Deltango Vale

"That certainly looks appealing from a customer view." -------------------------------------------------------------------------- Yes, and that is a good thing. It returns the relative price of land tier back to the 2006 price point (approximately) at which SL was growing. Holding the nominal price of land tier at the 2006 level has resulted in a slow and steady relative price increase, which (ceteris paribus) has slowly and steadily pushed down sales and revenues. For those who still don't understand relative prices, imagine that a pizza costs $10 in 2013 and a steak costs $15. Now imagine what would happen if in 2020 a pizza still costs $10 while a steak has gone up in quality and and down in price (to $9). From 2013 to 2020, the nominal price of pizza stays the same ($10), but the relative price (compared to steak) increases (from 10/15 to 10/9). Pizza sales fall because more and more people switch from pizza to steak. In order to regain sales, pizza makers must reduce the relative price of pizza back to 2/3 the price of a steak (reduce the price of a pizza from $10 to $6). This is precisely the problem Linden Lab faces with the high and still rising relative price of tier (compared to a broad and expanding basket of technology-driven infotainment goods and services).

"By what percent are you proposing SL reduces tier?" ------------------------------------------------------------------------ Two years ago, I proposed a revised land tier schedule. Here is what I would propose today: Full Region: $200 per month (setup fee $200) Homestead: $100 per month (setup fee $100) Openspace: $50 per month (setup fee $50) Mainland full sim: $100 ($50 per each additional 1/2 sim) Mainland 1/2 sim: $60 Mainland 1/4 sim: $40 Mainland 8192m2: $30 Mainland 4096m2: $20 Mainland 2048m2: $15 Mainland 1024m2: $8 Mainland 1024m2: Premium bonus: free Linden Home 512m2: free I believe this new tier schedule would accomplish the following: stop the bleeding of paying residents out of SL attract new people into SL encourage new and existing residents to become Premium Members encourage residents to buy land in SL encourage residents to build and furnish homes in SL encourage residents to build inworld stores increase revenues (and profits) to Linden Lab There is something else to consider. The current high relative price of land tier is 'hollowing out' the SL economy by destroying the residential base on which the SL economy is built. As the geographic landscape shrinks and deteriorates, residents are increasingly downgrading to Basic Membership, buying their clothes on SL Marketplace and teleporting to their favorite clubs. The high relative price of land tier is converting full-time 'residents' into casual 'players'. Meanwhile, merchants are chasing an ever-dwindling population and being taxed by LL for the privilege. Linden Lab's biggest problem - its fatal flaw as a company - is that it never understood its own product. Second Life is not Disneyland or 3D Facebook or Minecraft. SL is a complex society and economy decades ahead of its time. Yet Linden Lab can't see beyond its own nose. The company lusts after the success of Angry Birds while starving to death its own golden goose.

"500 quid today, taking into account inflation, is a lot less than it was in 1981, but I doubt anyone is paying 500 quid for a microwave oven, you can get them for 20 quid, a 500 quid microwave oven would look extremely overpriced in today's market." ----------------------------------------------------------------------------------- Exactly. $200 per month for a mainland sim ($300 per month for an estate sim) is extremely overpriced in today's market. No wonder Linden Lab is selling fewer "microwaves at 500 quid" in 2013 than it did in 2006. Linden Lab needs to lower the price to increase sales (and increase total revenue).

"SL isn't suffering from a shortage of places to go." ------------------------------------------------------------------------ You make a good point about better utilization of existing land, but such an improvement on the product does not compensate for the now very high relative price of the product. I estimate that a person can purchase three times as much infotainment for $300 per month in 2013 as he could in 2006. In other words, the relative price of tier has tripled since 2006. I use the example of estate sims, but the same argument applies across all land tier prices. It is important to remember that Second Life is essentially residential, meaning that the great majority of residents seek a 'second home' in SL separate from RL. Very few residents use SL as a raw business platform. Much of the commerce in SL is performed by mom and pop residents from their SL homes. No surprises here that SL is similar to RL socially and economically. The core problem is that the price of a 'second home' in SL has tripled since 2006 relative to what can be purchased.as alternative infotainment in RL. In 2006, there was no Facebook, no Twitter, no iPhone, no iPad, no Kindle, no Angry Birds, no Minecraft etc. In 2006, self-publishing was a joke and very expensive. In 2006, an LCD TV was outrageously expensive and streamed content was not easy to get. In 2006, wireless cellphone communications barely existed. The world has changed dramatically since 2006; SL has not. If SL were just a cellphone, it would have died a long time ago. Look at Nokia or Blackberry, both behind the curve, struggling to survive. If SL were just a camera, it would have gone the way of Kodak. Netflix is now producing content because the old model of renting out other people's content no longer works in the new infotainment age. SL has survived, in spite of its increased price relative to the alternative world of infotainment, because it provides people with a unique social geography in which to live and work. Think of SL as a colony on another planet. A lot of people want to go there, but it's now becoming too expensive relative to new goodies available on Earth. Reduce the price of land in the colony and immigration will increase. Of course, cutting the price of tier is not a long-term solution. Reducing the price of a 2006-model cellphone in 2007 makes sense, but, ultimately one needs to produce a better cellphone for 2008. Second Life needs to be rebuilt from the ground up by a new company. The world is hungry for a 2015 version of Second Life managed by people who understand the true potential of virtual worlds. In the meantime, clunky old 2006 SL needs a price cut - which, in my opinion, would increase (or at least stabilize) the revenue stream of Linden Lab enough to raise the venture capital necessary to rebuild Second Life. Yes, I know this is way above the mental abilities of Linden Lab, but it is a reasonable business plan nonetheless.

"Unless a change would yield immediate increase in revenue" ------------------------------------------------------------------------------------ It's a basic microeconomics problem: sell 100 units at $10 (revenue $1,000) or 150 units at $8 (revenue $1,200) or 300 units at $5 (revenue $1,500). One look at the Grid Survey data shows a continual decline in the quantity of estates as the relative price of tier has increased. I believe that the number of private estate sims would increase significantly if the price were reduced - increasing overall revenue. At the very least, it would stop the bleeding. For those who didn't understand the original article, let me simplify: $300 per month buys a hell of a lot more and better infotainment in 2013 than it did in 2006. People have been moving their $300 per month out of SL and into other things. To make it even more simple, would you continue to pay $10 for a pizza if all the restaurants in your neighborhood began offering big, juicy sirloin steaks for $5? That is the meaning of a change in 'relative price'.

Having been an active resident and business owner in Second Life for nearly seven years, I am deeply saddened by Linden Lab's lack of basic economics and business skills. Having a monopoly in the realm of virtual worlds with user-generated content, Linden Lab functions more like a government bureaucracy than a private commercial venture. It is indeed a testament to Second Life as a product that it has survived in spite of such bad management. Considering Linden Lab's long history of ignoring its customers, why am I creating this thread? What does any of this have to do with microeconomics? Well, I suppose I feel a duty to try one more kick at the can in the hopes of penetrating the mental paralysis of Linden Lab's owners and managers. I wish to talk about a very basic concept in economics called 'relative price'. In economics, specifically microeconomics (individuals, firms and households), all prices are relative prices. There is no such thing as a price given by God; all prices are relative. Microeconomics 101, class 01, day 01, first lecture in any schoolroom in any country in the world: the price people are willing to pay for something depends on the price of an alternativeif the price of apples relative to oranges goes up, people will buy fewer applesYes, it's that simple. No hidden tricks, no math, no heavy-duty philosophy. The price we pay for something depends on how bad we want it relative to the price of an alternative. What on earth does this have to do with Second Life? The answer is the relative price of land tier. The price of tier in SL has remained fixed since 2006. In theory, that's good, right? Wrong. Since 2006, the price of similar technological products and services has fallen sharply. Not only has the relative price of alternatives fallen, but new products have come into existence, which too have fallen in price. Wordpress 2003 (free, now better)Facebook 2006 (free)Twitter 2006 (free)iPhone 2007 (now better and cheaper)Kindle 2007 (now better and cheaper)LCD TV 2007 (now better and cheaper)iPad 2010 + games + apps (now better and cheaper)Personal Computers (now faster, better and cheaper)web hosting services (now better and cheaper)digital cameras and services (now better and cheaper)online games/graphics (now better and cheaper)online movie streaming (now better and cheaper)mobile phone apps (free, greater variety)internet broadband (now faster, better, cheaper)3D graphics software and services (now better and cheaper)This is just a partial list of the vast cloud of technologically rich information and entertainments products that have come into existence, have improved and fallen in price while Second Life remains stuck in 2006 in terms of quality and price. Yeah, okay, SL graphics and functionality have improved slightly since 2006, but SL has degenerated significantly in terms of customer experience (though some might argue that SL has merely remained the same). In other words, the RELATIVE price of land tier has risen sharply since 2006 (compared to the available cloud of products and services in the technologically rich information/entertainment space). Imagine Apple marketing a 2007 iPhone today at the 2007 price. Imagine if Canon continued to sell 2006 makes and models of camera today at 2006 prices. Imagine if Sony continued to sell a deluxe improved 1990 cassette Walkman in 2013 at the same 1990 price. The result in all cases would be bankruptcy. Bottom line for Linden Lab: your 2006 prices are now too high in 2013.

Will virtual worlds such as Second Life and EVE Online be around in 10 years? Absolutely. Will Linden Lab be around in 10 years? Doubtful, but Second Life might prosper under a new owner. In 1992, virtual worlds were a purely theoretical concept. In 2002, they were built. In 2012, EVE Online topped the charts while Second Life hit bottom (basically back to where it was in 2008). To understand why, you must look at the parent companies. In a nutshell, CCP Games is one of the world's most visionary, responsive and well-managed companies. Linden Lab, on the other hand, is one of the world's most myopic, intransigent and poorly managed companies. The difference could not be more stark. We are in the Model-T phase of virtual worlds. The future is a Formula 1 Ferrari. It's still wide open who will reap the reward and the glory of building the dominant virtual world in cyberspace. Linden Lab gave up years ago.

Linden Lab in notorious for disliking its customers. In their eyes, we are all a bunch of blithering idiots with psychological and emotional problems. Honestly, a lot of smart people have tried to help Linden Lab over the years, but the company ignored them completely. As for Rod Humble, cough, you don't really believe he would lower himself to actually dealing with customers, do you? The last time he dained to communicate with us peasants was several years ago when he basically told us to s*d off.

The banner ads on SL Marketplace are sleazy. Yes, it looks like a cheap freebie site. Yes, it looks like a porn site. It gives the appearance that Linden Lab is scraping the bottom of the barrel to get revenue. It certainly pollutes the SL brand. I don't mind advertising, but ads for ambulance chasers? How low can you go?

I saw the ads on SL Marketplace. Teeth whitening? Ambulance chasers? Five Aces real poker? Squash the spider to win? I don't mind banner ads, but does LL really have to stoop to the level of a porn site?

This is way too advanced for Linden Lab. The company can't even manage to program a simple choice between first name only or first name and last name. Without the volunteers at Phoenix/Firestorm, there would be no functional viewer. In theory, there is a CEO, but no one has seen him in years. Forget headsets. Be happy SL is still running at all.

The same can be said for soft drinks and hamburgers (if you swallow the hype). Governments are 100 times worse than tobacco companies when it comes to exaggerated / misleading advertising. (Goes to the kitchen to pour a glass of ice-cold Coke to enjoy with a handful of cashew nuts.)

No worries, coffee will be banned in a few years, along with champagne, chocolate, foie gras, red meat, Coca-Cola, pretzels, cupcakes and, well, anything that brings joy to people. Right now, I'm thinking about a juicy T-bone steak sizzling on the grill and a cold beer, apple pie with ice-cream for desert, double-espresso and, of course, a cigarette. Yum. Why go through life eating boiled cabbage and drinking milk when we will all die of something that gets nastier the longer we live? Me, I'd rather have a short, happy life than a long, boring life and die anyway of cancer or Alzheimer or osteoporosis or arthritis or dementia or liver failure or simply falling down the stairs. A cigarette with coffee is one of life's great pleasures. Enjoy it while you can.

The best cigarette is the one with coffee in the morning.

"Learn to be tolerant. In a world that is limited only by imagination and fantasy, you will find a diverse range of ideas that do not match your own, but that does not make them wrong, it just makes them different." ---------------------------------------------------------------- This ^ should be displayed (bold italics) on the signup page, the login page and at every inworld infohub. It is the Golden Rule, the guiding principle, the mission statement and overarching philosophy of Second Life. If one cannot understand it, one should leave SL and play games elsewhere.

Hi Celest, I'm listening and want to understand your argument. Here is what I think you are saying: Case 1 (2003, before LL absorbs VAT): Judy (UK) signs up for annual Premium membership ($72), LL makes, say, $20 profit ($52 in costs)Case 2 (2006, LL absorbs VAT): Susan (UK) signs up for Premium ($72), LL makes $6 profit ($52 in costs + $14 VAT cost) Joe (UK) signs up for Premium, LL makes $6 profit Bob (UK) signs up for Premium, LL makes $6 profit Barbara (UK) signs up for Premium, LL makes $6 profit Case 3 (2007, LL transfers VAT cost to customers): Judy, Susan, Joe, Bob and Barbara now pay L$86. LL makes 5 x $20 profit (no VAT cost)Case 4 (2008, time to renew membership): Judy, Susan and Joe downgrade to Basic, Bob and Barbara stay Premium. LL makes 2 x $20 = $40 profit $40 is better than $30 (5 x $6) If this is what you are saying, then it makes sense for LL to pass VAT onto its EU customers (at least in raw financial terms). What I think happened is this: Case 5: Judy, Susan, Joe and Bob downgrade to Basic, Barbara stays Premium, LL makes $20 profit LL could have had $30 profit (5 x $6) Needless to say, these scenarios could equally apply to the price of tier. Here is some interesting info. Premium membership increased every single month from January 2005, peaking in June 2007 (94,607). It doesn't prove anything (VAT was applied in September 2007), but it equally undermines LL's case (expansion stopped three months before VAT was applied). To the best of my knowledge, LL stopped publishing Premium membership data in March 2008 (89,875). I'd have to comb through the spreadsheets to try and track EU participation. Sadly, I'm not a good econometrician. Perhaps Tyche Shepherd could tease it out. Are we on the same page or have I misunderstood you entirely?

I'm with you, girl, and Pussycat about being insanely frustrated with Linden Lab. I again make the comparison with Kodak, which, with all its scientists, managers, patents, IP, research facilities, lawyers, accountants and consultants, couldn't figure out that digital imaging would replace celluloid film. One gawks in amazement as the company eventually filed for bankruptcy. Not only did Kodak invent the digital camera (1975), but it saw its patent wall breached by Polaroid, so you think they would have learned their lesson. Pussycat is absolutely right that Linden Lab lacks multidisciplinary people with long-range vision. The company continues to treat Second Life as a software project, not realizing that SL stopped being a mere software project in 2006. Even CCP Games, who make the world's most math-engineering-intensive game (EVE Online, a heavy-duty spaceship game) understand the human element. The company bends over backwards to work with its customers. It has more knowledge of economics, business and financial systems than Linden Lab (running a heavy-duty social/political economy). How is it possible that a military/spaceship game company can manage a virtual world better than Linden Lab? I scratch my head, bewildered. Perhaps it's because CCP Games is based in Iceland, while Linden Lab is based in San Francisco

Let me simplify and try again. Concept 1: presume you sell a widget for $10 presume it costs $7 to make that widget presume your costs rise to $9 you still make a profit of $1 yes, your profit margin is reduced, but you still make a profit Linden Lab never claimed they were making losses on European sales. The company's announcement was ambiguous. I believe strongly that Linden Lab was still making a profit on European sales. I believe Linden Lab's policy change was based on greed and ignorance (they wanted to keep their high profit margin). Concept 2: presume you raise the price of the widget to $12 if you raise your prices dramatically without advance warning, your reputation falls presume your customers can walk away with the click of a mouse your sales fall your profits fall your business shrinks (in the long run) My argument (which may be wrong) is that Linden Lab lost more money from lost profits (because of lower sales) than it saved in expenses (VAT). As for fairness, here was the choice (if my argument about lost profits being greater than saved expenses is correct): all residents get hurt (Europeans more than the rest) all residents benefit (Europeans and other benefit equally) Until Linden Lab publishes financial data to show that absorbing VAT generated losses from European sales (that LL lost money on European customers), I will continue to argue that Linden Lab made a bad business decision, which had a negative effect on Linden Lab as a company and every resident in SL. To disprove my argument, one must show that absorbing VAT generated losses on European sales.

Yes, an alternative might have been to raise the group tier bonus for EU mainland owners from 10% to 30%. This might have also helped to mop up some of the oversupply of mainland. As for estate owners, gods, I can't think of anything to have helped them except a price reduction back to parity. A lot of single islands were used solely for recreation. The UK price for them jumped from US$295 to US$351. The French price jumped to US$369. They didn't sign up for that. As for mom and pop businesses on islands, that extra US$50-70 probably wiped out all their profits. And how does one monetize psychology? If you find a dead fly in your soup or discover the bathroom is filthy, will you return to that restaurant? What do you tell your friends? Word gets around fast.

@ everyone Hundreds of pages of tightly-argued legal definitions are a distraction from the real issue. The real issue is what Linden Lab chose to do about it. Linden Lab claimed it had to pay VAT (probably true). Now let's move on. I have argued consistently that Linden Lab made a strategic error by changing its policy on how to deal with VAT. At first, Linden Lab treated VAT as an internationally pooled 'Cost of Goods Sold' (like electricity, wages, office rent, ISP charges, etc., which vary from country to country). This, in my opinion was a sensible approach because it generated sales, which would more than offset the cost of VAT. Linden Lab stated clearly that it changed its policy in order to cut costs: "We have been asked quite a bit why we haven’t charged VAT before now. The simple answer is that Linden Lab was able to absorb the cost of VAT on behalf of its EU customers. Our business in Europe has quadrupled each year since 2004 and already it has more than quadrupled in 2007 through September. As a result, we can no longer afford to absorb these costs for European Residents." This decision, in my opinion, was shortsighted and counterproductive. I believe Linden Lab turned cheapskate, which killed SL's long-term growth potential in Europe, which killed the expanding revenue stream, which, in the end, cost more in lost profit than the cost of VAT. Every RL investor in Linden Lab and every resident in every country paid for that mistake. For those who want all the quotes, the links and the math, see COGS in the VAT Machine

Well said. LL is stuck in the past, tinkering with SL like kids in kindergarten. Oooh, let's make a story game, ahhh, let's play dollhouse on Facebook, wow, let's make money like Farmville. Meanwhile the biggest upheaval on the planet is floating right before their very eyes. It reminds me of my grandfather: "These new-fanged computers are gonna put everyone out of work. We're all going to starve to death." Or my dad: "What use is a mobile phone? I already have a perfectly good phone on my desk at home." I remember reading that Steve Ballmer pleaded with Bill Gates to take the internet seriously (Gates thought the internet was a fad; he thought TV was the future). Ballmer had to whack him over the head with a rolling pin to get him to wake up, which he did. I imagine Steve Jobs pulling his hair out trying to explain the concept of an 'app' to his Board of Directors. How is it possible that Silicon Valley has so much brainpower and so few brains?

Here is info on UK VAT: http://www.hmrc.gov.uk/vat/start/register/when-to-register.htm Note: "You can't register for VAT if you aren't in business according to the definition that HM Revenue & Customs (HMRC) uses for VAT purposes." That applies to the UK (which is probably the easiest country in the EU to register a business). Other EU countries have their own requirements, restrictions, procedures, application forms and miles of red tape. Good luck registering a business in France or Portugal. Most mom and pop businesses in SL have no clue how to register a business in RL. SL wasn't designed for megacorporations with hundreds of lawyers and tax accountants. SL was designed for the little guy. It was one of the great virtues of SL that John or Jane could buy some land, use photoshop to make some clothes and sell them. The little guy had a chance to do something positive and constructive without having to first get a law degree.

Thank you for reading the article. My argument is simple: I believe Linden Lab made a bad business decision. I believe Linden Lab sacrificed significant long-term gains for short-term cost-savings. I believe, as a result, that all residents were and continue to be hurt by that bad business decision. You disagree with my argument. No problem. Thank you for taking the time to understand it. My own personal experience was to witness a large sell-off by other European landowners (including the downgrading of alts and even primary accounts from Premium to Basic). There was no SL Marketplace at the time, so, they closed their businesses when they sold their land. I myself dumped land the instant I verified the announcement (Linden Lab subsequently apologized for the way the announcement was made). Only Linden Lab has hard data on the size of the European capital flight. Unless there is a way of analyzing the Gridsurvey data, you and I will never know. Regarding my own personal ethical position, I believe it is unethical for companies to sacrifice long-term growth for short-term gain. In the case of Linden Lab, I believe the company did precisely that - at everyone's expense.

Phil, read the article. All the quotes, links and math are in the article (and followup comment).

@ 16, Qie, Perrie, Thank you for reading the article. For those who have not read the article, the facts are these: Linden Lab had a choice. Linden Lab stated clearly that it had a choice Linden Lab made a policy decision. Linden Lab stated clearly that it made a policy decision My argument is that Linden Lab made a bad business decision. My opinion is based on the following philosophy: spend a dollar today, make 10 tomorrow (= save a dollar today, forgo 10 tomorrow)Linden Lab chose to save a dollar today. Linden Lab stated clearly that it wished to save a dollar today. My argument then and now is that Linden Lab did not consider the cost of that decision. My argument was that the long-term cost of that decision would be far greater than the short-term savings. In other words, my argument was that Linden Lab was sacrificing 10 dollars in the future in order to save one dollar today. Can my argument be proven. No. only Linden Lab knew its financial data and projections Linden Lab never explains its strategic decisions (a serious mistake, in my opinion) perhaps there was a strong business case to save a dollar today Regarding RL taxes: few (if any) SL residents qualify for VAT status (which means they have to suck it up) the vast majority of SL residents are mom and pop operations earning (losing) small amounts few (if any) SL residents declare SL income on their RL tax returns (the day LL charges income and capital gains tax is the day SL dies) Regarding exchange rates: if exchange rates are to be factors in pricing then all factors need to be considered in pricing - including PPP (Purchasing Power Parity) - which, as Perrie correctly sees, leads to a very complex equation discriminatory pricing can and does work (many global companies do it), but it's a very tricky operation based on market segmentation in addition to costs Linden Labs' stated philosophy at the time was for universal nominal pricing (which it subsequently abandoned) How shall we evaluate Linden Lab's decision (in hindsight): Linden Lab has now a well-earned reputation for making poor business and management decisions (I would include discriminatory pricing among them) let's remember Avatars United, the CEO shuffle, the firings and resignations, the 30% staff layoffs and the closing of international offices (which means, btw, LL no longer has a presence in the EU) how is SL doing these days? prospering? growing? making headlines as an amazing success story? Right. This post only concerns only one aspect of Linden Lab's larger problems. Many thanks to Perrie for starting this thread.