Second Life is a great case study in social media trends. First came the huge wave of hype in 2005-2006, when every marketer and his mother felt compelled to get into the pioneering virtual world created by Linden Labs, which was touted as the future of online virtual interaction. Then came the backlash, as self-identified "original" users bemoaned the influx of newbies and corporate brands, with some even engaging in acts of virtual terrorism. And then came the anticlimax: growth slowed dramatically, many newbies and marketers lost interest, and Second Life slipped from the headlines.
Last month it was back in the news, but for all the wrong reasons, when Linden laid off 30% of its workforce to consolidate operations in North America. This spurred speculation that the end of the (virtual) world was nigh, all firmly denied by the company's bosses, who said Second Life is doing just fine, thanks. And while it's hard to know what the future holds, Second Life does indeed appear to be surviving -- even thriving. In fact, this may be the most instructive part of the social media story arc, because (like the World of Warcraft) it's an example of an online social network reaching equilibrium, or "maturing."
Social media watchers tend to focus obsessively on the number of users, and there's no question that Second Life appears to have leveled off over the last year or so. From two million in 2005, the total number of members soared to 18 million this year, but only a small fraction of these are active users. Zooming in on active users, defined as those who log in several times a month to spend at least one hour on the site, the numbers increased from about 25,000 in 2005 to roughly 700,000 in 2009-2010. In 2010 there have been peaks and valleys (with the number of active users ranging from 680,000 in February to 820,000 in April) but that still puts it in the 700,000-750,000 range -- stable, maybe even growing a little bit.
Long story short: after five years it's clear that Second Life won't be competing with Facebook, which recently crossed the 500 million mark. But I would argue that the number of active users is only half the story. The other half of the story is what those users are doing, how much time they spend doing it, and let's not forget about money, money, money -- how much are they spending online, and how much is Linden making?
Second Life's relatively small user base logs an impressive number of hours on the site, and the total amount of time continues to increase. From 2008-2009 the number of active users increased 16% from 600,000 to 700,000, while the total number of hours logged increased 20% from 400 million to 480 million. In the second quarter of 2010 the total time spent increased 33% over the second quarter of 2009, to 126 million hours. Active users spend an average of 100 minutes on the site during each visit, and some of these people are crazy, with reports of hardcore users spending 12 hours a day or more in-world. According to the company, users create about 600 million words in text messages and other content every day.
Then there's the money: Sales of virtual goods continue to increase at a remarkable pace, making Second Life one of the largest markets for virtual goods next to Zynga games like Farmville and Mafia Wars. Total dollars spent on virtual goods in Second Life increased steadily from $30 million in 2005 to $344 million in 2008, then jumped again to $567 million in 2009, and so far they are up about 30% year-over-year in 2010, putting the site on course for over $700 million. Not all of this goes into Linden's pockets, of course: several analysts pegged Linden's 2009 revenues at $80 million-$100 million, based on user fees, subscriptions, and land sales. I don't know how much Linden spends on server costs for Second Life, so it's hard to know if they're turning a profit (maybe not, which would explain the layoffs).
But regardless of Linden's profitability, all this is important because it suggests that the Second Life user base, while relatively small, is committed and heavily engaged with the site. Turning from Second Life to the larger marketplace, I think this is an important fact for marketers to bear in mind as they deal with the continuing -- indeed, accelerating -- proliferation of social media. Because reach and scale aren't everything, especially online, where the audience is highly fragmented and likely to fragment further. In this arena a small, highly-engaged niche audience may be more valuable than a large, apparently indifferent one (Facebook, I'm looking in your direction).