Just how bad is a 650-region loss?

Last week an article appeared in New World Notes (NWN) which seemed intent on giving the impression that Second Life is in a state of terminal decline. The headline proclaimed: “Second Life Has Lost Over 650 Sims & $1 Million in Yearly Revenue in 2011; This is Why SL Can’t Survive as a Niche”, followed by a comment that, “The only future for Second Life is several millions of users, or none at all”.

Provocative reading perhaps; but how reasonable is it to make such assertions?

Well, first and foremost, I don’t dispute the figures in terms of region losses or potential revenue drop. They’ve been taken from Tyche Shepherd’s excellent Grid Surveys, which week-by-week look at the overall status of the grid in terms of regions, private and mainland. Rather, I tend to find the conclusions the author draws from Tyche’s figures to be somewhat questionable.

The Ebb and Flow of the Statistical Tide

Let’s try to put things in a little perspective, starting with two points in particular:

  • 650 regions is around 2.6% of the total land mass
  • Linden Lab has an inward flow of revenue of some $75 million a year. As such, $1 million amounts to a 1.3% drop in that revenue. All things considered (economic climate, etc.), that’s not an horrendous drop.

Now let’s take a look back at private regions in SL over the last three years (a not unreasonable time-frame in business terms).

  • 2009:
    • Jan-May SL suffered a loss of 1095 private estates during the first 5 months (from 22406 to 21311); no doubt fuelled in part by the OpenSpace fiasco
    • June-December: SL grew to 24033 private estates, an increase of 1627 regions over the start-of-year
  • In 2010:
    • SL grew by 6% overall in terms of regions
    • 44% of this growth lay in private regions, representing an overall growth of  3% for private regions
  • In 2011:
    • Jan-Aug: 2.6% loss of private estates
    • A potential 3.9% loss by year-end.

In other words, in 2009, private regions on the Grid grew by some 7.26% over the start-of-year figure, despite an initial loss of some 4.88%. In 2010 it grew by a further 3% in private regions.

So while a current 2.6% drop is cause for some concern – it’s not yet drastic. Even if the shrinkage continues through to the year-end (as seems likely, given Tyche’s latest figures), and yields a potential 3.9% drop in private regions, the situation still would not be terminal.

Recession does Nasty Things

There is another factor to consider here. Right now, we’re in the midst of a prolonged global economic downturn. The longer it goes on, the deeper it bites into people’s disposable income. A prudent observer of the current decline in private regions in SL would consider it possible – likely, even – that the recession is responsible for at least some of the shrinkage we are currently seeing. One sees little sign of this in the NWN article.

But downturns don’t last forever (or if this one does, we’ll all have a lot more to worry about than Second Life). Therefore (and while past performance may not always be indicative of future growth), it is no unreasonable to suggest that once the economy does start to improve, people will again have more disposable income they can put towards Second Life, and this is likely to result in an improved demand for land as a result and at least slow – if not reverse – the current trend in private region losses.


Nor do Linden Lab need to convert anywhere near 400,000 users to Premium membership in order to recoup falling land tier income (even should this be necessary), as the NWN article also dramatically suggests.

Right now, Linden Lab generates some 20% of its income – $15 million – through non-land related activities. As such, it only needs to increase that $15 million revenue by some 10% to help offset the losses experienced to date – a not impossible figure.

There have already been a couple of small moves in this direction; we’ve seen the introduction of upload fees charged for mesh imports and a push to generate more Premium memberships. While the former might not have a significant impact in the scheme of things, the same is not necessarily true of the latter. Were Linden Lab to offer a Premium membership package that gave clear and significant benefits to those already engaged in Second Life (rather than just new users, as seems to be the case with the current offering), then the potential uptake could be significant – and relatively rapid.

Beyond this is the fact that Linden Lab doesn’t necessarily have to look at Second Life to recoup “lost” revenue. The company is shortly to launch new products into the marketplace. While details have yet to be released, it is unlikely Linden Lab will do so without the means to leverage them into revenue.

True, the results may not be immediate (depending on how these new products are to be monetized and how they are received by the world at large). However, that the company is launching new products means that it will be less dependent solely on Second Life for revenue. An optimist might even speculate that as a result, Linden Lab might have a greater degree of freedom to better restructure / improve the Second Life platform.

Nor should these products be classified (/dismissed?) as some form of “SL Light”, again as New World Notes suggested.* To quote Rod Humble himself in reference to this idea: “I never said a lite version. I said and I mean new products which are in the area of shared creative spaces. or social creative tools or user-created virtual worlds/places if you prefer”.

Where is Everybody?

Truth be told, there is one figure that gives continued cause for concern for many within Second Life – and it is not region counts; it’s user concurrency. This has been in a steady state of decline for the last three years. In her end-of-year summary in 2010, Tyche Shepherd estimated that SL’s average concurrency levels equated to just 1.57 avatars per region. That’s an awful lot of empty space.

Now to be fair, the New World Notes article I refer to at the top of this piece does indicate that Linden Lab needs to do more to get people involved in Second Life – even if it does over-egg things by putting the figure in the “millions”. And keeping on the side of fairness, Linden Lab have themselves indicated that they are working on the means to get people directly involved in in-world activities (i.e. content creation, engaging in the economy as consumers, etc.) a lot sooner than is currently the case. However, one has to admit that it would be nice to see some practical outworking of these ideas before the year’s end. Even a gentle increase in user concurrency that can be sustained for more than a few months would be good news for just about everyone involved in SL.

Niche isn’t Bad

Finally, and in turning to the claim that SL cannot survive as a niche, one has to ask, “Why not?”. The fact is that Second Life has survived for some 10 years as niche product, and has managed to generate a tidy revenue stream for Linden Lab that has made them “Very profitable”, to use Rod Humble’s words, in the process. Get the flow of people into SL right and the mechanisms of engagement in place, and there is no reason why it cannot continue to do so and enjoy practical growth.

This is not to say that things won’t have to change in time; the reality is that Second Life and Linden Lab will be facing challenges in the coming years that may yet force significant changes to aspects of how things are run (such as, ironically, land tier). However, these needn’t necessarily be negative – although they will need to be planned for and carefully executed.

And what is so bad about being niche anyway? Many a company and product have enjoyed long and fiscally healthy times being precisely that.


*Hamlet has pointed out that his article drew the distinction between any new products and SL; as such, I’ve amended this piece and apologise for any upset caused.

23 thoughts on “Just how bad is a 650-region loss?

  1. Excellent article. I also said so much (though not as eloquently or thoroughly) in the comments to Hamlet’s article. I like to encourage premium membership when and where I can. The cost of premium membership is really much lower than typically perceived:

    (assuming 250L = $1.00)
    Premium membership $72 per year = 18,000L per year
    Signup bonus (first year only) – 1,000L first year
    Weekly stipend 300L/wk – 15,600L every year

    Net cost of Premium account = 1400L/year or $5.60 the first year & $9.60 subsequent years.


    1. Thanks :).

      There are certainly savings to be had in terms of the stipend, but it is on a sliding scale, depending on which scheme someone signs-up to, with the anual scheme (obivously) being the most advantageous. I do wonder as to how many do sign-up to each category of membership, however. Would be nice to get some data from LL on this!

      Despite how positive we all feel about SL, it’s sometime hard to make a long-term up-front payment :).


      1. I’d class Premium Membership as a good deal. You can put some value on the 512 sq. m. of land, even though the way tier works making it irrelevant at the full-region level. I make it about $1.50 per month, based on the share of the Tier for a full region.


  2. This is a well balanced article. I think that the root causes of Second Life’s state of affairs remains the technology. The recession probably has nothing to do with SL’s shrinkage especially in light of the sustained increase in use of other ‘avatar in browser based games’. It will be interesting to watch how the limitations of Second Life’s current technology (which prevents it to be experienced reasonably by most people) can simply be avoided or masked by distracting users with little events or more advertising etc… or even gaming systems … little badges generously offered to played the more they hang around in Second Life and interact etc… I think the growth has to come from within … all other strategies appeared forced.


    1. Accessibility is an issue in terms of hardware requirements, that cannot be denied. The use of more clear-cut gaming mechanics may well help with user uptake as well; I’m waiting to see where that leads, bearing in mind that Second Life already has a fairly sizable gaming community (hardware limitations notwithstanding).

      It’s hard not to see the recession not having an impact in SL: as I said above, land in SL *is* expensive – and something that can be cut back on fairly readily without requiring a complete withdrawal from the platform. I’d venture to suggest that it is hard to balance SL against other avatar-based platforms simply because of the huge price differential between SL and similar platforms, particularly where private regiosn are concerned (general cost in SL $295 USD per month; nearest natural competitors: $65 USD per month, regional taxes such as European VAT excluded in both cases). It’s interesting to note as well that both of SL’s “wall garden” competitors have themselves experienced land shrinkage (albeit on a more recent scale).

      I certainly agree that growth will come from within – which is why I think that LL are right to be looking into the question of how to get users entering SL more engaged in the plafotm in a shorter timeframe than is currently the case. While sign-ups have be sustained at a relative high of some 16K per day on average since the new sign-up process was rolled out (and not all of these sign-ups will be alt accounts), one would expect to see more of an upward shift in retention figures. Simply put, if people aren’t engaged, they won’t stay. As you say, give them a reason to stay, and tey’ll be back.


  3. “as some form of “SL Light”, again as New World Notes suggested.”

    I never said “SL Light”, in the same way Rod never suggested that. In the very first sentence of that post you’re linking to I wrote:

    “Linden Lab will soon launch a light, game-like experience that’s separate from Second Life that will emphasize the SL values of creatitvity and alternate identities, but architected to run on the web and tablets.”


    1. I’ll try leaving a reply again, as WordPress seems to have eaten the first response.

      Fair feedback, Hamlet – have revised the piece.


  4. Thanks for the article, I stopped looking at that particular blog some time ago.
    My own experience and that of many people of my acquaintance is really a combination of things that has led to us either pulling back or taking a sabbatical from SL.
    *Money is a big part of it – less play money and having to cut back on entertainment expenses.
    *Technology/Performance is another part – the lag even on our gaming optimized systems got so bad that our abilities to do what we loved was being whittled away. Having to learn a brand new, and poorly designed (IMNSHO) interface in order to utilize the platform was hard to justify in terms of “entertainment”. Especially in light of the ongoing performance issues even with the newest viewer.
    *Linden Research support was another big factor, or the lack thereof. Rod Humble is frankly doing miracles in trying to get SL turned around and apparently to reorient an entire corporate culture. However, having to start a Twitter shitstorm to get the attention of the CEO in order to get what should be routine customer service is not really a viable business plan.
    *Second Life does amazingly well at building communities of people from all over the world with similar interests, and connecting people in myriad ways. Outside of the often smirkingly referenced “adult” activities, it functions well in allowing people who would probably otherwise never interact to meet. Not only does this facilitate things like support and professional networking, but it has also resulted in quite a few relationships blossoming into offline committments as well (grin). In short, people are utilizing the platform to enrich their lives offline.

    The net result is that many of us are pretty busy with offline activities and have less time to log in and play.


    1. It’s interesting that many people are commenting on the issue of lag / performance. I know a number of my friends are saying the same – and several of them have fairly recent (Intel i7 processors & pretty recent high-spec video cards (leaving aside the nVidia 400-series Basic Shaders issue). I’m on an older system (4 years, with an older Q6600 processor & graphics system), and I don’t seem to be suffering half the problems those with higher-spec systems seem to have. SL is such a curious (and sometimes frustrating beast). Hope the issues do get resolved for you sooner rather than later.

      You’re spot-on where support is concerned and Rod Humble – the man is a miracle worker, but really shouldn’t have to get buried in minutiae when he has a company to run. A responsive, positive and help customer service would go a long way to repairing a lot of the damage being done daily in terms of customer relations.

      Communities-wise and the level of offline interaction, I couldn’t agree with you more, as well. I’m actually becoming slowly drawn-in to LL’s own efforts in this area through the social aspcect of the web profiles – although these have some way to go before they can truly offer an alternative to Twitter for SL-related interactions.

      That said – see you back on Twitter! *grins


  5. Lag’s one of those subjective things. The hardcore gamer with a computer hewn from magical obsidian by the proud dwarves of Middle-Earth who expects triple-digit FPS in their favorite games is going to think SL ‘lags’ a lot more than someone who has a more modest computer and is used to more modest performance, to pick a couple of extremes on the spectrum.

    As for Hamlet… I read NWN regularly, but take it with a grain of salt. When he was on Blue Mars’ payroll, BM was the next big thing and awesome and so going to outdo SL. Now he’s all about how SL should be just like Facebook, just as Facebook is fixing to plateau or decline. Hamlet is a tech blogger, not a techie, and so while I value his articles for “how does a mildly gadget-happy but not particularly technical person see it”, I find his overall perception of events often skewed.

    The fact is, Second Life is a successful niche product. That’s all it really NEEDS to be. That doesn’t mean it shouldn’t be improved, but it’s made it ten years. That’s an eternity in Internet time. It – or a natural successor – be here another ten if Skynet doesn’t kill us all by then, I suspect, and we still won’t have every other person in the world or even the US using it.


    1. Lag is subjective. Even when the hardware playing field is apparently level between two users, they can still have vastly different experiences simply due to the Viewer they’re using. The wonders of SL!

      As to niche – again, totally agree.


  6. A number of issues here, Inara:
    1) Lag: Highly subjective …Yes, but also hugely dependent on how hardware is set up (even the whizziest PC can be hamstrung by other software on it) and how well or badly the connection via the internet is working.
    2) Inworld functionality: Yes…well..recent debacles do not do the platform any favours, and borking Prim Physics a week before Burn2 is bound to cause a major issue. Niche is good, but equally to piss off a large portion of the creative community is not wise policy. These latest irritations do not just damage the experience of the “adult” community.
    3) I notice that ven here the knotty issue of the User Interface or Viewer rears its head. It cannot be denied that the latest official releases are a long way from being intuitive, even for those new to the platform.
    The guys at front of house are doing as good a job as they can, but until Linden Lab show some professionality in their software design shop, the slide will continue.


    1. On the lag / hardware front, I think that’s the point Aliasi and I were both making. 🙂

      I would venture to suggest the UI is another subjective element. I’m personally someone who loathed it during the first several months follow its release – as this blog will testify – but I’m now a confirmed Firestorm user (which is Viewer 2x./3.x with extras), and I routinely flip between that, Dolphin 3 (even “closer” to Viewer 3.x) and the official Viewer (I have 3 versions installed) – and the interface doesn’t bother me nowadays. And if I’m brutally honest on a couple of points:

      – I am not fan of the Sidebar, but in Firestorm I personally find a couple of instances where it is more convenient that having a window pop-up in a floater

      – I actually find the V1.x interface cumbersome nowadays, and only revert back to using it under the need to look at V1.x Viewers for this blog. Heresay, perhaps, but true.


  7. Great analysis. The only comment I would make is the RL recession did not start over the past year. As you point out, during 2009-10 SL actually added regions while the US and global economy began the current recession/depression. I am not convinced we can link the loss of regions to the recession that clearly. Sure, people have less disposable income but it seems to me something else is at work be it tech based or whatever. I am not sure.

    In my business, I went from a strong gain in sales to a clear drop in the space of a year I would be concerned. I would not sell my stock and run, but I sure as hell would be staring at my balance sheet and product line and planning a bold strategic move. It sure seems like Rod Humble is doing just that and I look forward to seeing what LL does next.

    I agree that “niche is good” and mass adoption is not something I would want to see honestly. I like my creative playground filled with like minded people. I want to drink my coffee at the hipster cafe no one goes to rather than sit with the crowds an throw back an overpriced mass produced generic latte at Starbucks.


    1. Recession – absolutely agreed; I simply didn’t want to belabour the point :).

      I don’t think the recession is *entirely* to blame – but its role cannot be discounted. It has been going on for a while, and as I menthioned above, the longer it goes on, the deeper it bites; ergo, while people may have been willing to swim against it during 09 (and perhaps particularly 2010), the same might not be the same as we drag through 2011. As a very small example, I’m not exactly “hard up”, but I’ve personally been eyeing-up the $48 a month I pay for my main land holding and wondering about cutting back; I’ve also seem friends combining their SL lives on parcels where they don’t lose too much in prim allowance, but for which they can split the tier and reduce individual costs.

      Again, niche-wise, I entirely agree. Although sadly in my case, it’s now hard to avoid Starbucks and / or Costa Coffee. And I have a thing for Starbucks cinnamon swirls…


  8. Great article. I think the “Sky is Falling” hype that New World Notes indicated was more of sensationalism. It gets the pulse going faster and makes you want to read, but behind the numbers it actually appears this is really nothing to worry about. Given the world economy, it’s surprising that its not worse for ‘all businesses’, and SL in my opinion seems to have done pretty well through all of this so far.

    Although if they were to lower the price of land, I wouldn’t mind buying a Homestead, or going in with a few on a full sim.


    1. You’ve hit on why I couldn’t resist the cartoon :).

      Land tier – I tend to think – is something Linden Lab *will* have to tackle at some point in the future. I did go off on a tangent on just that subject when drafting this piece, but opted to remove it due to the fact the piece was becoming less an article and more a rambling novella!


      1. I share a homestead now but I would 100% buy a full sim if tier was affordable. Untangling the “growth problem” most assuredly includes a price reduction for land.


  9. I don’t think the recession is to blame. Many of the best and the brightest and perhaps a majority of education users have moved on to opensim. There is more exploration, room to be different, much lower costs and new work being done there than in Second Life. Most of the people I know in SL pay little or nothing in fees except for what the spend on clothes and such. Most are premium members. So the recession can’t much hamper an activity they weren’t spending hardly any money on to start with. The landowners are getting pressured for sure. Many estates have shrunk and/or moved their larger builds to opensim.

    A few years ago I could come on anytime day or night and find at least a dozen friends online. Now it is often no more than one or two. Not scientific but quite real in terms of social vibrancy. Many people seem pretty burned out or apathetic. The old zest and energy is gone and I think this is very much the fault of LL’s actions by both omission and commission. SL is not cutting edge any more. Its price structures for land is outrageous. Its fps is about half of most any opensim grid I visit. LL is resting on its laurels and trying to keep an old business model when the world has moved on imho. They would do much better to “join them”. If LL became the asset and user and a few other central services manager for opensim regions people ran on their own machines as well as ones LL runs and if they opened the inventory and user base across all of that with their merchant friendly policies then they would become a vibrant virtual world player once again. I don’t think they can do it as the same old walled garden.


    1. As commented above – the recession isn’t *solely* to blame – but the longer it goes on the harder people find justifying the expense of SL – and it *is* expensive; I’m not denying that.

      The ending of the educational / non-profit discount is oft pointed to – yet many educational & non-profits remain active in SL and show no signs of moving elsewhere – just take a look at events like RFL-SL and see who is involved, as an example.

      Further, as expensive as SL is, LL demonstrated in October that is it is relatively easy for them to make rapid-fire reversals to region losses. Their “land Sale” resulted in 689 regions being added to the grid in just 48 hours – an overall gain of 508 new regions.

      Interestingly, none of the doomsayers who (almost gleefully, it seemed at the time) pointed to region losses in August and September actually reported on this.

      Obviously, rapid-fire land sales are not the long-term answer – and I’m certainly not saying this; again, my view is that longer-term something must be done about land tier, LL’s revenue stream and the like (and indeed, the company is doing something about it). Rather, my argument (at the time this article was written was twofold):

      • The “losses” aren’t as dire or as desperate as some tried to paint at the time – again, the fact that LL has been stating that 2011 is potentially their “most profitable” year tends to support this)
      • Rather than rushing into “drastic” or “radical” changes to their revenue structure as some commentators were demanding, LL actually has the time to make adjustments carefully and precisely and without unpsetting the entire apple cart

      Since then, the land sale does tend to demonstrate that there are a lot of people still willing to invest in SL, high tier notwithstanding. Of the 508 new regions added to SL in October, 252 went to people with no other land holdings in SL – i.e. they were first-time region owners.

      So again, LL would appear to have time on their side as they work to rebalance things, revenue-wise.

      As to the vibrancy of SL – I can only offer my experience as a counter-balance to yours: I rarely log-in to find *less* that 50% of my friends on-line. Many of those on my Friends list are people I’ve known since rejoining SL at the end of 06, and all of them are still very much active in-world almost daily. My friends are role-players, artists, musicians, builders, merchants – and they are all largely (I’d say) enjoying SL as much as ever.

      It’s also easy to blame LL when the users are also as much a part of the problem. People demanded mesh capabilities for years, yet when it was rolled out (and leaving aside the technical issues or parametric deformation, etc), *many* reacted (and still do react) with claims that mesh is a “stealth tax” on residents. When LL started developing gaming mechanisms for use in SL, many reacted positively and saw multiple uses for the tools – yet equally, others reacted in horror and have proclaimed it as (again) being the “end” of SL. Some commentators have repeatedy lambasted LL for being in some kind of collusion with “copybotters” and “griefers” – yet when LL announce they are looking to introduce methods to gate-keep capabilities that might be used for griefing, the same commentators are protesting that LL is being “elitist” or of trying to segrate the community. So LL are pretty much hanged whatever they do.


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