The Law of Social Networks and Virtual Worlds

I am very interested in the emerging social infrastructure (Facebook, Ning, …) and virtual world (Second Life, …) platforms because I expect to see more and more startups leveraging these not just for viral distribution but at the core of their businesses. The success of Slide and RockYou on the Facebook platform is an example of what’s possible.

Following a great panel on ecosystems & platforms at iMeme, I had a series of conversations with some of the panelists and their investors regarding the terms of service & legal enforcement within the platform ecosystems. (If you are wondering why the law comes into play here, remember Lawrence Lessig’s Code Is Law.) Several goals emerged from the conversations (the companies are all working to make things better):

  • First, ecosystems need clarity with respect to terms of service and legal matters. Without clarity decision making becomes complicated and it is harder to make investments on the platform.
  • Second, ecosystems need consistency with respect to the process by which terms of service and legal frameworks will evolve. Building a business usually requires investments of time and capital over years and hence the ability to make reasonable predictions about the future operating environment is important.
  • Third, but by no means least, emerging ecosystems need simplicity. Simplicity lowers the cost of entry and encourages innovation.

I wonder how many startups fully evaluate the inherent risk in building on top of Web service platforms that are not under their control? In the old days of software, if a vendor changed the rules, at least you had a perpetual license to the software + the bits. With Web services the situation is far less clear. How long will the APIs be available? How will they evolve over time and what’re the terms of backward compatibility & support?

While social networking platforms can reasonably have one set of terms of service and one legal framework, things can get a lot more complicated in virtual worlds. What happens in Second Life and in the real world when a virtual bank operated by a Russian crime syndicate and built on an island run by a good guy from Hong Kong takes your Linden dollars for which you paid on the LindeX with your Amex + promptly goes bankrupt? How will the laws of the Second Life mainland vs. islands evolve? Will there be multiple sets of rules, e.g., global, regional, local? How will the islands fit in or not? The potential diversity is wonderful on one side but also can be an impediment to the growth of large worldwide businesses. How a balance evolves will be interesting to watch.

More people are focusing on these issue. Some links:

About Simeon Simeonov

Entrepreneur. Investor. Trusted advisor.
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