How Much Is Linden Lab Making From Second Life, Anyway? (Updated)
For a rough guess, how's somewhere in the range of $40-50 million this year sound? [10/29: See update below-- WJA] During a recent broadcast of the Metanomics show, company CFO Zee Linden (John Zdanowski) made an impromptu appearance (part one here, part two here) to refute downbeat analyzes of Linden Lab's financial prospects by insisting that the situation "is far from dire", describing the Lindens as profitable. (A claim often made by outgoing CEO Philip Rosedale and many of his staff.)
But how profitable? The company is privately held, and thus under no obligation to publish its earnings. But the thing is, Linden is transparent enough with its core revenue sources on its Economic Stats page, its usage stats, and its pricing guidelines to make an educated guess. (And I stress this is just a guess based on known variables.) I welcome corrections and amendments, but here's where that very broad $40-50 mill calculation comes from:
There's currently 14,597 islands, and they make an average of $1200 for the sale of each; they charge $295 per island per month for land use fees. (I say average, as island pricing has fluctuated recently.) So about $17,500,000 for the island sales, but that's a one-time fee.
Recurring income is around $4 million/month in island land use fees. The Lindens also charge land fees on the cheaper, Linden-controlled mainland continents, and that's maybe 30-40% of the total land mass, so say $2 million/month more. Add the island sales and commission revenue from L$/US$ transactions, plus the 92,000 Premium account holders paying $10 per month for another $2 million total a month. All that tabulated, $8 million a month gross seems like a safe (if very sloppy) guess.
Add that all up and you get around $96 million total gross income this year. But how much of that goes into expenses?
There's currently about 250 employees, so at an average of $100,000 a year each, that's $25 million. There's five offices (San Francisco, Mountain View, Seattle, Boston, and Brighton
Dover, UK), so let's assume rent and related building/infrastructure expenses come out to $5 million.
The next big cost, of course, is running the Second Life grid, and last March, that was embodied on 2000 servers; the land mass has more than doubled since then, so let's assume it's about 4000 servers now. How much does it cost to maintain a grid of that size where user concurrency goes from 20,000-70,000, with each user streaming, say, about 50 megs of data per hour? I ran those back-of-the-envelope numbers past a Silicon Valley veteran, and he estimated $10-20 million. Since the company also has a co-location presence in Texas, let's go with $15 million. Toss in another $5 million for other various and sundry company expenses (publicity, legal, insurance, etc. etc.)
Add all the expenses together, and we're looking at $50 million per year.
Subtract that from gross income, and you wind up with $46 million, hence my $40-50 million estimate window.
As I say, this is an extremely rough guess, and I'm far from an expert on company management, and it's very possible I've miscalculated and/or omitted important variables. I'd love to see alternate estimates in Comments, and invite other bloggers and journalists to do so, too. As Zee Linden notes, Linden Lab is one of the most transparent private companies out there, and seeing as how many Residents depend on its success for their own livelihood, it's crucial to begin thinking about those bottom line terms.
Update, 10:30pm: Bumped up. Simeon Brunozzi of Second Life Pros thinks the profit margin is more like $40 million a year. She may be right-- in Comments Prospero Linden notes that there are now almost 5000 servers running the Second Life grid, not the 4000 I assumed in the tally.
Another thought: Given that land fees and Premium subscriptions are the lion's share of the Lindens' revenue, and assuming the $96 million gross is accurate, that means 92,000+ users are paying the company an average of $1000+ each per year.
Update 2, 10/29: When I put this $40-50 million profit figure to new CEO Mark Kingdon in a July interview, he told me, "I won’t say [how much], but it’s not that high, although we are profitable and generating positive cash flow."