Thoughts on Second Life fees, tier and revenue

via: thebluediamondgallery.com

Monday, December 2nd saw the introduction of the new Marketplace (MP) commission fee of 10%, as announced in the Lab’s November 21st blog post The Return of Last Names and Changes to Marketplace, Events & Premium.

The announcement of the fee change unsurprisingly caused some upset, with a couple of forum threads popping-up on the subject (see: MP fees raising to 10% per sale. Thoughts? and Second Life® is still a world of opportunities). Various points are raised in both threads, some fair, some perhaps not-so-fair. While I’m the first to note that I’m not in any way, shape or size a “merchant” or “commercial creator” in SL I thought I’d try to step back and try to take a broader look at fees and tier, etc., in general.

The first point to note is that in making the claim that the increase to the MP transaction fees still leaves them “significantly lower than most digital content commissions across the industry” while citing Apple and Google as examples, the Lab did so with a certain amount of spin.

The 30% charged by Apple, for example, incorporates payment clearing, fraud, indemnity, insurance, and dunning; local tax law enforcement & reporting; service provisioning and distribution, etc. Due to the nature of Second Life these fees are incurred separately to the MP – but they are still incurred by many merchants using the MP, and when taken into consideration, they amount to somewhat more than 10%, a point Cat Hunter makes in this comment.

Also in their blog post, the Lab note that that fee change is to help offset costs incurred at the Lab due to investing in new Marketplace features and improvements. This is fair enough; however, given that the first of these changes is apparently within weeks of being deployed (improved MP search filtering), it might have been an idea to perhaps to wait until these changes had been introduced  before announcing the fee increase – and then to champion them alongside the improvements that have been made over the last 12-18 months, such as the much-requested Store Manager capability and the notifications and redelivery capabilities and wishlists and favourites¹.

However, there is a more intrinsic reason for fee increases – be they with transaction fees or anything else (such as the recent increases in Premium subscriptions), and it is one the Lab perhaps doesn’t communicate clearly: and that’s trying to reduce virtual land tier.

While tier has contributed to the loss of regions in SL, including places such as Venexia (above) and its sister region, Goatswood, lowering it without increasing fees elsewhere would always hurt Linden Lab more than help users

This is something that users have (rightly or wrongly – there are actually arguments on both sides of the coin) been demanding for at least the last decade. And since the start 2018, Linden Lab’s CEO, Ebbe Altberg, has repeatedly stated the company would like to reduce land tier – but would only be able to do so if the resultant loss of revenue the company would suffer as a result could be compensated for through other means².

In fact, the Lab have taken steps to reduce tier: in 2016 there was the private region buy-down offer³ (the interim boost to LL’s revenue as a result of the fees payable likely long since having passed), and in July 2018 reduced private region tier from US $295 to US $249 for Full regions (that now stand at US $229), and Homesteads from US $125 to US $1094.

While it is hard to accurately quantify, given the various factors involved (e.g number of grandfathered, skill and educational regions, the more recent slight increases in region count, etc.), it is – with the help of Tyche Shepherd’s Grid Survey and the Internet Wayback machine – possible to reasonably (conservatively?) estimate the impact of the July 2018 tier reductions at around a LS $300,000 a month fall in the Lab’s land revenue. This may not sound a lot – but it is something LL would likely want to recoup – and it can only be done through increases in other fees, as Altberg noted in his comments on the matter.

This should not be taken to mean the transaction fee is wholly associated with compensating for the tier reduction, but it’s not unreasonable to assume it might nevertheless help, either now or in the future. More to the point, and regardless of where the revenue from the MP fee increase is used, it wouldn’t hurt for the Lab to remind people of the strategy to pivot revenue away from land tier and to other options when making similar fee adjustments elsewhere (or indeed, the introduction of new fees, even it they may also help offset the cost of implementing new options and capabilities).

There are two final points that come to mind when looking at the MP transaction fee change. The first is that of all the fee changes thus far introduced, it is the one that merchants can most directly compensate for, as some in the forum threads have noted. Merchants can raise their MP prices, for example, whilst keeping their in-world prices lower (which is allowed5); or those with in-world stores might focus more on sales through that channel, with associated group advertising.

The second point comes back to the timing of the announcement. It would seem that the increase has been made so that the Lab can benefit from the likely increase in MP sales during the run-up, and indeed over, the holiday season. There’s nothing wrong with this per se; but given the increase has likely been on the cards for a while, it would have perhaps have been preferable had LL given more of a lead time on its implementation so allow merchants more time to prepare for it, and so help them in compensating in what might come across as a reduction in their own ability to generate revenue through the same holiday period.

Related Links

  1. See:
  2. See (all with audio comments by Ebbe Altberg):
  3. Lab: get grandfathered tier in 6-month buy-down offer (April 2016).
  4. Linden Lab announces major SL private region pricing restructure (June 2018) and Looking at the new private region and L$ fees (July 2018).
  5. Web Team Springs some Deploys on you, April 2018.

2 thoughts on “Thoughts on Second Life fees, tier and revenue

  1. Only one thought and this regarding “It would seem that the increase has been made so that the Lab can benefit from the likely increase in MP sales during the run-up, and indeed over, the holiday season.”

    Typically (over ten years anyway from my recollections) the season from Thanksgiving through New Years is one of the SLOWEST for creators — especially on the marketplace. There was one event group for many years that had a month long December event that was completely free for creators simply because this time of year is very slow and they wanted to give back to the folks that help create the world.

    Now we have Black Friday as well as a ton of other sales going on but most all that I have seen have been INWORLD and would not help LL’s Marketplace fee collection. While Advent calendar participants (judging from the absences of the typical crowds from years past) seem down there are many events with gifts at most every booth (and some really nice items) with more to come throughout December.

    While I had an exceptional good round at a recent event, I just checked my Marketplace sales and I had TWENTY -TWO in the last four days (MUCH MUCH lower than my norm). This is not unusual for my shop at this time of year. It happens annually and I expect it — as do a lot of other creators — hence the overwhelming number of sales this last week and continuing onward.

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    1. May be slow for some creators, not sure about all (e.g. clothing, accessories, etc., for gifts), plus the last couple of years have seen the Lab-supported shopping events which, although in-world may help direct people towards the MP (e.g. due to lack of easy access to the shopping event regions, to see what else the creator has available, etc.). However, I take your point.

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