Second Life founder Rosedale to step down as CEO

NEW YORK Fri Mar 14, 2008 12:39pm EDT

Keio University graduate student Yasunari Hashimoto wears electrodes on his scalp to control the movements of his online character, or avatar, in the ''Second Life'' virtual reality world at the Laboratory for Biomedical Engineering, Department of Biosciences and Informatics, Faculty of Science and Technology of Keio University in Tokyo November 22, 2007. Linden Lab, the company that runs the popular virtual world Second Life, said on Friday it has begun a search to replace founder Philip Rosedale. Picture taken November 22, 2007. REUTERS/Yuriko Nakao (JAPAN)

Keio University graduate student Yasunari Hashimoto wears electrodes on his scalp to control the movements of his online character, or avatar, in the ''Second Life'' virtual reality world at the Laboratory for Biomedical Engineering, Department of Biosciences and Informatics, Faculty of Science and Technology of Keio University in Tokyo November 22, 2007. Linden Lab, the company that runs the popular virtual world Second Life, said on Friday it has begun a search to replace founder Philip Rosedale. Picture taken November 22, 2007.

Credit: Reuters/Yuriko Nakao (JAPAN)

NEW YORK (Reuters) - Linden Lab, the company that runs the popular virtual world Second Life, said on Friday it has begun a search to replace founder Philip Rosedale with a chief executive who has more management expertise, following a time-honored start-up tradition.

Rosedale will become chairman of the Linden Lab board when his successor is found, replacing Mitch Kapor, who will remain a board member and the company's largest investor alongside Benchmark Capital. Rosedale said he will also keep a full-time role at the company working on product development and strategy.

"This is my life's work," he told Reuters in a phone interview. "I'm not going anywhere, and I'm still full-time on this, probably for the rest of my life."

Second Life is an online community with its own currency and a growing economy, where users teleport and fly around the virtual world as characters called "avatars."

The virtual world's growth has slowed after a period of rapid expansion. Rosedale's replacement will be tasked with regaining that momentum, working within Linden Lab's idiosyncratic corporate culture and winning over Second Life's impassioned users.

The shift from a visionary founder to an operations-focused CEO is typical for technology start-ups. Kapor himself went through a similar experience as the founder of spreadsheet pioneer Lotus Development Corp, stepping down as CEO in 1986.

"This little company turned into this enormous thing with thousands of employees making hundreds of millions of dollars a year. And it was awful," he said in a 1990 interview with Wired magazine. "So I left. I just walked away one day."

Rosedale, a former chief technology officer at RealNetworks Inc (RNWK.O), has been CEO since founding Linden Lab in 1999.

IPO AN OPTION, BUT NOT SOON

Kapor said the management change is not a prelude to a sale of the company or an initial public offering, though he acknowledged that an IPO was an option under consideration.

"We always knew this was a long-term project, operating on a different time frame from (other) venture-backed start-ups. At some point it will make sense to go public but there's no rush to that," he said. Linden's venture backers include Benchmark Capital and Omidyar Network.

"The company has the type of financial performance that if it wanted to it could become a public company," said Benchmark's Bill Gurley, who sits on the Linden Lab board. "I certainly think at some point in the future -- and I'm certainly not announcing anything new here for the next 12 months -- that's on the company's ambition plan."

For now, the new Linden Lab CEO will need to revive the growth that once made Second Life a pop culture phenomenon.

The virtual world's subscriber base and user hours are still increasing but at much lower rates than in late 2006 and early 2007, when a surge of attention brought droves of new users to Second Life.

Global brands including Reuters Group Plc RTR.L and IBM (IBM.N) set up shop within the virtual world, but many including Time Warner Inc's (TWX.N) AOL have since left or radically scaled back their participation.

QUIRKY CORPORATE CULTURE

The new Linden Lab boss will have to balance the need for more efficient management with the company's idiosyncratic culture and decentralized structure. Engineers choose which projects they want to work on, and bonuses are assigned by a system called the "Love Machine," which lets employees praise their co-workers for completed tasks.

"Every company that starts small and grows bigger has apprehension as you layer in management and processes that young entrepreneurs aren't excited about," said Benchmark's Gurley. "I don't know there's a magic formula there -- it's one of those dilemmas everyone faces."

Linden Lab is using an executive search firm to find a new CEO, a process that Kapor could take "anywhere from soonish to many months."

"Legally, the board hires and fires CEOs," he added. "Process-wise, this is going to have be someone Philip is incredibly enthusiastic about."

(Editing by Steve Orlofsky)

(To read more about Second Life from Reuters' virtual bureau, visit secondlife.reuters.com)

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