The tracts of our tiers

The continuing decline in the number of private regions in Second Life, as documented by Tyche Shepherd, is giving rise to no small amount of concern, some of which is taking the form of calls for Linden Lab to reduce tier.

Region losses: uncomfortable reading

Certainly, Tyche’s figures – a loss of 1138 regions in the first 22 weeks of 2012  – are sobering; but is cutting tier really the solution at this point in time? Is it actually possible? If not, what are the alternative?

On the surface, reducing tier might seem to be a logical option. We’re all aware that tier in SL is high – but just how practical would it be for Linden Lab to lower it? If truth be told, the answer is actually, “Not very” – and for a number of reasons which may not be entirely palatable to some, but which are nevertheless unavoidable. First and foremost is the fact that, like it or not, tier accounts for 80% of Linden Lab’s revenue, so any reduction is going to hit them very hard – and will do so for some time to come.

As it stands, the current decline in private sims amounts to around an average monthly drop in tier revenue of 0.8% per month to date through 2012 – a figure which includes the fact that tier revenue did in fact increase in March by some 1.1%. While this may sound a lot, the fact remains that overall, it is a gradual downward swing. A cut in tier is not; it is an immediate and lasting loss of revenue. Drop tier by 20% and that’s 20% of your revenue gone in a blink – and with absolutely no guarantee you can compensate for it.

Of course, it will be argued that any drop in tier will lead to an uptake in land sales which will compensate for the initial loss. However, the reality is that this is very far from guaranteed. Just because tier is lowered does not automatically equate to a sudden growth in land sales. Let’s face it, private estates are already struggling to fill their available land (and the fact that they are is also likely to be a factor fuelling the number of regions being returned to Linden Lab) – so why would they rush out to obtain even more sims on the strength of a tier reduction when the population currently isn’t there to warrant them doing so?

The one possible exception to this might be with Homestead sims. These might well enjoy an initial boom period as people opt to take advantage of the lower tier and migrate to them. However, this would be somewhat tempered by an increase in the number of surplus full regions being returned to LL that would also result from such a migration. Thus, while land may appear to grow as a result of the increased number of Homesteads, any corresponding growth in revenue for LL is liable to be much smaller, and unlikely to compensate for the tier cut itself.

The same goes for commercial enterprises: any cut in tier is an immediate increase in revenue for them – but it doesn’t mean they will rush out and set up even more stores across the grid. Why should they when the teleport can instantly bring people to their existing store? Additional stores don’t automatically translate into increased revenue – but they do incur increased costs, thus undercutting and gain made through a tier reduction. And while some might opt to take the plunge and expand – or even open new product lines in new stores – it is unlikely, overall, that a tier reduction is unlikely to bring about the renaissance of the mall in SL, for example, much less a quantifiable boost to the economy as a whole.

The cold hard truth is that however much a reduction in tier might individually benefit those of us who hold land within SL, it’s actually not going to do that much to stimulate the economy – and it will stand to benefit Linden Lab even less.

Nor is being “radical” the answer. While it is true that the one way of stimulating growth in SL is to grow the user base through increased user retention, etc., this has to be tempered with the fact that the infrastructure itself can only support so much. So while Second Life does need more users and a sustainable upswing in user retention, calls for LL to try to pull-in “millions” of users are misguided and will remain so until such time as the platform can handle large volumes of avatars in close proximity to one another on an ongoing basis. Bold and radical are only useful if they are actions taken with clear intent and realizable goals.

Which is not to say something shouldn’t be done to safeguard the future. The question is what that something should be.

And it is a question Linden Research has already taken steps to address – although not in the way many have guessed. Because the answer isn’t in the company trying to reduce tier – not yet, at least – or in doing anything else with Second Life itself. Rather, they are seeking to address it through their drive to diversify.

As has been reported far and wide across SL and other blogs, Linden Research is in the process of developing a portfolio of non-SL products, at least one of which, called Dio, is nearing readiness for closed beta testing. These products that are important for two key reasons:

  • They will open up new revenue streams to the company, thus reducing the strain on SL as the company’s single source of revenue, potentially allowing the company to be far more flexible in how it handles the platform fiscally;
  • They make Linden Research a far more attractive proposition for investors.
Dio: Linden Research closed beta almost ready?

Of course, it will take time for the revenue streams from the new non-SL products to mature. But as it stands, Linden Research perhaps has that time at their disposal, despite the current sim losses. In March, during a discussion on her blog, Tateru Nino estimated that the break point for LL in terms of private regions losses would be around 6,000 fewer sims than were on the grid at that time. Assuming the rate of decline in regions continues at its present rate, then LL will reach that break point about 24-30 month from now – which is potentially more than enough time for the revenues from these new products to make their presence felt.

Not that the company actually needs to wait that long. As mentioned above, the new products have the potential to benefit the company more immediately through inward investment through them. This is unlikely something that has been lost on either the management team or the board, especially given the mounting interest in, and speculation around, a new era of narrative games.

This may be of scant comfort to those of us feeling the pinch in Second Life right now – but the fact is that when it comes to tier and LL’s revenue, there is no easy answer, and any solution that is offered up is unlikely yield the anticipated benefits. Nor can the SL revenue model be easily or radically shifted. As such, the move to diversify into new product lines is perhaps the one means by which Linden Research can remodel its revenue streams without harming itself, and bring about the means by which it can take a more flexible approach to the management and operation of Second Life. If this is the case, then the company has perhaps shown itself to be far shrewder than people are prepared to credit.

Don’t much care for the prognosis? Would you like a second opinion? Would you like to read more on the subject of tier economics in SL? Well, I invite you to have a read of Tateru’s Nino’s thoughts on the matter..

Advertisements

30 thoughts on “The tracts of our tiers

  1. The mainland is hugely vacant as well. Cheap land was NEVER going to lead to any sort of boom, quite the opposite, in fact, and I warned people about this for years but nobody wanted to hear it.

    Like

    1. I probably run the risk of being accused of ignoring the negative impact that would be felt on the Mainland as a result of any private region tier drop :-). That’s not the intent here; rather the aim is to point out why a tier drop for private regions simply will not work in and of itself. And you’re right – cheap lead won’t lead to any kind of boom – not until there is the in-world population to support it, at least.

      Like

    2. Mainland is a problem. There is a lot which LL has to maintain, even though the general population is shrinking. Not that there are good figures available any more. I’ve seen complete mainland regions offered for sale.
      If they could get a block of Mainland unused, somehow relocate the last few players, and it was in the right place, they could remove it, or downgrade it to the sort of low-cost hardware use of a Homestead. I wonder what possibilities there are in the Gaeta “continents”. I think there are a couple of incomplete fragments that could be trimmed at the raw edges.
      Maybe it is benign neglect by the Lindens, but too often it looks like they are incapable of acting.

      Like

      1. There’s an idea further down about Mainland consolidation. Downgrading to OpenSpace (water / parkland / racing(?)) might be an alternative if LL don’t want to turn servers off. Certainly, at something like 45% (I believe) of Mainland either abandoned or Gov. Linden land, it is something of a sink.

        Like

  2. LL always said a thriving Mainland was essential, sadly they seem to have forgotten it. All it would take is a little adjustment to their basic Premium product – allow a 1024 instead of a 512 as ‘free land’. Then there would be a small prim advantage in people moving from the newbie regions out onto the mainland instead of the prim penalty they get now.

    Like

  3. I don’t make any profit from owning a private region, people just did not want to rent it. I actually rent my land out at a loss each month but make up the difference from donations and marketplace business. My ‘profits’ from SL are from my marketplace shop of which LL take a cut. I’d be interested to know what sort of revenue LL make from Marketplace since there are ALOT more Marketplace shop owners than there are Land Owners. Plus you no longer even need land to have a marketplace shop.

    I don’t make profit from my private region, so why do i even bother owing a private region? because its not just land to rent out, its a place of importance for me and my friends, important enough to keep shelving out coins to keep it going month after month. These are the places that will remain while non specific regions are abandoned. But thats not to say places like mine are safe from eventual closer. Ive seen it many time in the past year where people get tired, they run out of fire and can’t sustain an interest and eventually give the regions up to start again elsewhere.

    So its not just simply being unable to pay tier, it’s loosing interest and deciding ‘i don’t want to have to pay for this anymore when my heart is no longer in it’.

    If it’s too late to cut tier then there must be other ideas to consider. Adding more value to owning land somehow or offering quick fix regions that you can rent super cheap for just 1 month for people who need extra region for an event. (maybe barons already do this? i don’t actually know).

    For me tier is too expensive but it does not become an issue until my friends an i loose interest in having our own place to build, experiment and play.

    Like

  4. Thing is, land to build on is one of the things that lets you experience SL at its best and at its most creative. But buying/renting enough land/prims to create something interesting is damn expensive. Even with a steady income in RL the prices are so high that most people will have to think long and hard if they really want to afford that. So you’ve got a HUGE deterrent in place for new users. Let’s face it, once you HAVE land of your own, rented for a couple of months, you#re much more likely to log back in regularly, thus exploring more of SL, and growing attached to it. But as it is … it’s a major financial decision for many people to decide to get any kind of land at all in SL. You’re also automatically keeping people away who don’t have any serious RL income yet — young people who might really contribute to SL in a creative way …

    Like

    1. You’ll get no argument from me on the subject of tier being high – just precisely how “high” is open to debate. There are not only operating and maintenance costs for the thousands of servers they utilise, there is also the fact that they have a large staff – somewhere between 200-250 – the majority of whom are engaged in actually maintaining and developing the platform software and they contract-out some of the work to third parties. Whether we like it or not, this adds up to high costs.

      When discussing this joint article with Tateru, she ran some numbers and estimated that the staffing bill at LL alone in upwards of $13 million. People tend to forget this when looking at Linden Lab and consider their costs purely in hardware. It’s also something that should be borne in mind when comparing SL’s prices with OpenSim (where development of the platform software is far more distributed, spreading the costs there (as well as some of it being “voluntary”) and with other walled gardens that have the luxury (at present) to run with relatively low staff overheads.

      So the issue really isn’t that LL’s land costs are too high; it is more a case that due to the model they’ve established for revenue, they don’t have much wiggle room in which to adjust tier without potentially hurting themselves with immediate effect and for little or no overall inflow of revenue.

      Lower land prices many encourage people entering SL to become involved in land holdings sooner true – but lower prices won’t automatically lead to a sustainable influx of new users that is liable to create anything like the like of land boom required to justify a tier drop. As people are noting, even with the decline in private region, SL appears largely “empty”; as such, the most a tier drop will do is encourage more people to participate in the land that is currently available – mainland and private. This may well be good for land and estate holders, but again, it actually isn’t putting coin back in LL’s coffers at anywhere near the volume if tier remains unchanged – the decline of private sims notwithstanding.

      Longer-term, tier has to come down – make no mistake, I’m absolutely clear on that. The problem is that in the short-to-medium-term LL can’t actually do anything about it without potentially hurting themselves further.

      However, take the roll-out of the new non-SL products and the investment / revenue opportunities they present, and couple them with a clearly thought-out and executed SL-focus marketing campaign to get people engaging with the platform *and* which is linked to compelling reasons why people should *stay* involved in SL over time – and you have a model that could well both free SL from its current financial restraints and generate growth.

      I’ve covered the new products angle in the main article; looking at the efforts LL are putting into developing tools and capabilities we can use to create dynamic, rich and compelling environments, I’d hazard a guess that they are in this for the longer game and aiming for something along the lines I’ve mentioned in the last paragraph.

      Like

    2. Most new users don’t stick with SL long enough to discover that they can rent land. Linden Lab really need to figure out a better way of handling new users. People landing in NCI Kuula ask a set of very common questions. What can I do? Where can I get money? And, where can I get sex?
      Linden Labs depend on players to persuade the new players to stay and what they dump on us is lost, bewildered, ill-informed. They fail in the most basic requirement of running a virtual world.
      If they cannot fix that, tier, and the amount of Mainland, are not going to matter.

      Like

      1. Absolutely. retention of new users and encouraging their growth and involvement is a key element when considering the future of SL; much else is secondary to that.

        Although that also doesn’t mean that SL needs “millions” of active users in order to survive as some commentators maintain. As I’ve pointed out before, SL is capable of surviving as a niche product – and there is absolutely nothing wrong with it doing so. The problem is ensuring that the engagement and growth are there in terms of user retention in order for it to survive within its niche.

        One of the things that I keep coming back to in mulling ideas is a suggestion Mark Kingdon made back in 2010 (I think; might have been ’09) about “siloing” new users. At the time, I was leery of the idea. Nowadays, and with the potential that might come about as elements such as new creation tools (recent griefing issues notwithstanding!) and pathfinding, there is potential merit in the idea, if handled carefully. I’m not alone in thinking this, going on comments made at a user-lead discussion I attended at the end of the Home & Garden Expo recently.

        The question is, has LL given up on the idea, or is it something they are considering / experimenting with – particularly given the nature of their “new” Destination Islands? So often we’re left in the dark to the point where considering the future of SL is three parts speculation, one part crossing fingers. Which in itself isn’t entirely healthy. But that’s a whole other discussion; as is the idea of “siloing” or “filtering” users entering SL.

        Like

  5. If there was no alternatives, i guess your post would make sense!
    But you know that they exist, its called Open Sims!
    And the fact is, more and more ppl are finding the alternatives!
    There is no excuse for not lowering tiers!
    Greed is the reason for loosing land and for loosing users, as they increase the alternatives!
    On times of crisis denial is the worst!

    Like

    1. The post also isn’t a “denial” of anything; nor is Second Life is crisis – as much as it makes for great headlines when portraying it that way.

      Does the decline in private regions represent a concern – undoubtedly; if it continues in time it will become a crisis; but even at the current rate of decline, that time is still at least two years away – which as I’ve said, gives LL room in which to offer up alternatives to their revenue stream that will ease the pressure on Second Life and (one would hope) allow them to take direct action where tier is concerned.

      The problem – which you appear to have missed – is that right now, and for the immediate future, lowering tier is not something LL can really do to any great degree without actually hurting themselves. This has nothing to do with “greed”; it is simply down to the way the company’s revenue stream is structured- see my reply to Diovona for more.

      Like

  6. Everyone is feeling the pinch off-screen and eventually that has to lead to expenditure on being cut back too. Jobs are hard to get and hard to keep and people have to prioritise.

    For everyone who is calling for tier to be reduced, please keep in mind that tier pricing has remained fixed for several years now, because of inflation this equates to a real terms price reduction year on year. SL is getting cheaper by staying the same price, and personally I find budgeting for stability a better long term approach than trying to deal with spur of the moment pricing, daily deals and whimsical special offers.

    That all said there is plenty of room to revamp the land offering in a consistent way, homesteads should be directly purchasable and there is defiantly room for a product between them and full region.

    There are many potentially interesting ways you can slice up hard resources but at the end of the day the bottom line doesn’t really change, corn flakes in a different shaped box still taste like corn flakes.

    New income streams for the Lab are only really of benefit if the flow of capitol works both ways. SecondLife funded Dio. Will Dio ever return the favour?

    Like

    1. You raise a fair point on real terms / inflation, which I’d overlooked in drafting this piece – although the fact it is so is unlikely to comfort anyone!

      I also agree that budgeting for stability is better that “one-off” deals; although I can see the temptation for LL to go for the latter as a very immediate means of offsetting the drip effect of revenue decline, when thy cannot currently do very much else.

      I’m not sure about your other solutions: make Homesteads directly available & offer an intermediary product – and I was someone who at one point favoured both.

      If Homesteads are made directly available, then you potentially have the same issue as with a tier cut: people abandoning full sims in favour of Homesteads leading to even more private full sims being returned – and potentially, a lot more in the way of mainland being abandoned. It opens the door to people offering their own “mini rental” businesses for friends which in turn further impacts the established rental market – which wouldn’t take the risk lying down. Obviously, the increased number of homesteads would help balance the tier fall from a decreased requirement for full sims – but it will still required LL to shift 2.36 homesteads for every full sim they’re no longer shifting / seeing returned – and does SL actually have the population volume to support that? And does everyone in SL actually want to own their own island, rather than simply rent-out a smaller parcel of one?

      An intermediate product offers the same problems with the added issue that it could hit both full and homestead regions. As such, while both might deliver short-term gains, overall, they really need to be considered in terms of a more sustainable strategy; the risk of either one upsetting the apple cart is probably too great in LL’s eyes for them to take the risk – at least for the present.

      Well said on Dio – you’ve summed it precisely how I wanted to (and failed!) in writing the article last night :).

      Like

  7. I don’t actually advocate a drop in tier pricing, but rather, a conservative cutback in LL’s platform, thereby reducing their operational costs, making it easier for their other products to balance it.
    It would be a stepped process that would do little harm to the current rate of decline and might even retard it a bit, until the final phase of the plan, which hopefully, would increase revenue.

    Step 1: Instead, tier needs to be re-graduated in blocks of 1024m along with an initial 1024m free block for premium members and all new Premium accounts. Current Linden Homes owners will be offered the free 1024m block or allowed to stay in their Linden Home with the 512m block until a specified changeover date.

    Step 2: Do not sell any Governor Linden Mainland interior land. Turn all of this land into non-navigable, non-walk-throughable water with shoreline aesthetics (but still not usable). This will preserve overall aesthetics but won’t create demand for the surrounding properties. As the blocks of Governor Linden owned interior land increase, it will create smaller continents (large islands) of populated habitat out of the mainland shore properties and will be able to then move the smaller islands closer together and turn off the non-navigation water regions not being used. The new, smaller waterways between the new, closer-together, smaller islands will be able to become new navigable water, creating property demand for that side of the island.

    Step 3: As a last resort, after all of the above and no bouyancy attained, then there is the possibility of ‘franchising’ the new smaller mainland continents. Basically, turning the mainland into mega private estates. LL would then simply concentrate on renting their servers to the new ‘franchises’ and providing ‘standards’ of intercompatibility, while allowing the franchise owners the ability to ‘administrate’ their users and virtual land within the franchise standards. This would leave LL to having to deal with only the franchise owners while the franchise owners would take care of the administration of all of its ‘residents’ or ‘citizens’.

    Step 4: Not really a step, but an additional revenue stream: Open the Marketplace to outside worlds (make them ‘Official’ worlds) for a processing fee and host their marketplace content along with SL’s and provide SLurls/URL’s to the inworld stores.

    Like

  8. I come to this article feeling confused about something, the same “something” that has puzzled me for most of the four years plus that I’ve been in SL. Why is it, what logical process was invoked, where is the sense in not allowing SL users to buy Homestead land.
    If one must own a Full Region before being permitted to own a Homestead, it creates a huge financial hurdle that a newly Premium user must overcome if they wish to “own” land.
    The prim-richness of a Full Region would surely discourage many existing users from “downsizing” to a Homestead’s allocation, while the significantly lower purchase and running costs of a Homestead would surely tempt more users to move to Premium status.
    I don’t see why this suggestion would cause issues with droves of folk joining SL simply to have Homesteads, but I do see it being a way of Linden Lab increasing its revenue stream. If some Full-Region users do “downsize” to Homesteads, they would only be ones who currently do not use the resilience of Full-regions to script and prim loading, any others would notice the degradation immediately even assuming they didn’t know it beforehand.
    I know one can rent Homesteads, I do and have done for 2 years, but I would have happily bought a homestead early on in my SL if I had been able to. I do not think that I am unique in that.

    Like

    1. There’s a flip side to decoupling Homesteads which can be broken down into a number of independent (and interdependent) points – and bear in mind I’m trying to see things from LL’s point-of-view:

      1. In order to maintain LL’s current full sim revenues, new Homesteads must be taken-up at a ratio of 2.36 Homesteads for every full region returned to LL
      2. There is no guarantee that Homesteads, if decoupled, will be taken-up on an individual basis. It is entirely possible that those obtaining a Homestead will actually divide it into smaller parcels they can offer to friends in order to offset tier costs. This in turn runs the risk of pushing the Homestead take-up ratio higher than the baseline 2.36-per-full-region-loss in order to offset any potential drop in revenue for LL
      3. Not everyone wants to have an island of their own or 3750 prims. Most people are actually content with something more modest which can actually be obtained on any well-maintained full region. Cost isn’t a factor here, it is simply because they’re not into building, they don’t want the hassle of terraforming, they are actually in an environment where they have good neighbours, etc., around them, and so on

      Even if a reduction in tier is factored into this, the ratio remains more-or-less the same – unless LL offers a discount on Homesteads only; something that would cause further upset and which still may not achieve the desired goal.

      And why would decoupling Homestead lead to an automatic uptake in their popularity anyway? While it is true you and I cannot obtain one directly from LL, we can obtain them via just about any of the estates operating in Second Life. Certainly, there is a variable premium applied to going this route (although if you shop around, you tend to find the premium is pretty close to that payable for renting a 1/4 of a full region) – but this isn’t necessarily a major hurdle for those who want to have a Homestead of their own. Yet, other than the initial take-up spree, we’re not seeing this happen.

      Again, many people aren’t in the market for Homestead of their own not because they can’t afford one – but because they actually don’t need one.

      So if all of this is taken together – the potential benefits of decoupling Homesteads from full regions and the possible down side – the two would appear to be pretty evenly matched. Given this, it’s hard to see LL moving towards decoupling, simply because the down side aspects are those that are more likely to be felt over time. To say nothing of the possible ire they’d be facing from their major revenue-generating customers: private estates themselves.

      Like

      1. Inara, sorry for entering very late into the discussion. I have read your blog post already two weeks ago but did not feel inclined to enter the forum discussion. But reading most of the statements and your answers raises even more questionmarks on my side.

        I am wondering if LL analysis the reasons why the number of regions is declining. You also don’t analyse this in your article. Is it because there are fewer users? Or because long time users don’t see the benefit anymore to play a lot of real money for owning some land? If you don’t know the reasons for the decline, you cannot take counter measures. Talking about the price in my eyes is accounting measures not enterpreneur spirit.

        Here are a few observations from y side based on what seems to be happening to thematic sims (which might not be true for housing sims).

        1) I have personally seen the vanishing of 5 thematic regions in the last 2 months. I have spoken to the region owners. All 5 told me that the failing of their region was due to the SL marketplace. Most regions were in the past hugly financed by content creators that rented small stores in order to present their content. This business model was destroyed by LL with the marketplace. It is much easier to promote products on a widely accessible website than to a limited audience in regions. Are the Lindens aware of that? Do they speak to people who give up regions?

        2) If it is true what that the marketplace doesn’t bring enough income to LL on one hand, why do they let it destroy a succesfull region business model at the same time? Why are the fees for selling and promoting virtual goods at the marketplace not raised to a point that “convinces” content creators to do marketing and product presentation also “in world”?

        3) An alternative business model for thematic Sims: A lot of people are emotionally very attached to the roleplay and community sims. Why has LL never provided a system for region owners to demand a financial benefit appart from begging for donations? Why is there no membership model for private regions?

        4) Your arguments about homesteads: Seriously the arguments that you give in the discussion above are in my eyes irrelevant. I will write my answers refering to the points you make above).

        A: It is better for LL to keep a customer who pays 1/3 of the old income than getting zero. Talk to business people anywhere in the world. They will tell you that making 125$ a month is better than making 0$ a month. No one should be talking about homesteads making up for regions. We should be talking about getting out as much as possible from a business. All 5 community regions from my example above would have continued to exist if the possibility to downgrade had been possible. That’s 7500$ of potential income per year which LL has lost. For what reasons exactly? As LL is obviously more thinking about risks than chances, I don’t want them to get away with another “If”…: A safeguard clause could be put in place. Only regions that existed for more than 12 Months can be downgraded to a homestead. Only then you can own a homestead without having a region at the same time…

        B: Your fear about land sharing on homestead sims can easily be contradicted. One thousand prims on a region cost 19,66$. One thousand prims on a homestead cost 100$, which is 5 times the price. Why should anyone with a reasonable accountance thinking (not even business thinking needed here) want to share a homestead instead of a region?

        C: You might be right about the fact that many SL users are not interested in homestead sims. But this is not an argument against giving users who have a project in mind the right to own a homestead (without owning a region first). There are people that don’t like chocolate ice. That’s no reason to stop offering it completely, is it?

        5) Last but not least a totally different point: Why only discussing the costs? Why not talking about the offered value? Why not doubling the prims available in a region? Ok, again as the paranoia seems to be the LL “Leitmotiv”: No, this would not mean that more renters share a regions because they need a certain land size to build their projects. But seriously, when I see what few prims I get for paying quite a high price monthly I often think if it is worth it. And I guess I am not alone…

        Such a step (doubling prims) could also be used to overcome the insanity to have all sculpted and traditional prims with a prim cost of one while the exact same mesh form costs 4 or 5 times the price. A doubling of the available prims on a region could be linked with changing the land impact system to real rendering costs of objects.

        Bottom line: Using a crisis to generate new chances. That can only be done with enterpreneur spirit and by knowing the reasons for a decline. And that’s the contrary to staying with one model until it is completely squeezed out. I am convince that the speed of decline is not constant but accellerating. I don’t think that the region business model of LL will stand for 2 more years. I give them 18 Months at most.

        Like

        1. Thanks for the feedback.

          I may not have charted the depth of user numbers, but do reference the fact that part of the decline is simply due to the fact that there is “too much” land for the volume of existing users – hence why I feel that a lowering of tier will not lead to any actual “growth” in SL in terms of new regions appearing on the grid. While it may lead to cheap land rental prices, there is already likely enough land already available “fore sale” or to rent for those currently in SL to take up land rental (were they to do so) without the need for estates to pull-in new regions from LL.

          I tended to address the issue of existing users not requiring additional land in replying to articles on the same subject elsewhere (such as over at Metareality); however, you’re right: existing users for the most part simply do not need additional land – so again, the argument that a lowering of tier will lead to those of us with land holding already going out and renting more is flawed. AS I commented at Metareality:

          A further issue with “having more land” is that in many cases – regardless of the current cost – those that have a pressing need for land already rent what they need. Period. As such, the idea that people will automatically rush out and obtain more land is at best questionable and at worse a complete fallacy.

          For example: I’m a merchant (of sorts). I have land for my home (not, I hasten to add, my Linden Home – I treat that as my “holiday retreat”!). I have room for my store. I even have room to offer land space to my closest friends so they can have a home. Why on earth would a reduction in tier go anywhere else but in my purse? Do I need another store in-world? No – the miracle of the landmark and the teleport bring my customers to my door, so why should I start setting-up elsewhere on the grid when all it will do is increase my costs and the amount of work I need to do? Expansion within my current space? Nope – I have all the room I need.

          And I’m hardly going to be alone in this.

          As to where I draw my figures from, they come from Tyche Shepherd’s weekly Grid Surveys, which provide and sampling / analysis of region movement across the grid (particularly private estates) regardless as to whether the regions are residential or commercial, zoned or unzoned, themed or not.

          I still don’t see LL “destroying” in-world businesses through the marketplace. Let’s be honest: SLM didn’t arrive with LL. It’s been here in various forms for years. True, LL have done much to make it easier to use your existing funds either in-world or on the Marketplace and they have pushed SLM more front and centre: but the competition in terms of “ease” of shopping via the web has always been there through the earlier iterations of SLM (XSL and SLx) – yet it only became the big, bad boogeyman when LL took over.

          Yes, the Marketplace has been a game-changer, and there are businesses that has suffered (I’ve seen my own sales pendulum wildly over the last year, swinging from predominantly in-world sales to predominantly SLM-based and back again – and for the last three or so months, SLM sales are outstripping in-world sales through my store). So I’m aware it’s tough. On the other hand, many stores are still thriving and some are even leveraging SLM to assist their in-world business (using SLM as a “shop front”). Many users have also altered their shopping habits so that while SLM allows them to browse goods on-line grab demo copies of items, etc, they will invariably come in-world (assuming there is a supplied link to an in-world store) to make actual purchases.

          As such, without any form of in-depth, across-the board survey, it’s very hard to tell the overall impact of SLM on in-world business other than through anecdotal evidence.

          As to homesteads, again you miss the bigger picture. Sure, lower cost / providing a means of downsizing may help in some situations – but where do you draw the line? If you let X, Y and Z downgrade to “save” their business, what is stopping businesses A through W also downgrading from their full sims to Homesteads? Suddenly you go from the possibility from “saving” 5 business to a further run on full regions as everyone rushes to take advantage of this new cost-cutting measure. Certainly, you could put various barriers in the way of things going into free-fall – but this takes time and effort and risks people getting further outraged at LL’s “meddling” with the land business.

          As to cost of prims – again, I fear you a) in part miss my point; b) actually support my contention that de-coupling Homesteads won’t help matters. To take (a) first: regardless of the relative cost of prims, the fact remains that potentially around 50% (conservative estimate) of residential homesteads are shared; I see it on the estate where I live, I see it on other estates. Ergo, the idea that decoupling will lead to a massive volume increase in homesteads doesn’t necessarily hold true. Turning to (b), that people have the prims they require, the land they require already – and most don’t require 3750 prims (or even 1,000 prims) – again, decoupling Homesteads again isn’t going to lead to an automatic and increased take-up.

          Your argument vis-a-vis prims is interesting, but flawed in terms of assisting the land market. Yes, it may appear to offer more-bang-for-buck to you and me, but it is not going to lead to growth in the land market (or the SL economy).

          Could LL take more risks? Sure – they could. But my point remains: why, at this point should they? Despite the current rate of decline in regions (some of which will be down to natural attrition, as you point out), there is a very real possibility that even a very modest tier cut will hurt the company more than aid it – far moreso than accepting the current gradual decline (which, as history has shown, can actually reverse itself). This being the case, and given that a) the current rate of decline is unlikely to have a significant impact on LL for another two years and b) they have other, more worthwhile irons in the fire in terms of ease their revenue constraints, as covered in my article – LL actually doesn’t need to adjust tier or play significantly with the land model just yet – or ion the immediate future. They still have time to plan and (one would hope) act in a manner that is liable to benefit SL not just in the short term, but throughout the next 5+ years of its future.

          That’s really the bottom line; we can discuss what is “good” or “bad” for those of us at the sharp end until we’re all blue in the face. However, the cold, hard reality is that LL aren’t in the business of helping us to do business (beyond providing a platform that we choose to use. They are in business to make money. As such, and until and until there is a very real and pressing danger to their ability to continue to make money, they don’t need to change a thing.

          Regardless as to how some commentators like to dress-up the current decline in regions with doom-laden headlines, the current decline in region numbers currently isn’t an immediate threat to LL’s ability to make money in the medium term; what’s more, unless something massive happens in the immediate future (such as all established users up and leaving SL en masse, which is hardly likely), then it is quiet likely that – as I’ve covered in my article – LL will have offset a good portion of their reliance on SL for their revenue and will (hopefully, I admit, as I have no idea of their longer-term plans) thus be in a position to address SL’s economic issues in a manner that does benefit both themselves and users.

          Like

  9. As to the Marketplace, all arguments pertaining there are predicated on one critical aspect. In order to attact business, the SL Marketplace must work. The plethora of JIRAs pertaining to the Marketplace and the failure of Direct Delivery to function properly indicate that that is NOT the case.
    The SL Marketplace is broken, as is most of the thinking at Linden Lab.

    Like

    1. Marketplace, even when/if functioning smoothly also needs to generate massive volumes of sales of SL goods in order to come close to offsetting tier revenues to any appreciable degree – and frankly, it’s hard to see that happening without first boosting things like user engagement and retention.

      That said, there are other potential options for the Marketplace that could help leverage revenue – but all of them are predicated on LL being able to offer a stable and working service. As you rightly point out, they have yet to demonstrate this is in fact the case.

      Like

  10. It doesn’t take a rocket scientist to figure out that the problems started with the homestead sims, and not having equitable pricing. Their revenue stream would likely increase if they just charged a fair price for homesteads for everyone versus giving the rich a big discount. Charge a bit for alt avatars and quit trying to compete with their own clients. Many people just plain lost trust in the Lindens when they destroyed the economy with the homestead decision and then giving free homes. Whole communities were destroyed over that one, and the breach of trust may never be back. So whenever people talk about tier, it makes me cringe. A little economic wisdom and perhaps an apology for messing up the internal economy, and some kept promises and maybe some more people would return.

    Like

  11. outstanding post – my loss for missing this one when it was written. this has changed my perception of the lab

    i still have my paradigm from which i look and still have a certain bitterness about the homestead dealio. but it was my choice to believe that i could run a fun and slightly profitable land business – no one ever held a gun to my head

    thanks for the thorough look and your insight =)

    Like

    1. You’re welcome.

      I also got severely bitten by the OpenSpace / Homestead farago (although in my case the region was 90% personal use & a low-cost means for several friends to have homes as well.

      That aside though, the only way to look at the SL tier situation is from all sides, and then put yourself in LL’s (none-too-comfortable) shoes, which is pretty much what Tateru and I attempted to do in putting these pieces together. Otherwise, all we end up with is a lopsided view of things. Not necessarily wrong in the long term (at the end of the day, tier is too high), but lopsided nonetheless :).

      Like

  12. “First and foremost is the fact that, like it or not, tier accounts for 80% of Linden Lab’s revenue, so any reduction is going to hit them very hard – and will do so for some time to come.”

    So which will hit them harder… Running land servers which make a smaller amount of money but rent at full capacity or running empty servers which are making no money at all? Seems renting more land at a reduced rate would be more profitable than allowing servers to sit empty while still gobbling real world resources. But if Linden Lab wants to piddle money away simply because they are too greedy to do good business and give their customers a break, then it’s no skin off us, right? 🙂

    Like

    1. Private region servers don’t “run empty”; they are routinely consolidated to both maximise the number of regions running per server, and also to try and get geographically-connected regions running on the same server as far as is possible. Such consolidation exercises are carried out at least twice a year and take around 6 weeks to complete. Even those servers which are running at less than their full allocation of private regions are going to be generating more revenue than they are expending in running costs.

      Like

Have any thoughts?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s