Tuesday, March 24, 2009

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Top Second Life Entrepeneur Cashing Out US$1.7 Million Yearly; Furnishings, Events Management Among Top Earners

Robin Harper Linden

During a March 9 Silicon Valley forum held at Microsoft's Mountain View campus, recently-departed Linden Lab VP Robin Harper offered some extraordinary financial numbers from Second Life's internal economy: based on a quarterly annualization the company conducted, they discovered that several Resident business owners were cashing out Linden Dollars in excess of a million US dollars a year, with the top earner grossing an estimated $1.7 million.  An initial blog report suggested this top ranking was based on the sale of virtual shoes, which seemed fairly incredible, so I double-checked that point with Robin.  The $1.7 million figure is accurate, she told me by e-mail and in a correction on her blog today, but it's not based on shoes:

"[S]everal people/accounts are cashing out US$ amounts in excess of $1M per year (with the highest amount estimated at $1.7M), based on annualizing one quarter of data. Most of the top 10 are in the real estate business, but the group also includes a company that does events and one that designs virtual goods including shoes." 

Besides the pure wallop of those weighty numbers, two things stand out to me:

Though it's well known that many of SL's land barons are enormously successful, many people have assumed their equity was mainly in the value of the land (i.e. servers) they owned.  (This was the case of Anshe Chung, who claimed in 2006 to be SL's first millionaire, but mostly through her land holdings, which she would have to sell, to truly have a million in US dollars.) Now thanks to Robin, we discover that several land barons are indeed able to cash out that amount, or more.   Equally surprising is the fact that the top ten is not just in real estate, but include virtual fashion/furnishings, and events management.  I'd not have guessed either could reach revenue levels of such heights.  Now follows the immediate speculation: who's doing so well, and how did they get that way?

Hat tip: JeanRicard Broek

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Elanthius Flagstaff

It's not totally implausible. If you had 700 sims and were making $200 a month profit off each that would be 1.7 million a year. There are several estates of that sort of size.

Maggie Darwin

Condsering a sim costs $300 a month, making $200 profit on one is a pretty sweet margin.

You'd have to do one heckuva value-add to justify that.

Cristalle Karami

The people with 700 sims have the vast majority of them at grandfathered rates, $195/month. So $200/month profit is a realistic number. The question is, what does it mean to "cash out" - is this merely LindeX sales, or processed credit resulting in PayPal payments?

sfsnmt

Not that hard to cash out a good bit when you are running landbots and buying land at 1L$ or well below market then dumping it all just above the bottom of the market. Using these 'revolutionary search' tactics, certain people have been playing the system for quite a while. And why not, LL allows it, even condones it. Of course it is against the rules, but who cares because if they don't do it someone else will.

Doubledown Tandino

That figure seems a bit inflated to me, especially when you're just taking a broad glance at a million dollars in transactions. This does not mean they are at million dollar profit. If they make 1 million and spend $999,999... that's not making a million a year.

Just thinking for a second... The Bloodlines dude mentioned he's making 6 figures... i dunno how any shop could sell stuff faster than the bloodlines shop.

Doubledown Tandino

That figure seems a bit inflated to me, especially when you're just taking a broad glance at a million dollars in transactions. This does not mean they are at million dollar profit. If they make 1 million and spend $999,999... that's not making a million a year.

Just thinking for a second... The Bloodlines dude mentioned he's making 6 figures... i dunno how any shop could sell stuff faster than the bloodlines shop.

Urizenus Sklar

I *hope* they are cashing out this much, otherwise they are not paying their bills.

Suppose you have 700 sims, and suppose that *all* of them are grandfathered in, so you are paying $200 a month (o.k. I rounded up from 195 to make the math easy). Well in that case your yearly bill to Linden Lab is $1,680,000. Which means that if you cashed out 1.7 million you cashed out just enough to pay the Lindens for your simulator rent and you cashed out $20,000 more for funny money. (Perhaps to pay yourself?) Clearly big landowners are cashing out much more than this to keep their operations running (assuming some of their employees are getting paid in terrestial government currencies). They are just not doing through Linden Lab.

Harper Ganesvoort

I'd like to be able to cash out $100, let alone a million. The art business just doesn't do it, or I need to give up my loyalty to my current landlord and move to a better location. I'd like for my Grid habit to pay for itself one day.

Urizenus Sklar

Note too that Robin clarifies that by "cashing out" she means exactly that:

"By cashing out I mean literally exchanging L$ for US$. There is nothing implied in these numbers about whether or not any actual profit was made."

Hammie, you misrepresent this when you say the following:

"they discovered that several Resident business owners were cashing out Linden Dollars in excess of a million US dollars a year, with the top earner grossing an estimated $1.7 million."

This has nothing to do with earnings. For all we know the person who cashed out 1.7 million *lost* money in the quarter examined. It also doesn't reflect gross sales necessarily.

Sioban McMahon

Land is where the money is, for sure. A handful of clothing designers make RL money. Some of the furniture builders or prim part makers do, too, particularly if there's a sex angle to the business.

Our charity has 8 sims, two of which are open space. The two open space and one full sim are public areas. The other five we run as rentals. The rentals easily pay our Linden Lab bills and generate extra income that is combined with lindens dropped in the charity donation bins at events to make up the monthly check we mail to the charity.

The land rentals, now that they are set up and we have a good reputation as for quality sims/parcels, is MUCH easier than running events. The rentals are much more lucrative, as well.

For our business model, though, we need both the land to cover the bills and the events/public areas to create the community to rent the land and to raise awareness of Project Children. It would take a good bit of time to get a solid reputation or name recognition with out something that brings folks to your sims.

I wonder if a new mega land baron could arise now with the new pricing structure?

Chenin Anabuki

Since the figures are based on "cashing out", it is also possible that some of these individuals are doing currency arbitrage with US$/L$. Maybe they allowed their L$ assets to accumulate over a certain period of time hedging that the US$ will become weaker against the L$. That was actually the case from 2005 to 2008. So, profit is made from taking advantage of exchange rate fluctuations. I think the missing key information here is...what was the source for the L$s prior to the cash out?

Lorelei Mission

It's been obvious people are making enormous profits in SL, by the amounts spent on ads. For example, search the word "sex". The top ad is paying 440002Ls/week for that position. If you check the cashout value for those Ls, that location is spending about $6600 USD per month on that classified ad. If their advertising budget is $6600 USD per month, you know they must be making an attractive profit. If you add up the top ten ads there, the monthly Ls value comes to $53,000 USD... Hey, and this is just the skin makers, animation makers etc... they're small potatoes compared to the land flippers and land barons.

Johnny

You're right Lorelei. A big advertising spend means a successful business. General Motors spent $1.5 billion on online advertising alone last year. Their business must be going really well. I think I'll buy some of their stock...

MC

Owning hundreds of sims means you will definitely "cash out" a ton of money. Nearly all of it you give right back the Linden Lab in USD.

Lili B.

I would totally expect the big name fashion retailers to be among the top earners: Armidi, LeLutka, Redgrave, ect, come to mind. And imagine, the only tier they have to pay for is for their stores, the rest is theirs to keep, unlike with the land owners, who on top of having to invest much more before getting a return, must also ride the Linden Labs' mood swings continually (dramatic price changes every six months)...

Events management is the part that surprises me. What are the top event management agencies out there ? How many events must they set up, who contracts them, how much do they charge... to have a million dollars pass through their hands yearly (without even speaking of actual profit)? I feel like a whole aspect of SL has eluded me in light of that fact. What are those events! When do they happen?!

Robbie Kiama

Great question about event management Lili B.

that also got my attention, wondering what type of events might that be, to generate all this enormous amounts of income.

In any case this shows a healthy economy, where the brave and knowledgeable make truly sweet income for themselves(I bet Stroker is among top 10 as well :) )

Looks like some true economic patterns are naturally forming in SL. Good stuff

Robbie Kiama

Great question about event management Lili B.

that also got my attention, wondering what type of events might that be, to generate all this enormous amounts of income.

In any case this shows a healthy economy, where the brave and knowledgeable make truly sweet income for themselves(I bet Stroker is among top 10 as well :) )

Looks like some true economic patterns are naturally forming in SL. Good stuff

Pete

Great article! BTW, the headline is misspelled, the spelling is "Entrepreneur" :)

Anna

Yeah the Bloodlines people have it MADE.

lol

even more so than sim owners, because they really only need to pay 1 fee and that is the one to LL for owning their sim. All the rest is lovely profit.

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