Linden Lab has lost over 650 private estate regions in Second Life just this year alone, according to Tyche Shepherd, who tracks SL economics on her site Grid Survey and her essential Twitter feed. This amounts to a loss of over $1 million in yearly revenue for the company, and is yet another data point to a theme I return to often: In order to survive, Second Life now needs mass growth, and dramatic changes and bold strategies, to get it. It cannot survive as a profitable niche, because that niche is slowly but surely eroding.
Since January 2011, Tyche told me last week, “Private Estates regions number 24196 , that's 647 down since the start of the year.” Since then, 7 more private sims have gone away. If these land owners were paying a full $300 monthly fee, the total loss would amount to around $2 million in yearly revenue gone. However, Tyche estimates the annual loss is closer to $1 million.
“Comes to about US$1,008,000 down on yearly run rate,” she tells me via Twitter. “58% of private estates are [higher priced] Full regions, so that's why estimate isn't as high as US$1.5-2M.”
I asked Linden Lab about the decline of private sims, and spokesman Peter Gray insisted to me that the loss wasn’t as significant as I thought (see quote below), but didn’t give many specifics. In any event, what’s clear is this: As I wrote back in April, private sim ownership in Second Life is unsustainable as a revenue source for Linden Lab. According to Gray, just under 80% of the company’s revenue is from land fees. So unless the company can replace this revenue with mass growth of monetized users in the next few years, continued erosion of this revenue base will finally eat away Linden’s profit margins.
This is almost surely why Linden Lab is now heavily bolstering and promoting its Premium, monthly subscriber offering: To shift away from virtual land as its main revenue source. However, there are not enough active Second Life users now to supplant that waning sim revenue. Premium monthly subscriptions are just $9.95 a month. If 400,000 SL users became Premium subscribers (and there were less than 100K in 2009), that would only amount to roughly half of Linden Lab’s current yearly revenue of $75 million.
For SL’s dedicated users, that’s the bad news. The good news? Linden Lab does seem to be making the bold moves that will gain those mass users, such as adding gaming systems. (Something SL founder and Chairman Philip Rosedale himself now endorses.) But make no mistake: The only future for Second Life is several millions of users, or none at all.
After the break, a detailed breakdown of the private sim loss, with Linden Lab’s Peter Gray on this decline in sims:
Here's SL's private estate week-to-week gains and losses since January 2011 (my rough tally) via Tyche Shepherd's Twitter feed:
- - 43
- - 17
- - 55
- - 56
- - 22
- - 34
- - 31
- - 10
- - 67
- - 27
- - 65
- - 8
- - 13
- - 74
Linden Lab’s Peter Gray on these losses: “The total amount of private land owned over the last year has declined minimally and is consistent with changes in total world size as reported in ourquarterly economic blog post. However, the impact on land revenues does not track with volume owned due to price changes which can offset them. Also, land revenues represent only a part of Linden's total revenues, so any change there represents an even smaller impact overall and can also be offset by positive changes in other revenue items."