Philip Rosedale: The Media Is Wrong, SecondLife Didn't Fail

By Sarah Lacy , written on July 6, 2012

From The News Desk

Last night I spoke at an event put on by a site called IdeaMensch. They're doing a road trip, where the team is traveling city by city, holding events by and for entrepreneurs. I talked about why I started PandoDaily and some of my struggles along the way so far.

But far more interesting was the founder who spoke before me, Philip Rosedale of SecondLife. And in a way, the two talks were both about the trouble with media. While I harped on the press release rewriting that's become endemic, as volume and speed have become new media's ruling twin values, Rosedale talked about the biggest reason I got out of old media: the all too predictable hero-villian press cycle.

National publications -- whose assigning editors sit far from Silicon Valley and are lucky to visit once per year -- love to take Silicon Valley stories and dismiss them until it's obvious they are something substantial. Then they make the founders into two-dimensional cover boy "overnight" successes. Typically the only thing overnight is the assigning editor's discovery of their company. And then, when it starts to fall apart, they either become evil or stupid. Either way they're mocked, written off, and forgotten about.

As anyone who has ever been near a startup knows, none of it is ever that simple, whether the startup succeeds or fails. And it certainly wasn't for SecondLife -- a company that seemed crazy initially, lauded as the next best thing a few years later, and was then dismissed as overhyped and mostly forgotten as the Web 2.0 wave gained steam.

SecondLife never went public or sold. There were chaotic transitions in management and pretty sizable layoffs. But far worse in the eyes of many, its audience just failed to grow. And in the Valley, many consider anything that's not growth or an exit as a death. The hype cycle moved on, and even people in the back of the room were asking whatever happened to SecondLife, as Rosedale spoke.

"Did it ever sell?"

"I don't know... Hey, did SecondLife ever sell?"

"I can't remember..."

But Rosedale argued hard -- and pretty convincingly -- that SecondLife was a success. SecondLife has 1 million active users. That's almost the exact same number it had at the peak when everyone was going ape-shit about it -- when it was on the cover of BusinessWeek as the next big thing, when staid companies like IBM were building out SecondLife presences, when politicians were holding press releases inside of SecondLife, when Duran Duran and Depeche Mode were holding concerts there.

That number never fell, Rosedale says. If that was an amazing accomplishment then, it should still be an amazing accomplishment now that they've sustained it in a world where websites are fads that quickly come and go. More impressive, there are $700 million a year in virtual goods transacted inside of SecondLife every year. That's more than enough to make the company very profitable.

The problem -- really the only problem, but a big one nonetheless -- is they couldn't ever find a way to make those numbers grow. Nothing they did worked, and Rosedale doubts that even early Facebook integration would have helped. And as Rosedale pointed out, VCs invested half a billion dollars in SecondLife competitors, and none of them found a way to get beyond that number either.

Virtual worlds have become massive businesses in other countries, so one of two things is likely true about the US. Either culturally, the US just doesn't dig on Fantasyland as much, or he was just way too early.

To the first theory, Rosedale said one of the biggest surprises he had building SecondLife was how when given total creative license, most of the houses just looked like ones in Malibu. Most people just covet the things they know, he says. And in the US, perhaps that life is attainable enough. And for those who can't attain it, there are already well-trod ways to escape into it, through television, music videos, or RomComs set in Manhattan where everything winds up okay. Perhaps they want the culture that's already built for them, not the responsibility to build it themselves.

The latter theory -- that SecondLife was just too early -- is the fear that haunts entrepreneurs. In building a company, you get no points for being ahead of the curve. Worse: You usually eventually have to watch someone else become a billionaire off of the same premise you had years before.

But Rosedale wore "too early" as a badge of honor last night, too. "We were early to an idea that most people thought would eventually happen," Rosedale said. "What I'm most proud of is that we found a way to make that into a profitable company years earlier than it should have emerged, through our own hard work."

You could argue this is just Rosedale justifying the ending of a story that most people felt -- and surely he and his investors hoped -- would end with hundreds of millions of dollars. And if I were just a reporter, I might argue the same. After all, the Valley and tech are all about growth. Those crazy valuations that people wring their hands about aren't ever based on what a company is worth now. They're based on promise. And when that promise collides with reality, the story does, in a way, die along with the hope for what it could become.

But on a human level, if you've actually built something, it's easy to see Rosedale's perspective. He built something audacious and crazy that one million people still use, something that has three-quarters of a billion dollars coursing through its weird virtual economy every year, something that has had no signs of slowing, even as it doesn't grow. He's basically built a small virtual nation.

I have big plans for my company, like any entrepreneur. I have ambitions beyond one million loyal, rabid uniques and a highly profitable business. But if we built that, and it lasted for nearly ten years and was a self-sustaining profitable company, I'd still be damn proud of my team.

[Image courtesy rafeejewell]