Linden Lab has spent $1.3B building Second Life and paid $1.1B to creators

Linden Lab has spent $1.3 billion building the Second Life virtual world, which debuted back in 2003 in the first era of the metaverse.

And Second Life is still around today. Philip Rosedale, founder and former CEO of Linden Lab, and Brad Oberwager, executive chair of Linden Lab, spoke with me about the magnitude of the investment that has gone into the Second Life platform and the revenue paid out to creators. In fact, Linden Lab has paid out $1.1 billion to creators.

Those numbers represent a huge digital business that is good to remember as we all continue to discuss the metaverse, the universe of virtual worlds that sci-fi folks would love to see connected together one day as the next generation of the internet.

In modern discussions about the internet, Second Life — which was inspired by the 1997 Neal Stephenson novel Snow Crash, where the term “metaverse” first appeared — is often dismissed. In fact, people normally think about Roblox, Fortnite and Minecraft as today’s frontrunners for the metaverse.

But Second Life is still around with a relatively small number of users in comparison to the frontrunners (Roblox has 89 million daily active users). Those users are dedicated and they have been on the platform for an average of around 14 years, Oberwager said. Second Life also has an economy of about $650 million a year, built on the buying and selling of virtual goods created inside Second Life.

And since Linden Lab shares 90% of transactions with creators and only takes a 10% cut, the vast majority of the money generated through trade is paid to the creators themselves. This is a testament to the strength of the creator-based economy and our residents who support them, Oberwager said. That 10% cut enables Linden Lab to employ around 160 people.

“I started looking into our numbers and it turns out we have eclipsed some pretty big milestones,” Oberwager said. “While Roblox is 500 times our size, they have only paid out 10 times more than us in terms of payouts to creators last year.” (On a trailing 12 months basis).

Roblox recently said it has generated $1.2 billion in GDP from 2017 to 2023, creating a total of 17,840 jobs. Yet that money is spread across far more daily active users, or about 145 times more users than are in Second Life (which is somewhere around 600,000 players). And Roblox shares a lot less than Second Life does with its creators; the Roblox amount might be considered 27%.

After Roblox shared that data, Oberwager began looking into Linden Lab’s numbers. Linden Lab has been around longer (Roblox was founded in 2004, while Rosedale started Linden Lab in 1999). It has had more time to invest, while Roblox has had a more impressive growth rate. But the comparisons are enlightening.

As a result, Linden Lab’s calculations about its economy are quite impressive compared to Roblox. About 30% of Second Life creators earn over $1,000 annually, compared to 0.2% for Roblox. And 7.4% of Second Life creators earn over $10,000 annually (compared to Roblox’s 0.07%).

This means creators in Second Life are 100 times more likely to earn over $10,000 than on Roblox. And they are 27 times more likely to become a millionaire. Oberwager thinks this is a big statement about fairness and opportunity. Second Life’s payout system creates an egalitarian environment, where mid-tier and top-tier earnings are far more accessible.

Neither company has completed its year yet so the numbers for now are rough comparisons. But Rosedale said it is worth noting that Second Life became profitable within six years, and during that time the company had only raised $25 million and it still got to profitability in 2005.

“We have spent over a billion dollars investing in Second Life as of this year. What we’ve spent is not what Roblox has spent, but it’s not far off,” Oberwager said. “The reason why our payouts are close is we’ve spent all this money to support the creators.”

He said the point of that isn’t to bash Roblox. Rather, it shows the different paths that companies can take on the road to the metaverse and how they can embrace user-generated content. In the past year, Second Life paid out about $78 million to creators, and the overall economy is close to 10 times that number. In general, Second Life’s GDP has been pretty stable, Rosedale said.

“This means the probability in the long tail of a content creator being successful in the community of Roblox is probably lower because of the numbers being the population,” said Rosedale. “If you’re super passionate about creating 3D content and making money by doing it in a virtual world, you’re probably better off coming to Second Life.”

As far as where the Linden Lab spending happens, that’s a harder question to answer. Linden Lab has to spend to make existing players happy and also spend money to attract new players.

“We’re competing with all the other things that people think are social,” Oberwager said.

Where Linden Lab spent its $1.3 billion

Rosedale stepped down as CEO some in 2008. In 2022, Oberwager acquired the company that Rosedale had started, High Fidelity, and Rosedale rejoined Linden Lab as a strategic advisers. The biggest the company ever was under Rosedale was around 350 employees. During its different cycles, Linden Lab spent money on different kinds of projects, some that didn’t pan out.

More than a decade ago, under CEO Rod Humble, Linden Lab started diversifying and creating its own games for players to play outside of Second Life. And it also appointed Ebbe Altberg as CEO in 2014. Altberg created a project called Sansar as a kind of sequel to Second Life, with VR experiences that existed via web links rather than inside a virtual world. But Sansar ultimately failed and was spun off, while Altberg died from an illness in June 2021. Later, Oberwager acquired Linden Lab.

“It feels now like we have more people working on the core components of Second Life than we did before,” Rosedale said.

Oberwager said the company continues to invest in its world. He said that AI is going to impact every industry and he foresees it impacting virtual worlds in the form of affecting non-player character behavior and the process of creating things in the world. Rosedale said that AI will be helpful in handling trouble tickets and categorizing what needs to be fixed, but humans have to eventually fix things.

Comparing income in the different worlds

The per user income is interesting for Second Life. Based on 2023 numbers, about 21,152 have generated income inside Second Life. About 6,446 have made over $1,000 in the past year. About 1,580 have made over $10,000. A total of 139 have made over $100,000, and 14 have made over $1 million. Those numbers are not so far away from Roblox’s.

This is not to say that Linden Lab has a much better business than Roblox. Rather, it tells us about different paths to the metaverse.

“If you want to think about a sustainable metaverse world that people are going to live in, you want to see a higher level of spending per individual, a more blended mix between creator and consumer, something that looks more like a farmer’s market or Etsy or something as a business,” Rosedale said.

By contrast, the business of Roblox today consists of a few winners and more losers, kind of like the triple-A game business today, where the odds of any given person’s success are pretty low.

The spending per daily active user in Roblox is around $12. In Second Life, it’s around $190. The challenge is that the cost of acquiring a new user in Roblox can be pretty high.

The good thing about Second Life’s players is that they aren’t churning out so much. They’re dedicated players and they both create revenue and they spend money. That’s a pretty high-quality user. Rosedale said much of the spending now is dedicated to making the world more accessible to more people.