Is Amazon Destined to Replace Marketplace and Buy SL?
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!