Is Amazon Destined to Replace Marketplace and Buy SL?

[Valiant Westland]

Note: This Post was originally published on January 10th, 2013, on my SL Revolution Blog

For years I've been predicting that the next wave of Virtual World development would be driven by the inevitable competition of e-commerce, marketing and gaming heavyweights like Google, Amazon & Microsoft.  All of these players have a huge vested interest in capturing the annuity income produced by the rapidly expanding world of Virtual Products and services.

So imagine my "surprise" when I saw the Second Life Community announcement, about Linden Lab offering Start-up and Enhancement Kits on Amazon!   I believe this is a first step towards the eventual disbanding of the Standalone SL Marketplace, in favor of an Amazon-powered alternative.  If I'm right, SL itself could be an acquisition target for Amazon in the not too distant future.

The early failure of Google's Lively Virtual 3D World and the lackluster performance of Sony's PlayStation Home Virtual World offering, should not be used to throw out this line of speculation.  These earlier efforts have one thing in common that Amazon and even SL doesn't, a lack of profitability.

In addition to an Alpha-level user interface, no realistic profit potential is the main reason Google pulled the plug on Lively.  Interestingly enough, Sony, in response to Microsoft's hugely successful xbox.com webstore, has used this years CES show to announce it is bringing its own SEN (Sony Entertainment Network) store to the US and integrate it with the PlayStation Home experience.

So why would Linden Lab give up running its own primary revenue source (Marketplace)?  Total Cost of Ownership (TCO) and a potential increase in Net Revenues by outsourcing e-commerce to an organization like Amazon.  Amazon has arguably the most cost-effective and efficient e-commerce platform in the world.  They also have something Linden Lab does not, more than "164 Million paying customers!"  This is a huge potential untapped market for Second Life, that would be almost impossible to reach, without this type of partnership.

Many people, not directly involved with Second Life's back-end development, might be surprised to learn that since 2006 "Linden Lab has used Amazon Simple Storage Service (Amazon S3) to store elements used in the Second Life world and to distribute the Second Life Viewer to end users."  In fact, Amazon has featured Linden Lab in a Case Study, from which this quote was taken.

Every company reaches a point where one or more things happen.  They either fail, diversify with new products & markets to sustain growth, go public, acquire additional private capital or are acquired.  Linden Lab has thus far failed to expand its market.  Their attempts to diversify their product via their Enterprise product was, as reported by Hypergrid Business, "a costly mistake."  Their more recent Patterns and Creatorverse products seem unlikely to generate the type of revenue or market expansion required to have a measurable impact on their overall business.  Going public is an unlikely option and it is doubtful any more private capital would flow into a stagnant business model.  The only remaining choice for the original investors to cash out, sell Second Life!

Amazon's Jeff Bezos has proven he is a fierce competitor who is willing to take risks and sacrifice margin to dominate an industry.  In fact, a Jan 8th, 2013 Bloomberg Businessweek story on Amazon was summarized like this: "As long as consumers are consuming and shareholders are buying what Bezos is selling, Amazon looks fairly unbeatable."

Hang on to your virtual hats ladies and gentlemen, I think 2013 could shape up to be an interesting year.  My advice.  Buy Amazon (AMZN) stock and look forward to a Virtual e-Commerce SL Marketplace experience powered by Amazon in the near future!

[Marcus Hancroft]

Howdy, Valiant

As everybody knows, the SL Marketplace has been plagued, for a very long time, with many problems.  From database issues to failed deliveries, the marketplace is probably the worst e-commerce site with which I've ever had to deal.  I think if Amazon DID buy the marketplace, those issues would promptly disappear and so I have no problem with it if such an event did occur.  Having to relist 513 items (should we have to do that) would be a daunting task, but one that I would gladly undertake.  

We can guess and speculate all day long about what might happen, but, we won't know for positive until we see an announcement from Linden Lab.  

[Dartagan Shepherd]

It seems to be a bit of a stretch to connect the dots of one botched (and seemingly desperate) LL promotion on Amazon to using Amazon as a replacement for the marketplace.

The Amazon offering doesn't support reselling of virtual goods, so the weak points would still be LL's delivery and accounting, which are buggy at best and suffer from inapropriate billing practices at worst.

I wouldn't be against it because it would bring us a few steps closer to real world laws and consumer protection for both merchants and customers.

The downside is that you can be fairly sure that merchant costs (or commission) would go up substantially, which in a declining "economy" only makes the matter worse.

I'd had a conversation with a couple Lindens some time back on marketing and promotions and it appeared to be a goal at the time to make SL more stable before throwing marketing at new users. A lesson they've yet to learn, to test better and make more stable releases rather than roll out buggy code and then fix only parts of it as you go.

Their technical debt ceiling has been reached and equates to their retention problem, as do their high prices ... both points which they seem determined to ignore.

Of course if these types of promo's end up selling more to existing users than new users, then this is just LL picking at the bones of their decline and "stealing" yet more sales dollars from their merchants.

[phaedra Exonar]

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Valiant Westland wrote:

 

 

So why would Linden Lab give up running its own primary revenue source (Marketplace)? 

 

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It was my understanding that LL doesn't even consider the market place as RL $ revenue, if they did then they would have put more time in to making it run correctly, and would have charged to list free items like they said  they were going to do a few years back.  LL bought out xstreet and onrezz and then pretty much dumped their systems, I think  It was a move to gain more control over the SL economy,  and not as a source of revenue.

Land tire is LL primary source of revenue. 

I'd love to see LL sell the market place to someone that has a vested interest in having merchants succeed, and I have to wonder what Amazon would think of hosting the 168,106 items currently on the marketplace that LL gets no commision form.

[Spica Inventor]

LL pawns off The Marketplace (and all it's headaches) onto Amazon. Amazon raises their cut substantially causing merchants to migrate back to inworld storefronts. LL looks all innocent exclaiming to angry merchants 'it wasn't us who raised the percentage cut, look it was that evil Amazon'! Win/win for LL. hehe ;-)