Philip Rosedale, 39, will become chairman of San Francisco-based Linden Lab. "This is a decision driven by my desire to best grow SL and match my job to both our needs and my passions," Rosedale wrote on the Second Life blog.
Mitch Kapor, Linden Lab's current chairman and the company's first outside investor, said Rosedale's resignation was not related to any of a series of problems Second Life has experienced in recent months as its growth has skyrocketed.
"There is no business crisis that precipitated this," said Kapor, who will step down as chairman. "The company is fine."
Kapor said Linden needed an experienced manager to oversee its 240 employees and scale the company so that it could someday employ thousands. Rosedale would remain the company's "visionary" and the new CEO would execute that vision, he said.
Rosedale founded Second Life, the 3-D virtual world in which players can fly, look like rock stars and build their own palaces, as well as pursue less savory endeavors, in 1999. The fanciful role-playing game now has about 500,000 active users.
The virtual world grew rapidly over the last two years. The number of people who pay $9.95 or more for a premium membership (you can also use the site for free) nearly doubled to 93,219 in late 2007 from the year before. Corporate sponsors such as Nissan Motor Co., Dell Inc. and Best Buy Co. bought virtual land and set up shop in Second Life with the hope of marketing to its residents.
The number of accounts created grew to 12.2 million in January, up from 3.1 million the previous year.
But Second Life wasn't paradise. Last July, Linden Lab outlawed gambling, outraging many users; months later, dozens of players lost real money in a financial scheme. And as more people signed up, longtime residents complained about the slow speed at which the site operated when too many people were online, and about the commercialization of the site.
Month-to-month growth in registrations reached nearly 50% in October of 2006 but fell off sharply to 4.6% by January of 2008. Many companies, including American Apparel and Starwood Hotels & Resorts Worldwide Inc., left or scaled down their presence.
"There were so many challenges both technical and cultural -- and they were never dealt with in a fast enough way to sustain the interest of the mainstream consumer," said Christopher Collins, a senior analyst with market research firm Yankee Group Research Inc.
Although Second Life was early to the game, Viacom Inc., Walt Disney Co. and smaller companies have followed in creating niche virtual worlds.
One investor said Linden Lab was financially positioned to go public.
"The only question is if the management today is ready to be under the scrutiny of Wall Street," said Bill Gurley, a partner at Benchmark Capital and a current investor and member of the board.