The following guest editorial is by Dale Glass, who had an interesting perspective on the economics of the social VR platform High Fidelity. I asked him to write up his thoughts to publish on my blog, and here they are:
What’s Wrong with High Fidelity
by Dale Glass
I quickly found the Federated HiFi Users Discord, and one of the first questions I had to ask was: “This is very neat, but how is it going to make any money?”. Not only is HiFi free to use, but it’s pretty much impossible to give the company any money if you wanted to.
High Fidelity is a bizarre thing for a business to make. If it had been named something like “Open Metaverse” and was run by a volunteer group, it would have made perfect sense. The very structure of HiFi seems to be made to resist corporate interests and to be usable by a group of random people spread around the globe. The entirety of the source code is open, the architecture is distributed both for hosting domains and assets, and the local currency is a cryptocurrency. Now, none of those things are in the most anti-business state possible (for instance, HiFi has exclusive control over the cryptocurrency), but it’s not a terribly business-friendly design either. Normally such designs come either from projects that are Open Source or Free Software from the start, or from projects that normal people aren’t expected to be interested in paying for anyway and that expect primarily corporate clients, like databases. But HiFi decided to try to target the average person at first, and that’s where things get weird.
The main issue for High Fidelity in its original incarnation is that there is no business plan in sight whatsoever. Accounts are free. Charging for hosting content won’t work because domains are self-hosted, and so are assets. And skimming off user-to-user transactions isn’t a viable plan because it requires a huge, thriving economy which has yet to materialize, and that the company doesn’t seem to be trying very hard to support.
Compare this with Second Life. I used to think that SL’s model of selling people virtual land was a weird idea that should be done away with, but now I think that it was actually a stroke of genius. Virtual land provides a huge incentive for people to reliably pay a fixed amount into Linden Lab’s coffers, and businesses just love that sort of periodic, predictable payment. And the way SL land works provides an incentive to buy more of it: right after you buy your first parcel you find out you have limited space and prim counts, and start thinking: “if only I had a bigger one…” Even SL’s deficiencies work in its favor here. Should one want better frame-rates or a bit more privacy, it’s possible to build in the sky. But most people want to keep something on the ground, so that of course that quickly eats into one’s prim limit, which adds yet another reason to give LL even more of your money. And there’s just that people can see how big your parcel is, so having a large one can certainly be a point of personal pride. SL’s model very nicely reproduces the impetus to keep up with the Joneses.
The benefits of this model don’t end there – Second Life land allocation corresponds directly to server usage, so as the user base grows or shrinks payments and the needed resources stay in sync with each other. And since the payments are periodic and automatic, Linden Lab also derives some benefit from people who pay for resources and then forget to use them.
Of course, Linden Lab also took care of ironing out any issues that got in the way of making money – such as stopping the fluctuations of their currency, and making it as convenient as possible to get money into and out of Second Life.
This is why despite being old, not making the news anymore, and slowly shrinking, SL is still chugging along and doesn’t seem to be in any kind of imminent danger.
So let’s review how High Fidelity could possibly make money from the way things are right now:
Accounts? No, accounts are free. And in the current state, nobody would pay for one.
Hosting? No, HiFi delegates that entirely to users. It’s the likes of Amazon and Digital Ocean that make the profit here.
Registrations? True, HiFi does charge $20 per year for place names. But I can’t imagine this paying for much more than HiFi’s coffee budget. There are way too few domains around for this to amount to anything.
Charging an amount for converting USD to and from HFC? They already do so, and this is often the suggested solution to HiFi’s woes, but it’s not viable. Let’s suppose HiFi taxed transactions at 20% (which would be very excessive and cause people to transact outside of HiFi). Let’s also suppose that an employee can be had for $50K/year (which would be unrealistically cheap in California in my understanding). Then it would take 416 people, using $50 worth of HFC each and every month to pay for that single person. Supposing HiFi could exist with just 20 employees (the current team page has 60 people), that would require it having 8,320 such users. People with such an intense desire for virtual goods are going to be very rare, meaning the number of active users in such a scenario would be far higher, probably at the very least in the hundreds of thousands. With HiFi currently being deserted and not growing any, this is a completely unrealistic expectation.
Then there’s HiFi’s attitude towards all of this. Even if HiFi suddenly became popular, for some strange reason the company seems intent on making it as hard as possible to give it any money. Buying HFC involves making an appointment (!), and even then you can’t pay for it the normal way: the company wants to be paid in Ethereum (!!). It boggles the mind that in 2019 a company working with the very latest VR technology is using a banking model out of the previous century, except for the cryptocurrency part, which while very modern isn’t particularly convenient. This of course puts a brake on what little economical activity there is in it, because even to get started one needs to find a cryptocurrency exchange, register, and prove your identity to it. I have paid another HiFi user and it was easier and faster to do it through their forgotten Second Life account. The fact that the state of HFC is so bad, that the best thing to do is to ignore it entirely, isn’t good.
So, that’s how things are. HiFi in its current incarnation doesn’t have a working business model, doesn’t seem to be making any real progress towards one, and is oddly apathetic about the one way it has of earning some cash. They are pivoting now and changing track to something else entirely, but it makes one wonder how they expected the old model to work out.
Thanks, Dale! Not too long ago, I had written about somebody saying that High Fidelity was making it difficult to give them money, but I couldn’t remember who first voiced that idea. It was you! It was such a succinct and memorable phrase that it stuck with me.