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.

Advertisements

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 not 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 gain Premium membership any buying 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.

Looking at the Second Life 2017 year-end Grid Survey report

La virevolte; Inara Pey, December 2017, on FlickrLa virevolteblog post

On December 31st, 2017, Tyche Shepherd issued her year-end summary on the general size and state of the Second Life main grid.

In terms of a percentage loss, 2017 saw private region losses return to the 2014/2015 levels, with a 4% decrease through the year, somewhat lower than seen in 2016. In all, 677 private regions of all classes were removed from the grid in 2017, compared to 992 in 2016. At the same time, the number of Mainland  / Linden held regions increased very slightly from 6,744 to 6,806 (up by 62), leaving an overall net loss of 605 regions across the grid as a whole.

Taking the year-on-year figures from 2010 onwards (that being the last year the grid exhibited a growth in the number of regions), we get the following breakdown for private regions:

2010 2011 2012 2013
24,483 23,857 20,994 19,273
Increase
%age
Loss %age
Loss
%age
Loss
%age
810 3% 626 2.56% 2863 12% 1719 8.2%
2014
2015 2016 2017
18,600 17,775 16,783 16,106
Loss
%age
Loss
%age
Loss
%age
Loss
%age
673 3.5% 825 4.4% 992 5.6% 677 4.0%

Working on the basis of Tyche’s Full Private Region surveys I have to hand, a breakdown of approximate recent monthly revenues from private regions over the most recent four-year period might be given as:

  • November 2013: US $3,857,000 (+/- US $52,000)
  • March 2016: US $3,385,000 ( +/- US $43,000)
  • December 2016: US $3,162,000 (+/- US $39,000)
  • December 2017: US$ 2,970,000 (+/- US $36,500)

This represents around a 23% drop in monthly tier revenues over a four-year period. Of course, there are other revenue routes associated with Second Life – notably Premium memberships (which the Lab has in the past indicated account for around 20% of revenues). More directly, the end of 2016 / start of 2017 saw the Lab generate an estimated US $80,000, which doubtless help offset the decline in tier revenues to some extent. So, taking these factors into consideration, I would suggest that overall, the Lab might still be generating around US $48-49 million in revenue, or roughly the same as my estimate from my 2016 end-of-year article.

In 2016 there was some speculation that any opening of Sansar might have an impact on SL’s landmass. In my 2016 piece, I expressed the opinion this would not be the case, noting:

Some have raised concerns over how much of an impact Sansar will have on SL’s landmass in 2017. I actually don’t think it will. While I anticipate the decline in land will continue (but hopefully at a slower rate than 2016), I simply don’t think Sansar will have any immediate impact on Second Life one way or the other. Not in its first year, at least.

Unsurprisingly, this has proven to be the case: region losses for the second half of 2017, following the opening of Sansar’s public Creator Beta, remained pretty much on a weekly par with the months prior to the Creator Beat opening. I expect this will continue to be the case through much – if not all – of 2018.

Private estate numbers downs and ups in 2017 – click for full size

For me, the question remains as to how the Lab might respond to the slow tier revenue decline. As unpalatable though it may be to some, the answer still isn’t any tier cut, for the same reasons I gave back in 2013.  Simply put, from the Lab’s perspective  – and contrary to popular misconceptions on the matter – what users might consider  a “reasonable” tier reduction could actually be more immediately damaging to LL’s bottom line revenue generation, and bring with it no actual guarantee it would be overcome through any sustained demand for private land.

A better way – again from the Lab’s perspective – to relieve any pressure causing by reductions in revenue would be to reduce the costs involved in running ad maintaining Second Life. Doing so may not yield direct benefits to users in terms of tier reductions – but given the Lab’s sensitivity to the subject, they could over time provide the means for the Lab to reduce the tier paid by users. In the meantime, reducing costs allows the Lab to better leverage revenue into bankable profits. This is true, as well, for the work to move Second Life to the cloud – although hopefully, as the Lab has indicated, this might also eventually result in new land products / more flexible pricing. We just perhaps shouldn’t anticipate this happening in the near future.

Might we see Horizons expanded or a re-run of the buy-down offer in 2018? Possibly; although if either were to be tried, I suspect were there to be a move towards one or the other, it would likely be more to s further run of the buy-down offer, rather than an expansion of Horizons. That said, I actually anticipate that 2018 will see a further drop in region numbers, albeit one hopefully / most likely slower as then year unfolds than that of 2017. I doubt there will be any significant reversal unless something happens to cause a sustained growth in the overall numbers of users actively engaged in Second Life.

Related Links

Looking at the Second Life 2016 year-end Grid Survey report

The Prim Rig, ANWR Channel
The Prim Rig, ANWR Channel – blog post

On January 2nd, Tyche Shepherd issued her year-end summary on the general size and state of the Second Life main grid.

In all, 2016 has seen a slightly larger loss of private regions compared to 2015: 992 private regions (Full and Homestead) removed from the main grid in 2016 compared to 825 the previous year. This represents a reduction of some 5.6% over 4.4% for 2015. In terms of grid size, the loss of private regions was slightly mitigated by an increase in Linden owned regions, leaving the grid with a net shrinkage of 884 regions overall for 2016.

Taking the year-on-year figures from 2010 onwards (that being the last year the grid exhibited a growth in the number of regions), we get the following breakdown for private regions:

2010 2011 2012 2013
2014
2015 2016
24,483 23,857 20,994 19,273
 18,600
17,775 16,783
Increase
%age
Loss
%age
Loss
%age
Loss
%age
Loss
%age
Loss
%age
Loss
%age
810 3% 626 2.56% 2863 12% 1719 8.2% 673 3.5% 825 4.4% 992 5.6%

While the loss is something of an acceleration over 2015 and 2014, it is still not as drastic as the declines in private regions seen in 2012 and 2013 . Nevertheless, it does indicate a further drop in approximate gross monthly revenues for the Lab. Working on the basis of Tyche Full Private Region surveys I have to hand, a breakdown of recent monthly revenue from private regions can be given as:

  • November 2013: US$3,857,000 (+/- US $52,000)
  • March 2016: $3,385,000 ( +/- US $43,000)
  • December 2016: US$3,162,000 (+/- US $39,000)

This represents around an 18% drop in monthly revenues over a three-year period. While uncomfortable, it’s not outright alarming at this point in time, representing an average loss of about US $19,305.55 per month, compared to the staggering US $63,500 (approx) per month loss the Lab experienced in  2012.

Of course, a loss is still a loss, and sooner or later, continuing revenue decline will have an a visible impact. But it is hard to determine when that might actually be. The surface evidence seems to be that at this point in time, while of concern, the decline isn’t adversely affecting the Lab’s ability to do business. They are still continuing to invest in both Second Life and Sansar, including recruiting for positions working on both. While it is hard to be precise, a reasonable estimation suggests that the company is generating around US $49 million in revenue through Second Life. While we don’t know how much of that is bankable as profit, it’s still a tidy sum in terms of operating revenue for a company of LL’s size.

Some have raised concerns over how much of an impact Sansar will have on SL’s landmass in 2017. I actually don’t think it will. While I anticipate the decline in land will continue (but hopefully at a slower rate than 2016), I simply don’t think Sansar will have any immediate impact on Second Life one way or the other. Not in its first year, at least.

To me, the more interesting question is what can LL do to further offset revenue drops incurred by region losses (and sadly, the answer isn’t simply to reduce tier: that could actually do far more harm than good, given the amounts involved). The Horizons initiative, for example, is one way of spawning additional revenue. We’re now around half-way through that process, and I estimate the Lab has generated around US $45,000 from it thus far. 2016 also saw the private region buy-down offer, which appeared to be enthusiastically received, although numbers are far harder to ascertain on that. Are we liable to see further initiatives in 2017? I’d actually be very surprised if we didn’t.

Private estate numbers ups-and-downs in 2016
Private estate numbers ups-and-downs in 2016

Related Links

A Look at Tyche’s private estate survey March 2016

Rocca Sorrentina
Rocca Sorrentinablog post

Tyche Shepherd, who tracks land statistics in Second Life, issued a full Private Estate survey at the end of March 2016. It’s the first such survey she has published since the end of November 2013, representing a 28-month gap between reports. Given this, it makes for some interesting reading, some of which is highlighted below.

Overall, the distribution of regions between Full, Homestead and OpenSim in March 2016 remains very similar to that of November 2013 (in fact these figures tend to  remain fairly constant as representative indicators of region distribution).

Year
Full
Homestead
OpenSpace
March 2016
53.9% (+/-1.28%) 45.6% (+/-1.28%) 0.5% (+/-0.18%)
November  2015
53.8% (+/-1.30%) 45.5% (+/-1.29%) 0.7% ( +/-0.21%)
Surveys based on 4,208 accessible regions in March 2016; 4,402 accessible regions in Nov 2013

However, Tyche indicates that, overall, the amount of private estate land has consolidated more within the top 20 estates over the 28-month period from November 2013 (39.5% of private estate land) through March 2016 (49.1%; +/- 1.3%). Using supplied list prices, Tyche estimates that the top 20 estates account for some 40.6% of total private estate tier, compared to 30.5% in November 2013.

In terms of regions held, of these top 20 estates, seven are actually under the Anshe Chung Studio (ACS) brand, accounting for 19.1% of private estate holdings, compared to 13.8 in November 2013 for ACS; again a significant increase.

Grandfathered Homesteads stand at around the 85.32% mark for 2016,  compared to 82.4% in November 2013. The year-end reports do not indicate the percentage of Full private regions that are Grandfathered, but in a comment on SLU following the Lab’s announcement on Grandfathering and buy downs, Tyche indicates that the current number of Grandfathered Full private regions stands at just over 11%.

In terms of private region decline on the grid, Tyche offers the following:

November 2013 March 2016
28-Month Region Loss
%age Decline
19424 17549 1875 10.7%

Comparing annual region losses for the period January 2012 through December 2015 shows that overall, while the decline still continues, it has slowed considerably as a percentage of the total grid since hitting a peak in 2012. However, 2015 did see a slight increase in the rate of decline, but just under 1%.

2012 2013
2014
2015
Loss %age
Loss
%age
Loss
%age
Loss
%age
2863 12% 1719 8.2% 673 3.5% 825 4.4%

In terms of revenue for the Lab, in  November 2013 the Lab was generating approximately US$3,857,000 (+/- US$52,000) per month. By March 2016, this figure was approximately US $3,385,000 ( +/- US $43,000), representing a 12% decline in monthly private region revenues across the 28 months.

While this is a drop, and allowing for the fact that figures can only estimated, it would suggest that the Lab is still generating around $49 million revenue from tier (private + Mainland) at this point in time, representing approximately 80% of their total revenue. Taking into the assorted costs involved in running, maintaining and enhancing Second Life and the company as a whole, this would suggest the Lab is still reasonably profitable.

Which is not to say there are not other clouds on the horizon. The recent buy down offer on regions could pose a problem to small or medium-sized estates where full regions are concerned (given that the majority of Homesteads are already Grandfathered), as they may find meeting the up-front US$600 difficult to meet. If so, this could make it even harder for them to remain competitive on pricing with the larger estates, and potentially lead to further consolidation of land among the latter at the expense of smaller operations forced to turn in their cards.

Tyche’s ongoing reports make for interesting reading – particularly these month-end reports, which have been sadly missed (and my thanks to Ciaran Laval for pointing-out that we now have a new one to look at). As such, I hope the March update might signal the return of these reports are returning to something of a more regular appearance, assuming Tyche has the time to pull them together!

Related Links