Tier cuts: looking from the Lab’s perspective

Apologies to those who may have received notification of an early version of this post being published at the weekend. Slight error on my part hitting the wrong button when trying to clear-up some old drafts.

Tier has long been an issue within Second Life, one which has been exacerbated over the last 24 months by the ongoing decline in private region numbers, which form the greater proportion of LL’s revenue. The decline has been tracked across the weeks and months by Tyche Shepherd via her invaluable Grid Surveys. In 2012 alone, the grid has suffered a loss of around 12% in private regions. Such is the concern over tier that it gets raised following articles which may not be related to the subject – such as LL moving to promote SL through Amazon.

This decline has been subject to many calls for the Lab to reduce tier, with some recently advocating it should be cut by one-third. However, as both I and Tateru Nino attempted to explain in June 2012, while cutting tier may appear the obvious thing to do, it may not actually be the easiest or most comfortable thing for the Lab to do.

Crunching Some Numbers – the Lab’s Perspective

While I have covered some of this ground before, I thought it interesting to look at some numbers purely from the Lab’s perspective, using Tyche’s Grid Survey and survey summaries as reference.

Private regions losses through 2012 (click to enlarge)
  • As of December 31st, 2011, monthly private region revenue for LL was approximately $5,006,000, with a margin of error of +/-$60,000
  • As of December 31st 2012, monthly private region revenue for LL was approximately $4,244,000 per month, with a margin of error of +/- $53,000
  • While acknowledging we have yet to see Tyche’s 2012 end-of-year survey, that amounts to a drop of $762,000 through the year, or an average of $63,500 per month

If there is no reduction in tier, it is probable that the current decline in private region revenue will continue at or near the 2012 monthly average of $63,500. However, were the Lab to cut tier by one-third, they immediately slash monthly private region revenue by $1,400,520. That’s equivalent to 4,747 full private regions vanishing from the grid – 1.6 times more that the total number of private regions (full, Homestead and OpenSpace) lost in 2012.

Even allowing for the tier cut stimulating the demand from new land (and there are problems with that, as discussed later in this article), and assuming set-up fees remain unchanged, it means the Lab would need to see the equivalent of 1,337 full private regions added to the grid in the first month following the cut just to match the revenue loss suffered had they not cut tier (i.e. the difference between $1,400,520 and $63,500).

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