Private region price reduction: 2 weeks of grid growth but still early days

Strawberry Lake; Inara Pey, July 2018, on FlickrStrawberry Lakeblog post

It’s been two weeks since Linden Lab introduced the new pricing structure for private regions, and as Tyche Shepherd reports, her Grid Survey shows the grid has experienced its second consecutive week of net private region growth since the change came into effect.

In the week immediately following the introduction of the new pricing structure (Monday July 2nd through Sunday July 8th), the SL grid saw a net increase of 34 private regions, while in the week Monday July 9th through Sunday July 15th, the net increase was 35 private regions.

As Tyche indicates, these increases have helped slow the overall rate of private region attrition to just 0.3% – a net loss of 52 private regions between January 1st, 2018 and July 15th, 2018. By comparison, some 326 private regions were lost to the grid between January 1st and July 16th, 2017 (with an overall net loss of 667 private regions through the entire year).

The two weeks following the private reduction pricing changes have seen net increases in the number of regions on the grid. However, it’s still too early to call this a trend or draw significant conclusions. Credit: Tyche Shepherd

So, have regions losses turned a corner as a result of the price change?

Frankly, it is too soon to tell; two weeks is only two weeks – we need to see how things trend out over a longer period before anything can really be determined. A lot here will depend on how much of the tier reduction land rental businesses pass on to their tenants in order to make private rentals more appealing; something I noted in passing in Looking at the new private region and L$ fees. Plus, a simple count of region growth isn’t the entire story here.

Simply put, the private region pricing restructure will have seen the Lab take a reduction in monthly revenue generation. It’s questionable whether such a modest increase in region numbers, even when coupled with other options for increased revenue generation such as the Mainland price restructuring (with its possible attendant increase in Premium subscriptions) and the US $0.50 increase on L$ purchase transaction fees, has wholly overcome the immediate deficit of the tier rate cut.

Thus, while the uptick in private region count is a positive turn, it is too early to be celebrating. We’ll need another 4-6 weeks before we can start to get a genuine feel for how things are going as a whole. It will also be interesting to see how long new regions entering the grid remain in place or whether we see some rapid comings / goings month-to-month. I’m also curious as to how the restructuring affects the Full / Homestead product ratio on the grid, so will be looking to see if Tyche can provide some updates on this in the coming weeks / months.

In the meantime – and totally off-topic as far as private regions are concerned – I wonder if Tyche has had time to have a bop around Mainland to see how the abandoned land situation there is fairing? As of January 2018, abandoned land stood between 22% and 23% of all Mainland; it would be interesting to see how it now stands, some four months on from the Mainland price restructuring.

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Looking at the new private region and L$ fees

Village of Ahiru; Inara Pey, May 2018, on FlickrPrivate region set-up fees and monthly tier rates are reduced from July 2nd, 2018, together with an increase in L$ purchase fees. Picture:  Village of Ahiru (blog post)

A major goal at the Lab is to “re-balance” the Second Life economy – shifting the onus of their revenue generation away from a heavy reliance on virtual land leasing to distribute it more broadly across all fronts  – land, Premium subscriptions, transaction fees, Marketplace fees, etc. Over the last few years we’ve seen some of this in action:

  • In April 2016, increases were made to all transaction processing fees and Linden Dollar processing fees (raising the latter by 30% to US $0.40 per L$ purchase).
  • In June 2017 increases were made to the maximum fee for processing credit transactions was raised to US $25, and the fee charged per L$ purchase was raised to US $0.60.
  • In November 2017, increases were made to L$ purchase fees (to US $0.99 per transaction) and to fees charged for transferring money via PayPal or Skill from the start of 2018, raising both to 2.5% with no maximum limit on the application of the fee.

Some of these increases were couched as being in part to meet the costs involved in the Lab handling the transactions and ensuring all proper fiscal and legal requirements for money handling are properly met. Doubtless, this was the case – the Lab has invested heavily in matters of compliance. However, it’s also not unfair to say that once the initial expense in performing this work has been recouped, these fee increases enable the Lab to both cover the cost of transaction handling and generate some revenue through such transactions (however modest on the individual transaction it might be).

On the other side of the scale, we’ve seen efforts to make virtual land more attractive – notably through the region buy-down offer of April-September 2016, and more recently the changes to Mainland pricing.

On July 2nd, 2018, the most ambitious change to private region pricing in Second Life came into effect: a reduction of 15% in private region maintenance fees (tier) for all current region types and reductions in the set-up fees for Full and Homestead regions (new OpenSpace (“water”) regions no longer being offered as a product from July 2nd, 2018).

These changes – it should be noted – come with a further increase in Linden Dollar purchase fees, which increase to US $1.49 per transaction.

New Private region pricing structure. Note that as from July 2nd, 2018, new OpenSpace regions will no longer be available as a product, and Linden Dollar purchase fees increase to US $1.49 per transaction

It’s fair to say that any change of this kind, be it in land pricing or transaction fees, can generate heated feedback (witness this forum thread on the 2017 increases). The changes to private region fees have been no exception, with views being expressed via in-world groups, within assorted forums (such as SLU) and even in blog comments. Some have been upset over the L$ transaction fee increase; others  – notably those in the virtual land rental business  – have been upset by the change no extending to grandfathered regions; others apparently don’t see the move as “enough”, protesting that the tier rate should be cut to US $195 (or similar). And there has been a fair amount of reaction to the L$ purchase fee increase.

Obviously, time will reveal the outcome of these changes, but as is my want, I’d pass comment on a few things.

When it comes to the land rental business, it is hard to see why the exclusion of  grandfathered regions is being taken so negatively. For one thing, these are already below the new tier rates, as the Lab states. Further, it is now 18 months since the buy-down offer closed. This should have been enough time to recover the up-front cost of converting regions to grandfathered status (US $600 / Full; US $180 / Homestead), and now leave rental companies in a position to enjoy a modest increase in income from such regions whilst also offering customers using them a degree of lower rent.

Which is pretty much also the opportunity they have with this tier reduction. Frankly, 15% is unlikely to have people leaping in droves to buy Full regions directly from the Lab. But what it might do is once again increase people’s desire to have Homestead regions as private homes. Given that these remain tied to holding at least one Full region, it’s not unfair to say that should it happen, land rental companies can only benefit. And even if the private land market remains relatively flat, such businesses should still be able to lower their rental rates to attract new customers without damaging their existing margins.

So it really is hard to see why some in the land rental business are so put out by grandfathered regions being excluded, or to claim they get “none” of the benefits of this fee reduction.

When it comes to the increase in Linden Dollar transaction fees (which with this increase will have rise by 198.4% since April 2016), the impact will perhaps be harder to gauge, simply because people can offset at least some of the impact by adjusting the amounts of Linden Dollars they purchase in a single pass. Just how much of an offset can be achieved depends on a range of factors – the amount of L$ someone buys in a single pass, how easily they might be able to consolidate purchases, etc. – but this doesn’t deny the fact it is precisely what people have been doing as a result of past increases.

Even so, it will in interesting to see what, if any, impact this has on actual spending in SL – although I suspect that changes to fees elsewhere that have been hinted at (such as with the Marketplace) might have more of a visible impact, if and when they come into effect.

There will always be positives and negatives to just about anything the Lab does. However, “the tier is too damned high!” has long been a mantra within Second Life and while it is “only” a 15% reduction in tier, this is a positive step towards addressing this mantra when it comes to private regions fees (and it’s not unreasonable to assume there might yet be more in the future – although they are unlikely to be even close to appearing over the horizon at this point in time). Similarly, while people are likely to continue to be put out by it, the increase in to the L$ transaction fee is a relatively “fair” move, as it spreads at least some of the burden of revenue generation for the Lab across a much broader section of the SL user base.

Linden Lab announces SL Mainland price restructuring

Linden Lab has announced changes to Mainland parcel rates. Image: Italian Village of Ciampi

On Wednesday, March 14th, 2018 Linden Lab announced a restructuring of Mainland tier costs, with allotment of “free” land for Premium members doubled from 512 sq metres to 1024 sq metres.

The announcement was made via a blog post, which reads in full:

We’ve got some exciting news for both aspiring and existing Landowners who think the cost of land is too darn high in Second Life. Effective immediately, we’ve reduced Mainland costs by over 10 percent. 

But, wait…there’s more!

Premium members now also get DOUBLE the Mainland allotment! That’s twice as much space to build, create and design your own home, business or experience in Second Life at no extra charge! Premium subscribers now have 1,024m² included with their membership: you could keep your Linden Home and still have another 512m² left over, or use your entire 1024 allotment towards a parcel on the Mainland.  To learn more about specifics of this change, view our Pricing and Allotment Comparison chart.

We know that costs associated with land ownership can hinder some people from realizing their full creative vision in Second Life or even keep them from participating in Second Life as much as they’d like. In 2015, we decreased land setup fees by up to 40% and restored a 50% discount on set-up fees and ongoing maintenance fees for educators and nonprofits. In 2016, we offered a limited-time “buy-down” opportunity that rolled back maintenance fees on full islands and homesteads.

As Second Life begins to celebrate its fifteenth birthday, we hope that this latest price drop will be welcome news to those who aspire to explore their creativity in 2018 and beyond.

The new Mainland tier rates for Premium members (right), with the new “free” allowance of 1024 sq metres of land, compared to the pre-March 14th tier rates

Of course, when people talk about tier being “too damned high”, they are generally referring to the cost of private regions (particularly Homesteads), so this change in Mainland rates many not be looked upon favourably in some quarters. But the fact remains – as I pointed out in 2013 – lowering private region tier isn’t as easy a proposition for Linden Lab as some tend to think, the (roughly) 23% reduction in tier revenue the Lab has seen since November 2013, notwithstanding.

As such, this should be seen for what it is – an attempt by the Lab to encourage land take-up  – and leave us not forget there have also been calls to re-invigorate Mainland with all of its abandoned land – without unduly exposing their bottom-line. So, if nothing else, it will be interesting to see what this offer does both in terms of Premium subscriptions and in encouraging people to take-up their “free” 1024 square metres of Mainland (or go bigger and use the 1024 “free” + the reduced difference in remaining tier).

A slight spanner in the works here, of course is that obtaining Mainland parcels can be time-consuming, and comes with the initial overhead of the purchase price. Nevertheless, it will also be interesting to see if / how this affects Linden Home ownership. A complaint against the latter is that while they come with a 175 LI allowance and a house which does not count towards that total, the houses themselves are oft viewed as unattractive. So, will these changes encourage some of those with Linden Homes to abandon them in favour of a 1024 sq m parcel (the aforementioned pain in finding and purchasing a suitable parcel notwithstanding) with at least 350 LI and a house of their own choosing, even if it does count against that total?

Time will tell on this.

Lab: get grandfathered tier in 6-month buy-down offer

secondlifeOn Monday, April 4th, the Lab took a step to help those who are leasing a region (full or homestead) directly from the Lab with the opportunity to reduce their tier payments, by paying a one-off fee.

The blog post announcing the offer – which runs for a six-month period from April 4th through October 4th, 2016 – reads in part:

From today until October 4th, 2016, you can “buy-down” your Full Islands and/or Homesteads to the grandfathered maintenance rates. By paying a one-time fee up front, you’ll be entitled to lower tier rates on your land for as long as you hold it (and remember, we now also allow transferring grandfathered land).

The pricing for this offer is as follows:

  • Full Island:
    • One-time buy-down fee: $600
    • Grandfathered maintenance fee: $195/month (regularly $295/month)
  • Homestead:
    • One-time buy-down fee: $180
    • Grandfathered maintenance fee: $95/month (regularly $125/month)

If you plan to hold onto your land for longer than 6 months, this is a great deal for you!

To take advantage of this offer, you’ll need to submit a Support Case using the Land & Region -> Region Buy Down case type. In that case you can provide us with the names of the regions you would like to buy down, and we will assess the appropriate buy-down fee per region.

There are some caveats to the offer: it cannot be combined with Education and Non-Profit discounts, nor can it be applied to Skill Gaming Regions. The quoted prices are also exclusive of VAT, if applicable.

Coming on top of the recent changes to region set-up fees, which is also referred to in the blog post, this is an interesting move by the Lab, indicating that they are trying to mix things up a little in an attempt to try to help with the issue of tier.

The 6-month period of the offer means those who take immediate advantage of it will effectively break even on the one-time fee cost, and will continue to enjoy the grandfathered tier status for as long as they hold the land. And, of course, grandfathered regions can now be transferred – although this does incur a further up-front fee (US $600 for a full region, $225 for a Homestead, for example).  At the same time, it potentially offers the Lab something of a cash injection, making it almost a best of both worlds offer.

Tier will remain a contentious issue within Second Life, but the Lab is hoist by its own petard  when it comes to taking broader steps with tier and possible tier reduction; there is only so much the company can do without risking hurting itself. As such, this is something of a welcome move, although it will be interesting to see how far down it reaches.