Friday, October 24, 2008

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Are Freebies Hurting The SL Economy? Round-Up Of Thoughts On An Over-Saturated Economy

Profitable_sl_businesses One of the latest controversies roiling the Second Life commentariat is the role of freebies in the economy, those free or very low cost items that store owners give away, largely for promotional purposes.  (Ana Luetia has a round-up of opinions here.)  As the latest Linden figures suggest, the number of profitable SL businesses has decreased in the second quarter of this year, and some are pointing fingers at freebies, which contribute to an oversaturation of content, and a presumption among newbies that they should spend little or nothing on Second Life items. 

Prad Prathivi goes so far as saying that "the freebie culture needs to be nipped in the bud and set up so it can’t be abused at the expense of designer’s generosity."  To Dusan Writer, freebies are a symptom of a much larger problem, since they're a way to attract customers in an economy where "branding, community relations, and information management systems" are "clunky, difficult and time consuming".

What's this say about the larger economy?  In a post that's roughly the length of Adam Smith's Wealth of Nations, metaverse intellectual and entrepeneur Gwynneth Llewellyn lays out "The Hard Facts About The Second Life Economy".  The much shorter, readable version of her insights comes from Sophrosyne Stenvaag: in essence, Gwyn believes that just 100,000 Second Life users comprise the real SL economy, that (as Sophrosyne puts it), "there are too many producers chasing too few consumers, and that the situation's unlikely to change."  Ms. Stenvaag has an even harsher personal take: "SL is a third world economy. The vast mass of people here are economically irrelevant: they produce and consume nothing."  Perhaps overstated, but the over-saturation of content is hard to deny.

Priceless_001All of which brings me back to an open forum Iris Ophelia and I posted yesterday:  What is the most precious item in Second Life? For however small the economy may be, there are still creative works that some Residents are willing to pay a high premium for.  What are those commercial objects of desire that still maintain their value in this apparent recession buried by freebies?  Some suggest the famed Dominus Shadow muscle car; others, the prefab homes of Scarlet Creative; still others, the steampunk flying submarine by Carrah Rossini.  Please post your own suggestions here.

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Ann Otoole

People should never release anything as copy/transfer.

Free items should never be released as transferable.

That being said the issue is not freebies. Freebies given out as legit gifts are not bad.

In fact free gifts that have honest value drive sales.

But why would we put any faith in any metrics from Linden Lab since they will not ban traffic falsification? The traffic numbers are known to be padded with bots and no metrics issued by Linden Lab are independently verifiable. I know a lot of people doing better than ever now. So something seems to be wrong with the picture somewhere.

Maybe the populace is changing their minds about where they shop now.

Not to mention the land business is going down and LL has begun competing in the content creation business with the new themed mainland that they have a significant advantage with. I can see most private estates going bankrupt pretty soon and a lot of residents losing their private estate land and just walking away from SL instead of seeking consumer protection.

Linden Lab needs to drop island tier to be equal to mainland pretty quick to allow for fair competition practices. Or raise mainland tier to be equal to island tier. Best bet would be to make all tiers level and cut it in half during the recession. If they want to stay viable that is. SL is entertainment and it may come down to everyone giving up internet activities given the cable companies intent to charge increased fees for heavy bandwidth use. 2 hours a day is all you can get off time warner and that's without music and videos and not surfing the web etc. sl only. 2 hours a day in sl gets to 40GB a month easy.

SL faces an uphill battle to survive unless the lab starts paying the political party donations to shut down the cable company plans to gouge residents.

Ann Otoole

Odd. comments not being displayed.

Bettina Tizzy

The economy is hurting the SL economy. It has certainly pinched mine.

Freebies are wholesome and cool ways for newbies to get started. They are also a way for people to make others aware of their creations.

Ana Lutetia

1. Some people demand freebies from content creators but they don't realize that the upload has a cost.
2. People criticize the quality of some freebies and send nasty IMs to creators.
3. If people pick every single freebie/dollarbie in the grid they will end up spending more L$ than if they would choose quality items.
4. People are choosing low prices over quality items.
5. Content creators are feeling pressure to release freebies/dollarbies due the market pressure.
6. Freebies/dollarbies are great for new residents to get started.
7. Freebies/dollarbies used to be special articles send to groups or loyal customers.
8. Freebies/dollarbies are a great way to drive traffic to a store.
9. The grid is overflowed with freebies/dollarbies/hunts/sales-for-no-reason.
10. I truly hope that this market trend will be inverted really soon or else we will have a decrease in quality items all over the grid.

4 yr resident..

Freebies are a sign of new, improved or better selling products.

Freebies are usually the out of style, out of date type products anyways.

After a few days of playing most users see what they have is old school and therefore edit the product for the creator and visits them to see what the may have that is newer now that they have played a few days are addicted and bought a few lindens to spend.

When sculpties came into the game a whole new supply of items hit the market using less prims and had a better look to them. From fashion to landscaping the list goes on.

Now you can actully buy a skirt that wears like a skirt and not 20 sheets of paper pinned around your waist, or shoes that look and fit like shoes, not a bunch of blingy legos on the bottom of your feet.

Those skirts and shoes are now freebies...doesn't take long for a shopping resident to see their freebie doesn't stack up to the new products and buy new designs...

all works out in the end...

Iggy O

I don't run a store, so it's hard to speculate about the role of freebies.

But one speculation about the broader economy, bandwidth-pricing (damn the cable monopolies) aside: will residents unable to afford that perfect outfit or beach-hut IRL be MORE likely, in a time of economic malaise, toss down a few hundred L for it in SL?

People crowded into movie theaters in the Great Depression for $.05 US. People will pay for fantasy...and SL does offer a temporary economic escape.

Ana Lutetia

Dear 4 yr resident,
The freebies of these days aren't the old items or old stuff people made. That isn't what is happening these days! Some time ago the freebies were old things or stuff that was outdated. Some of today's freebies are sculpties of excellent quality and clothes with excellent textures. how can a honest content creator compete with that?
The thing is people are choosing price over quality even if makes them spend more L$ in the end than if they would actually choose a item from a quality content creator. And the fashion blogging is turning into this freebie culture instead of praising a content creator for the quality he/she offers.

Whitfield's Ointment

I suspect freebies are a symptom, not the cause of the disease. I would contend that the problem is free market forces responding to a strictly restrained pseudo-economy and the result is our own tiny "crisis of confidence".

If we no longer believe there is value in the things we purchase in SL, then those objects actually have no value at all despite the price tag - they are intangible assets - shares of sorts, in Linden Labs no less!

A modern economy can compensate for by fluctuations in the value of its currency/interest rates. But clearly not the Linden$ Thus there is no safety valve nor safety net.

The controlled economy places LL's income at risk, so who knows?

Imagine a country called "Second life". It's currency is fixed against the US$, population stagnant, no appreciable exports (that benefit the population, in fact hard currency is the only major export - how scary is that!). The closed economy is sustained by investments of time and hard currency from "the faithful".

I am reminded of an economy like the former state of Tibet, a theocracy of sorts... will SL share the fate of Tibet, or can the Lindens create a Vatican City scenario?

It's fascinating!

4 yr. resident

Dear Ana,

quote: how can a honest content creator compete with that?

Come up with something new that someone else hasn't yet...and that people will want and buy.

And what exactly are you looking for profit or praise? Your profit should be all the praise you need along with word of mouth...like between people picking up the freebies.

Blogs on fashion are a big joke. Just a bunch of cliques feeding off each other like piranhas.

If you can't compete with freebies then your work must be low quality. Quality sells not praise from blogs which are only read by other bloggers looking for drama.

Virrginia Tombola

As a content creator, and one who pays for her groceries with SL content, I think freebies have an important part in both marketing and the SL experience.

Marketing is quite obvious: we want people to have something of ours to enjoy. It functions a bit like a business card they won't drop into the dustbin.

The SL experience thing is not as obvious a benefit to the business-minded, but remember that a new person who is not having fun is not someone who will stay, nor does that word of mouth encourage others to try out SL. Yes, I agree, for the price of a fast food meal one can completely equip oneself with a warddrobe, AO and a fun toy or two, but there is that "try out" period before someone becomes even that invested in SL. Freebies increase the likelihood that a newb will stay and become part of the SL economy.

Pavig Lok

I don't think it's freebies that's hurting the SL economy. I sell a product and give away a lot of freebies. Though my sales have reduced over the last six months, so have my freebie sales (which are also listed in your account stats as zero dollar sales or transfers).

My feeling is the in wold economic downturn is more to do with an aging population. Retention in SL is low, but those who stay tend to stay long. The longer you stay in SL the more your inventory fills up, so eventually most folk slow down on buying items. Having seen a slowdown of newcomers SL is now full of oldbies who have better things to do than shop.

Unlike the real world where everyone needs to consume perishables or non-copyable items, and stuff gets old and breaks, everyone contributes to the economy directly. If SL is doing it's job however those needs shouldn't drive the economy, instead it should be about value added services, entertainment, utilities and so on. When there is no scarcity, copies of the money making enterprises that work in RL will not work virtually.

Even so most of the businesses in SL look very much like real world ones. To me it just makes sense that in a world where your clothes never wear out, cost nothing to produce (after designed) and competition is high... well the bucks will only flow during high growth periods, then the economy will collapse.

Free culture isn't the problem, nor is it residents who don't economically contribute. It's that most of us have been looking in the wrong direction for what makes viable business in virtual worlds..... Just my two cents as usual :P

Melissa Yeuxdoux

You're absolutely right, Pavig, but I have this horrible feeling that someone will read your comment and contemplate building planned obsolescence scripting into products.

CyFishy Traveler

I don't know if 'planned' obsolescence is necessary--if one continues to innovate and improve, then obsolescence happens all on its own.

It's funny how people are so quick to blame Linden Lab for their economic woes. If the Lindens just Did Something About This, they seem to think, then all these difficulties would be solved.

Why should they have to? Their job is to provide a functional environment and let people do what they will in it. If you make more money than you spend, good for you. If you spend more money than you make, well, just look at it as an entertainment expense, or a relatively inexpensive lesson in economics.

The laws of supply and demand are basic enough that you probably learned them in high school. So many bad business decisions--inworld and in that 'real world' folks talk about--seem to stem from the curious delusion that demand for a given item will always remain constant or increase and never ever decrease. The economic meltdown we're dealing with right now pretty much sprang from that delusion.

Hamlet Au

Instead of planned obsolescence, I wonder if the Lindens could add a date/timestamp to objects that are put on sale? That's not obsolescence, but it would tend to put a premium on newer objects, while adding an "antique" value to quality items from a year or two back, if they're extremely well made. It might also help clarify content theft allegations.

Mocksoup Graves

I disagree with 'freebie culture' ruining the economy in SL. I think that is a scapegoat argument.

There ARE high quality freebies around the grid. That is the competitive market for you. There are ALOT more stores to go to than there once was. I remember when I had to wait for one or two stores to release new outfits.They could release pretty much any crap they wanted and I would have bought it because they were the only game in town.

I spent alot of time freebie hunting, and I spend an equal amount of time buying lindens, earning lindens and spending lindens. I think of freebies as a way to demo a product line.It is also a source of entertainment for me and a way to socialize. I have met alot of great content creators, as well as other freebie hunters just from hopping around the grid.I go to new places and discover new things. That doesn't mean I don't spend the same amount (if not more) than I did before. I consider it an alternative to club going.

There are jerks in every group. People are going to complain about nothing, or im you for stupid reasons. That is one of the trade offs you get when you go into business for yourself.

I do like the idea of a 'timestamp' I would actually prefer more items be 'transfer' again as well. I have alot of items that don't fit well with my shape and that was just another dollar deleted from my inventory. I can't pass it on to someone else who might benefit from it.

I think this is a big to do about something little. I don't think this is really hurting anyone or anything...but it is something to commiserate about.

Ann Otoole

A date/time stamp showing the date when the assembly was last linked would be good. Ever seen those piles of default cubes laying around for months and months? There is a reason. It is a ripper technique. You cannot go by the dates on the prims in the assembly. We need to know the date the assembly was last linked together.

Content Creator

"It's funny how people are so quick to blame Linden Lab for their economic woes. If the Lindens just Did Something About This, they seem to think, then all these difficulties would be solved."

Well technically people have a point there. Effective this year Linden Lab now compete directly with their LDPW work. They pay the Moles 10 USD per hour. And actually for those outside the US it could mean below the legal minimum wage. This contributes to the vast focus Linden Lab have at the moment on creating mainland that sells for a premium. You may also be interested in the work they are doing on Open Space sims - basically sim in a box looking at the work underway. Soon I expect they will do the Clever Zebra format (except without the bad builds) and educational/other insistutions coming online can get their presence immediately.

And with their new agreement with Rivers Run Red, that effectively closes off any effective competition from other developers on the platform. The SL Grid is now so biaised towards Rivers, it makes fair competition unlikely.

Which brings me to the fact that most developers will have to offer behind the firewall services from the Open Source servers.

The SL economy is borked, I personally would not be holding multiple sims on an overpriced hosting service that lacks agility in the current market. Freebies are actually pretty irrelevant at this stage. The damage is already done.

Arwyn Quandry

Freebies can't be the only bad thing in the world of our SL Economy. TSL has virtually no freebies (or decent ones, at least), and it's economy is in the garbage anyways. In moderation, freebies are nice, but I agree that overdoing them will cause issues of entitlement. People will start thinking that they deserve everything for free. Beyond thinking they should have everything for free, I don't see it being a major economic issue. We jump at every little hiccup, and I don't think this hiccup is any different than the others we've had. People are just quick to be spooked and criticize the Lindens for everything that has every gone wrong.

If you think that freebies are really causing such issues, stop taking them, and stop putting them out.

Melanie Aluveaux

I am simply a consumer, so I cannot speak for the content creators. However, I appreciate the freebies, and I will often purchase goods from the designer if the samples have pleased me. The use of samples to attract customers is a tried and true marketing strategy, long used by RL industries such as foods and pharmaceuticals. In a highly competitive environment, the best marketers with the best products survive while other producers are eliminated. Second Life is over saturated with producers. We are simply experiencing the free market in action.

Faerie

It seems to me that there is only one "economy" that really matters - that if course is LL's economy. SL depends on that economy for its very existance after all, LL are not a registered charity and their employees are not volunteers.

So why do so many other people act as if they have A RIGHT (written in flaming letters 3m high) to earn a RL income from SL?

They talk about "investing" in sims (but don't all investments involve a degree of risk?).

They demand LL charge prices that guarantee that they can earn a personal income.

They demand that freebies be stamped out (so that residents be forced to spend money).

At the core of these complaints are demands that their profits must be protected or "SL will fail". Well SL will not fail if certain residents don't make a profit. It will only fail if LL don't make a profit.

Gwynneth's message was right - the simple fact is there are too many people selling nearly identical things. Success has attracted more and more people who thought "I can do that too" - and they could.

Freebies aren't killing the SL economy - they are improving it by showing everyone what good quality looks like, who makes it and where to get it (or not). I spend money in SL and nearly all the shops that I go to I learned about because they originally gave me a good quality freebie (and sometimes more than one) to show me how good their work is.

But I wish people would stop carrying on about their right to earn a RL income from SL because that "right" doesn't exist.

Deli

OMG, people, get over yourselves. Freebies (especially *quality* freebies) are incentives for normal customers to return to the store. I don't pay SL for lindens - I earn mine through contests, camping, and other little tricks that I picked up. There are only certain stores that I pay over 150L for any outfit, and those stores are ones that offer *quality* freebies that *hook* me onto their products. Because the freebies are so good, I feel that paying for further outfits is worth it.

These are the stores that I seriously shop at:

Falln Angel
Ivalde
Grim Bros
Silent Sparrow
WISH Shoes
Bare Rose
Wunderlich's
Crushed Velvet

ALL of these stores offered quality freebies that hooked me onto their product. All of these stores I am happy to spend my lindens in because they cared so much about their customers that they didn't offer up crap as an incentive for them to shop there.

SL may be a game, but good customer relations is still integral (along with a good product) to making a successful business. So stop complaining and join the bandwagon. Offer up freebies, lucky chairs, magic boxes, hunts, random give-aways, and whatever other neat tricks there are out there. Your customers will appreciate it and you'll attract new people with the quality of your items.

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