High Fidelity: Some Thoughts on the Morning After

First, a disclaimer: I’m a librarian and a blogger, and I don’t really know what it takes to run a successful software company. I’m sure the only people who really know how Philip Rosedale is feeling right now are Ebbe Altberg and other software company CEOs who often have to make difficult decisions, including letting people go. It’s a tough job, and one that I wouldn’t want.

And I must confess that, from my admittedly outsider perspective on High Fidelity, that I was absolutely gobsmacked by the swiftness of this recent turn of fortune. One minute, High Fidelity was merrily cruising along and planning big splashy events; the next, they were slashing server costs by abruptly shutting down public spaces. It was, and still is, a rather stunning reversal that most observers didn’t see coming.

There are a lot of factors that led to this point. Let’s take a look at a few of them. 

First, almost all of the rosy predictions made when the first consumer VR headsets appeared have turned out to be flat-out wrong. As Philip himself has said, he expected millions of people to be in VR headsets at this point. He was mistaken. But then, so were a lot of other people. It’s just unfortunate that it took this set of circumstances to force High Fidelity to pay more attention to the users they should have been paying attention to all along: non-VR users who are looking at virtual worlds through their flat computer monitors. Catering almost exclusively to VR users, and treating desktop users as almost an afterthought, is one of the reasons that High Fidelity finds itself struggling today. For example, there is still no default, built-in text chat system in High Fidelity (although there are third-party solutions on the Marketplace).

Second, High Fidelity has struggled to set up something that was key to the early, resounding success of Second Life: creating and encouraging a space where content creators could make money selling their products to other users. Compared to the nearly 22,000 items now available for sale on the Sansar Store, The HiFi Marketplace is struggling to attract content. The process involved in creating a sales listing is still too geeky and cumbersome, and High Fidelity has created an unnecessary bottleneck by insisting that they review every single item placed on the Marketplace. It’s small wonder that there are only 1,200 items for sale so far, about a twentieth of what is on the Sansar Store. Many potential content creators have simply given up on High Fidelity and walked away after encountering these and several other obstacles. 

Third, there was a strange overemphasis on company-hosted events, which gave High Fidelity some much-needed press and a reason to boast about avatar concurrency records being set, but which also took up valuable company resources which, perhaps, could have been better placed somewhere else. They say hindsight is 20/20, and it’s now clear to me that High Fidelity probably spent a lot of money on setting up and running powerful servers to handle such big events with large crowds. And, in the end, it was probably something that was not sustainable long-term. (Then again, server costs are much cheaper than programmer salaries.)

Also, there were many people who showed up at HiFi’s events because they were getting some sort of financial inducement to do so (like the US$20 gift cards given out at the first couple of stress testing events). High Fidelity was literally paying all the contest entrants in their most recent Avatar Cosplay Contest! Somebody (not me) has said that High Fidelity was essentially bribing people to use their platform, and when the inducements were no longer there, people stayed away.

Take a look at High Fidelity’s new website homepage:

How many companies do you know that would continue to throw resources into a project if, after six years of hard work, their product only has 2,573 users? The writing has been on the wall for quite some time now; it’s just that people haven’t wanted to admit it. Sometimes when you build it, people will not come.

Despite a few modest successes here and there (notably VRChat and Rec Room), social VR as a whole is struggling to attract users. Some companies can rely on venture capital (High Fidelity) or profits from other products (Linden Lab) to get them through the lean times, but that money won’t be there forever. Eventually, social VR has to stand on its own. And sadly, I think we are going to see other companies in this market founder, struggle, restructure, and even close their doors.

So now High Fidelity is pinning its hopes on becoming a workplace teams platform, squarely aimed at the business market. (In fact, they won’t even let you sign up for a sneak peek at the new service with a Gmail email address, which is frankly insulting to those businesses who choose to use Gmail.) There’s no guarantee that this endeavour will succeed, but I do wish Philip and his team the best of luck. They’re going to need it.

Advertisements