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Second Life businesses get acquired – by Second Life

By on January 22, 2009

Linden Labs has acquired two virtual goods business within Second Life.

The companies (OnRez and Xstreet SL) offer Web-based marketplaces that sell custom skins and kit for ingame avatars. For example, you buy a skin to make your character look just like Barack Obama. By web-based, I mean they exist in a browser, not in the 3D world of Second Life. According to the Linden Labs press release,

Just as e-commerce Web sites provide a complement to shopping in real life, Xstreet SL complements how Second Life Residents shop inworld – visiting 3D stores, shopping centers and malls to purchase virtual services and goods from the Residents who created them.

The key question is whether this represents a validation of Second Life as a source of real-world income or is in fact an short-term fillip that masks larger strategic issues.

On the positive side, someone has built a business in Second Life and then sold it for cash. Linden Labs feels that by owning these marketplaces and integrating them with their own Xstreet SL platform will make a simpler online shopping experience for customers and merchants (and presumably increase revenues both for the marketplace and the sellers who use it.).

The counter-argument (put strongly at The Equity Kicker) is whether

this move signals a recognition by them [Linden Labs] that the economy inside Second Life is not going to be so huge that they can afford to cede large areas of it to other companies and still have enough left for themselves.”

My feeling is that there are elements of both. Although Second Life saw $360 million of virtual goods and services traded in 2008, this activity is slowing. Despite press attention, there are questions over the long-term strategy for Second Life (Google’s failure to make any impact with Lively has focused attention on how difficult it is to build a sustainable virtual world business).

So this acquisition marks out Linden Labs trying to simplify and streamline ecommerce both within Second Life and across the web. It also shows to Second Life entrepreneurs that there is the possibility of an exit, which should stimulate activity. Whether it also shows Linden Labs panicking that there is not enough revenue from their core business of selling real estate in a virtual world remains to be seen.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: