat Mar 15, 2008 5:03am PDTIt’s quite obvious to me this is a tactic simply to move the SL users into a new direction.
All the “community leaders” of SL preach on and on about how LL needs to step up, lead, make firm non-hypocritical decisions….
well, now Philip is gonna just pay someone to do that. He’s hiring a figure-head… a “virtual worlds social-action engineer”
Stick a guy in as the voice of the people, lead him be the figurehead… and Philip and co continue to do what they do.
Phil stepping down from the title of “CEO” means nothing…. its just something to put on a business card
Sat Mar 15, 2008 10:03am PDTPaying Linden Lab VAT cannot be understood at all. This is simply because Linden Lab is not an European company and not located in Europe. That´s against law to add European taxes to a internet based entertainment service which is located in USA. Who is Linden Lab going to pay the collected VAT ? The answer is nobody because they simply cannot pay collected VAT taxes from Europe to USA!
Some internation lawyer of economics should take a legal action in this case because this is simply criminal.
Sat Mar 22, 2008 10:03am PDTIt is about time!
Mon Mar 24, 2008 7:03pm PDTMany thanks to Deltango Vale for a superbly written and extremely articulate summary of the situation. Nothing to add, as every point you made is absolutely correct.
Mon May 5, 2008 5:05am PDT