ToS changes, FinCEN and speculation

Update, May 10th: Alex Kadochnikov has posted a further piece on the recent FInCEN interpretive guidelines on virtual currencies.

The recent change in the ToS affecting the use of third-party exchanges for L$ transactions was apparently accompanied by an e-mail from the Lab to such exchanges asking them to cease trading / cease trading in Linden Dollars.

So far, and as reported on Hypergrid Business, around eight exchanges have suspended trading in Linden Dollars while seeking clarification from the Lab as to whether / how they can continue to provide a service to users. Whether the suspension turn into an outright cessation of trading / operation obviously depends on the response obtained from the Lab.

Additionally, Oz Linden contacted TPV developers via the Opensource Development mailing list, stating:

Linden Lab has made a change to the Terms of Service – see the blog post at

http://community.secondlife.com/t5/Featured-News/Updated-Second-Life-Terms-of-Service/ba-p/1996185

If you are a viewer developer, and your viewer includes use of a third-party exchange for functions like ‘buy L$,’ it will need to be changed to use the LindeX instead. 

Some are speculating that the move is as a result of the FinCEN issuing a set of interpretive guidelines on virtual currency (which I commented about in April), possibly related to limiting the Lab’s exposure where other exchanges are concerned. As I’ve stated in comments following-up on the news piece on the change – and while, inevitably, IANAL), I’m not altogether convinced by those arguments per se, because there is nothing in the FinCEN guidelines which appears to fundamentally impact LL’s exposure in this regard – rather, they and third-party exchanges appear to be in the same boat where FinCEN’s guidelines are concerned.

US Treasury’s FinCEN: examining virtual currencies

However, this is not to say that I think LL’s move is entirely unrelated to the FinCEN guidelines being published in March. Again, as I’ve commented both in this blog and elsewhere:

I would add that where there is a potential overlap between the two (the FinCEN guidelines and the SL ToS change), inasmuch as by attempting to limit any exposure of L$ to third-party exchanges and confine trading to LL’s own mechanism (the LindeX), the Lab might be trying to strengthen their position that the L$ is a “gaming token” rather than a “virtual currency” – which cuts to the heart of the core difference in their interpretation of the Linden Dollar’s status, and how FinCEN might regard it.

Of course, even in doing this, the Lab doesn’t escape FinCEN’s view that they are effectively a Money Service Business (MSB) and as such, are required to register as such with the US Treasury and meet regulatory requirements and adhere to anti-money laundering and other periodic reports. Some have suggested that the Lab may as a result face escalating costs in attempting to meet these requirements which may render the Linden Dollar, as we know it today, unviable to the company. However, as I stated back in April:

… there would appear to be questions as to how justified concerns over compliance (and the cost thereto faced by the Lab) actually are.

When it comes to money laundering in particular, Linden Lab already has a number of safeguards in place. Whether these are compliant with any requirements specified by the US Treasury is open to debate … However, it would seem unlikely that such safeguards would be without reference to any legal / regulatory compliance, even  if they only meet the bare minimum required.

Thus, how much additional work and expense would be required on LL’s part should they have to become a registered MSB isn’t that easy to ascertain; so dismissing them as being unable to comply, or that cost of compliance would be something the company would be unable to bear would appear to be perhaps premature.

However, it is reasonable to suggest that if this move is related to FinCEN, then quite possibly it is just an initial step, one which may well be followed-up in the coming months by further changes as the Linden Dollar’s overall status is further clarified as a result of dialogue between LL and FinCEN. Whether such additional result in the Linden Dollar becoming a closed currency without “real” value is entirely open to debate and beyond the considerations of this piece.

There is another question to be asked here as well. Which is this: while it might be unwise to totally dismiss FinCEN as having nothing to do with LL’s change in policy, are there other reasons why LL would make this move?

Well, yes there are. Here’s a couple:

• It could actually have arisen as a result of the discovery of a fraudulent activity or situation which simply could not be ignored, and the Lab had to take drastic steps in order to ensure the door was firmly slammed shut on the matter
• It might simply be an attempt to ring-fence the buying and selling of L$ for direct revenue gain. As WolfBaginski Bearsfoot points out, LL are potentially missing out on around $500,000 in transaction commissions going through VirWoX alone. While this may sound trivial, it could go some way to offsetting declining revenue from tier (which in 2012 amounted to approximately $762,000).

Then there is the way in which the change has been announced. If the reason behind it is purely a response to FinCEN setting out its stall in relation to virtual currencies, why couldn’t the Lab have indicated this to be the case? At the very least, and with more considered up-front communication blog-wise, it would have avoided the current levels of confusion, angst and speculation. And why the need to act in such an abrupt manner? It seems odd that if this course of action has arisen from the moves by FinCEN, the Lab explain the situation to users and third-party exchanges alike and give both X number of days to prepare for the changes to come into effect. Were they perhaps afraid that doing so would lead to a run on demand for L$ through third-party exchanges?

It is possible that whatever prompted the change to the ToS may never be known – particularly if it was, as mentioned above, related to a specific fraud-related situation or activity which the Lab could not afford to ignore.As such, this one change -  allowing for the current confusion and speculation it has created – is liable to be the end of things,

However, if it is as a result of the rumblings coming out of FinCEN as they cast their eyes across virtual currencies, then this might just be a foretaste of further changes to come.

Related Links

• Lab updates SL’s Terms of Service
• The Linden Dollar: token or currency? The US Treasury ponders … (April 2013)
• Linden Dollar. Another Virtual Currency Affected by FinCEN – Alex Kadochnikov (April 2013)
• Lindens: No outside currency trading - Hypergrid Business
• Linden Lab’s New ToS, the Bank Secrecy Act, and You – Vaki Zenovka
• Application of FinCEN’s Regulations to PersonsAdministering, Exchanging, or Using Virtual Currencies – Department of the Treasury Financial Crimes Enforcement Network (PDF, March 2013).

Reaching out: SL as a platform for “outside” events?

Following on the heels of this year’s Fantasy Faire, follow blogger and Lord of Dee Ciaran Laval comments that Outside Companies Should Create Their Own Second Life Faires. In it, he examines how external companies and authors – notably in the fantasy business – could use Second Life as a promotional tool and could, together with the Lab and SL itself, greatly benefit from doing so.

Fantasy Faire: demonstrating the viability of SL as an events platform?

And he has a point. As Zander Greene pointed out in The Drax Files special on Fantasy Faire, when all is said and done, Second Life is one of the most cost-effective mediums for fundraising – and the same is true of global outreach. Yes, the cost of server space isn’t cheap, but when compared to the cost of venue hire, etc., and the scope of what can be laid-on, it is an intensely cost-effective medium.

In his article, Ciaran looks specifically at the case of fantasy and the opportunities of fantasy-focused MMOs and authors. However, I’d suggest that the potential reach here is far greater – and while some may shudder at the thought of SL returning to the bad old corporate-focused days of 2008-2010, this needn’t necessarily be the case.

Rather, there are mechanisms which, although dormant / disbanded / forgotten, could actually be revitalised and used to the benefit of both the Lab and the platform.

For example, for several years, the Lab ran the Solution Providers programme. This provided a means by which corporate entities could get in contact with people with expertise both within SL and a range of other disciplines they could harness to help develop an in-world presence. Such a scheme could be implemented by which those organisations could connect with in-world content creators and sim builders who can develop the necessary in-world environments on which their could host faires and promotional events.

The SL Science Fiction convention in 2012 saw real-world TV personalities Jonathan Frakes, Garrett Wang and Richard Hatch appearing in-world. SF conventions are a major crowd-pulling draw

A collaborative marketing venture by which LL would seek to promote SL as a venue for conventions / faires and such-like and which demonstrates its viability as such, specifically targeted at key market audiences while at the same time folding-in the in-world expertise of the community to make things happen, could be enormously beneficial to all.

Of course, things would have to be carefully managed, and additional capabilities put in place. LL would, for example, have to be willing to handle the marketing effort and work to overcome the more negative perceptions many have of SL as either being “unsuitable” for their market or “dead”. They’ve also have to work creatively to demonstrate the power of the platform as a promotional medium and suitable venue for such events and be willing to work cooperatively with sections of the community.

More practically, things like how the prospective visitors for a focused faire could be readily brought-in to Second Life and not only arrive at their intended destination, but also understand the basics of avatar  / viewer use would need to be carefully considered. However, these are not insurmountable issues. In terms of avatar use, it’s likely that in the case of MMOs and the like, users will already have a grasp of basic movement controls, and the rest could be simplified through the provision of a specialised viewer, possibly based around the old “basic” viewer (but with a few enhancements). And if that viewer includes a means by which the user can opt to download the “full” viewer (even as a separate install option) by which they can explore the rest of Second Life, then potentially so much the better.  And putting in place a sign-up process which successfully delivers incoming users to a desired venue also shouldn’t be too hard to achieve.

Obviously, everything would require careful management – not the least, as Ciaran again touches upon, the possible reaction of some sections of the SL community itself – and this might not be considered worth the time and effort by the Lab. There would also need to be some careful balancing of the scales – for example, I personally wouldn’t wish to see something like Fantasy Faire, with its very clear focus on RFL, being usurped by a more commercial endeavour.  However, I do believe that the idea has merit and that the Lab would be foolish to pass completely on at least investigating the potential here.

The possible benefits are clear: SL would gain broader recognition; there could be an opportunity for LL to establish another modest revenue stream which may actually attract more users into Second Life (with the additional benefits that would bring). Those companies utilising the ability to use the platform as a promotional environment get to stage a rich, immersive and global outreach opportunity which may equally gain them users and expand their networking opportunities without being tied to a more costly investment in SL which may not gain them the same level of return in attracting users, etc., and so on.

As such, the idea could well be worth exploring. Danko Whitfield comments on Ciaran’s post that there is a degree of this kind of promotional activity already occurring within OpenSim. So why shouldn’t the Lab look into the feasibility of grabbing something of the market, particularly as they could be well-placed to attract some of the big players?

Related Links

• Outside Companies Should Create Their Own Second Life Faires – Ciaran Laval

Become your avatar. Again.

They say there is no such thing as an original idea.

In the Lab’s case, there appears to be no such thing as an original marketing campaign.

Three years ago, they ran a campaign “Become Your Avatar“, asking people to “star” in ads which put them up with their avatar in an attempt to draw-in new users.

It was a campaign which was – both within and without SL – somewhat ridiculed. The message itself, to the uninitiated, appeared confusing and ultimately and the whole thing appeared to be something of a flop in most people’s eyes.

The original campaign

Nevertheless, that didn’t stop the Lab trying it again in late 2011 – and it received about as much “positive” feedback from observers at the time as the original.

Now in fairness, we don’t really have any way of gauging how well either campaign actually did; they could actually have done remarkably well, despite the jaundiced eye many of us (myself included) cast over them.

Well, guess what? The Lab are looking to run it a third time, and are calling for people willing to “star” alongside their avatar in a new campaign to be launched in the near future.

The announcement reads in part:

We are now casting both humans and their avatars for a new promotional campaign that will be featured on SecondLife.com and across the web.

For this campaign, we’re looking for people who are comfortable revealing their “human side” alongside their avatars in Second Life, like in the image above. Specifically, we are looking for those whose avatars do not physically resemble their owners.

This promotion aims to spotlight the diverse and creative communities in Second Life, so please apply if you’d like to share your passion for Second Life with the world!

To be considered, please fill out this application form by 11:59 PM Pacific on Wednesday, May 1, 2013. All submissions will be reviewed by the creative production team for the campaign, but no personal information provided will be disclosed publicly unless you are selected and specifically consent to participate.

We look forward to hearing from you!

I’m not sure what to make of this – other than the fact I won’t be applying. As noted above, just how well the original and follow-up campaigns did is hard to say; we just don’t get enough data on sign-ups and retained users nowadays to make a realistic assessment. This means it is easy to err on the “not very” side of the success equation.

For my part, however, I just wish that someone at the Lab would put more thought into finding something that is fresh and original and which might find broad-range appeal rather than constantly re-running the same ideas. The talent pool within SL is as deep as it is broad, and there would seem to be plenty of opportunities for the Lab to work more collaboratively with users to promote the platform than this approach, as I’ve mentioned myself in the past and also more recently.

While “tried and trusted” may appear to be the safe / easy / assured option for the Lab, it does tend to come with a problem beyond its perceived success. A problem I would hope the Lab take time to note.

Many out in the world – gamers, pundits, et al, already regard Second Life as one of “dead”, “dying” or “past it and not worth the effort. In constantly re-treading the same ol’, same ol’ by way of marketing efforts, the Lab is actually doing very little to dispel such views.

Still, if you feel like having a go – don’t forget the application form and the closing date of 23:59 SLT on Wednesday, May 1st.

If you take the Trooble to visit Amazon…

The Lab launched its latest Amazon offering to US residents on Friday April 12th: Trooble Pigs. The accompanying blog post gushes:

We’re happy to announce a new special offer for Second Life on Amazon – a pack of virtual pets!

The Troobles have arrived and are squeaking with excitement to be the stars of our third limited-time, special promotion on Amazon. From now to April 24, 2013, you can get the Pet Pack – The Troobles (a $9.95 value) for free.

The Pet Pack includes an adorable family of Trooble Pigs including Daddy, Mommy, baby sister, and baby brother. Each Trooble has their very own fashion accessories and special talents. Mommy Trooble offers customized greetings to your visitors, Daddy Trooble can go into guard mode and teleport trespassers, and the babies are always up for a cuddle.

This is the latest of “premium packs” and “special offers” being supplied to SL users  / Amazon customers located in the USA through Amazon’s online game service, presumably as a means of promoting Second Life to the latter – something which didn’t exactly start off overly well when the original offer backfired and resulted in much amusement. Well, for me it did.

I’ve actually nothing against the Lab trying to reach out to new audiences and build new, engaged users. Rather the reverse; I believe it is more important they do so than it is for them to cut tier. As I’ve previously pointed out, tier cuts (for the foreseeable future) are liable to do more harm than good, whereas building an engaged user base can only be for SL’s betterment.

However, what I do feel – and continue to feel – is that offers like this tend to miss the point, and that if the Lab really is after attracting new users from the masses who use Amazon (even if only those located in the USA), then there is fair more they could do in which to make SL appear attractive and worth the investment.

As it is, the virtual pet / fashion accessory pigs are here and will remain “free” until Tuesday, April 24, after which they’ll presumably continue to be offer at $9.95. So if you’re of a mind and in the USA, you can hop over there and pick them up – dare I say – with no trooble at all.