Survey Results: 54% Of SL Entrepeneurs Report In-World Recession; Fashion, Housing, Real Estate Biz Hardest Hit

Here's the results to last week's survey on SL business performance, and they track with the Lindens' official economic stats; more than half the respondents say their earnings have suffered a downturn in recent months.  Deepest impacted were the Donna Karans and Donald Trumps of the world-- 59% of those who reported a loss are in the fashion/avatar enhancement industry, or housing/housewares/real estate sector of the economy.  (I suspect these are far and away SL's two largest industries, and if that's true, it follows that they'd be the most affected.) 

But why the downturn?  In Comments, Eristic Strangelove of [nautilina], a firm which manufactures SL showers, suggests it's due to a market saturation of free/cheap content. 

"The everyday stuff is great fun to make," she reasons, "but who's going to buy it when its equivalent is widely available free? "  Because of this, "There's going to be an increasing divide between top-level content, from those people either dedicated or talented enough to produce it, and the more everyday content that most of us can produce within SL."

That's one theory and it's probably true to some extent.  Sharp fluctuations in land prices, due in large part to Linden policies, is likely another culprit.  What else is at work, and what forces will finally break the recession?

Comments

[Arwyn Quandry]

I suppose more and more people are thinking about how hard it was for them to get stuff when they were newbies, and feeling bad about it, so they make lots of cheap or free items to help out others. It does help the new people, but it also drives the economy down for those who make better products that cost more. A lot of people aren't really willing to spend much money, if any. I'm personally part of that problem - I never buy anything, preferring to either make it, find it, or trade someone for it. I think we need something new and exciting, something that hasn't been done/hasn't been done well in the past. That'll (hopefully) excite the market and get people to buy it, at least until someone makes one for free. If you wanted to really force people to buy, you can try to encourage others not to drop stuff in junk yards. Not sure how well that would work though.

[Pavig Lok]

The virtual world seems to be hit in the same area as the real world... namely consumer fatigue. Folk in a downturn reassess buying things that in a growth market are seen as disposable items - namely fashion and general consumer items. Anything with general utility remains robust in such a market.... anything seasonal hits the downturn as folk hang on to last seasons stuff. In a virtual world where things don't wear out this will hit hardest.

This isn't just a problem for virtual world marketers - it's also a problem in the real world. Our marketing strategies are attuned to filling gaps in a growth market. A non-growth market is a market still, and just as valid a place to do buisiness. A purchase averse population however is a hard nut to crack for entrepeneurial types who drive edge markets when growth is available. It's no surprise that entrepeneurs have run away from virtual markets this year.

The problem for business is that virtual worlds have a trust deficit. To market without strong growth and risk taking one must instill product trust to the existing population. They don't buy a lot, and tend to fall back on whatever they know to be reliable. Your prospective clientele become highly attuned to any attempt to appeal to factors of attraction they'd jump at if they were more well to do. They were always savy consumers, but chose to be sold to when they had disposable income. In a market downturn they become cynical consumers. Without trust in lasting value your product will fail to capture their attention.

The virtual world will recover from this trust deficit as old brands continue to build awareness. We can be thankful that investment in virtual worlds is still low compared to the larger markets available in the real world. There's plenty of entrepreneurs with higher stakes in real life who've bet their future on factors affected by the sub prime lending market in the states or globally, who are now eating beans out of a tin and wondering where their career went.

Oh well... just my two cents.

[BJ Tabor]

It sounds like a RL recession is causing the long term residents to cut back in spending and they are the main customer base of the Fashion and virtual real state industry. At the same time the RL recession is bringing in new residents who are looking for cheep entertainment so what lidens they have go to weapons and debauchery. In other words sex and war are what sell in a recession. Kinda like RL,...

Or it just could be something as simple as fashion and real estate are just over built with a lot of copy cating and not much that is original. I seldom see It's-new-different-I-got's-to-have this stuff in SL like I see with Poser clothing.

Or it just could be something as simple as fashion and real estate are just over built with a lot of copy cating and not much that is original. I seldom see It's-new-different-I-got's-to-have this stuff in SL like I see with Poser clothing.

[Ann Otoole]

Maybe people are looking harder for designers that make high quality works and sell them at prices that reflect the fact that once made there are no further cost associated with the item.

On the other hand I see people trying to drive prices in certain sectors up. And up by a large jump. I'm not too sure this sort of behavior will have mass appeal.

One thing is certain. Secondlife is entertainment. It will never be anything else in a major way. The cost of living in the USA can kill off the entertainment sector for US Citizens. So you market to non US citizens instead. Ask Disney. They are pros at doing this. You go (to market) where the money is.

Sitting around pining for the good old days will not help you.

Paint Or Die (Create or go out of business)

[Vlad Bjornson]

According to the LL economic stats, both the number of SL businesses making a profit and user to user transactions are still on the rise. To me that implies that the economy is still growing. For example, in July there were 3,300 more avatars making a profit than there were in June.

http://spreadsheets.google.com/pub?key=pxbDc4B2FH96awpL1drrWEw

Of course with more businesses opening everyday that mean that more businesses will fail. These economic stats don't mention how many folks are losing money. Not everyone is going to be successful. I suppose it gets harder all the time as more people improve their content creation skills and the consumer's expected level of quality rises.

[Timeless Prototype]

Hmm, I only release less than 1% of everything I make. If LL would start kicking butt in the intellectual property arena I may release more of my stuff and commit more time to making more new things and releasing those too (I have a decent backlog of very cool ideas).

Until then, I see no reason to fill the world with cool products that just get ripped off.

And no, I'm not talking about prims and textures, I'm talking about scripted ideas. And yes, I get it about protection can't be automated. I get it about the problem being too large for LL to manage/police it themselves. The thieves get it too.

An analogy might be: as long as you only steal USD$5 or less from every bank account it's OK because we don't have the resources to deal with the quantity of theft. I won't bank there at all, thanks very much!

[Mr Lovenkraft]

I agree with Timeless on this.. I probably have a few large zip files on my HDD full of ideas that I'd like to put in world, but at the way things look with the insecurity of script leaks, I'm not so sure I want to do that.

And far as building or textures... I honestly wouldn't mind it so much, as long as the creator is getting their full deserved credit for the work in plain view, example, in the description.... But that's just me, I'm sure others feel differently

[FlipperPA Peregrine]

The base avatar that can have attachments hasn't really been enhanced in any major way since 2003. While a few features have come along the way to make some improvements (flexis, and to a lesser extent, sculpties), I can see why the fashion industry is seeing the biggest recession. Our brilliant fashion designers have basically maxxed out every tool at their disposal! This will continue until there's something major - like a new layering system, a new avatar mesh (or customizable avatar meshes), a new skeleton... something like realXtend offers. Qarl Linden is talking about making meshes as a whole importable, which would definitely make things more interesting.

Don't forget that a lot of things taken for granted now are really hacks - such as skins on the tattoo layer, and invisiprims for high heels - coming up with a *real* solution for these hacks would open up the market again and make avatars look much better.

[Eris]

I third Timeless's comment. I only own one of SL's 'lemonade-stands' (as Pip Linden calls them) but even I have shelved a bunch of projects until some of the fog over content protection clears. If it's true of me then it must be even more true of the more successful creators in SL.

As I said before the SL economy thrives on new original content and anything that stymies that will kill the economy. If creators feel that their new items are likely to be ripped off then why invest the time and effort to produce them? As we demand more and more exceptional content the effort needed to produce it increases and so do the concerns of the creators - why spend months over something that potentially will take seconds to steal? Note, it's enough that creators FEEL like their stuff is going to be stolen, it doesn't even have to actually happen for this to kill creativity in SL.

We need some real clarity from Linden about the status of original content in Second Life and on the larger Grid and any interconnected virtual spaces - and we need this clarity NOW. We also need better tools to track and trace theft when it does happen and, most of all, we need some CONSEQUENCES when people are caught stealing. At the moment thieves get a hard stare from Torley and a 2-day suspension, this is a joke. Either get rid of the thieves or give residents the tools to do it themselves.

"[nautilina], a firm which manufactures SL showers" - that sounds even more ridiculous when i someone else says it, lol. (BTW, 'she' is a he - if it matters)

PS: Thinking about freebie content, I hope it didn't sound before like i wanted to get rid of the free stuff. Freebies are a vital part of the SL economy - they turn new users into Residents. A new signup to SL quickly realises that they can build a better avatar and even an SL home very cheaply and it gives them a reason to stay and maybe the taste for shopping in SL. Later, if they want better things, they're more likely to pay for them, thus the economy grows.

We should get rid of the crap however. We've all got those folders in our Inventories stuffed with trash we'll never use but which we haven't got around to sorting and deleting. How about we start an Annual Delete Day (there's an ironic acronym!) on which we basically all get together to take out the trash? We'd keep all the half-decent stuff of course -just delete the stuff that's past use or basically inept. In one day see how much of the junk we can clear off the asset servers, how about it? :-)

[Gwyneth Llewelyn]

It's really hard to pinpoint the "why" of an in-world recession; we can only poll a limited number of people for their opinions...

In my personal case, I know why my own (very limited) content sells less these days: I haven't done any major update on my items since 2005 :) So basically nobody wants to buy 3-year-old content, no matter how cheap it is. How did I survive for so long with old content? Simple: newbies flooding in with enough money to spend (because they used to get a tiny stipend every week...).

These days, however, things are quite different. How many people regularly buy content? I estimate that number at "only" about a hundred thousand. This includes the Premium users, island owners, and the content creators that make a small profit, and thus have the means to spend the extra money in acquiring more content. The reason behind that number is that these are the people to which money comes from the economy straight into their pockets, and they are available to spend it.

Then we have a class of users that are in fact willing to buy L$ to acquire content. How many of them spend, say, US$10 every month? Probably few — although these days you get more L$ that way (L$2700 or so) than by being a Premium account (L$1200/month). Premium, of course, gives you access to 512 m2 of tier-free land and technical support — but is it really worth it?

I suspect it isn't. The majority of the 14 million registered users simply get good freebies.

Prokofy Neva has long ago warned us that the "freebie culture" would make a serious dent in the economy, long-term. In real life, "freebies" are naturally given away in order to encourage people to buy more — but we don't live just from freebies iRL. In SL, we can. There are free plots to have tiny houses for a while, free houses, free furniture, free avatar skins, free... everything. Almost no area of content creation in SL doesn't have its huge and varied selection of free items. And then we have the low-quality items (like the ones I sell ;) ). I have sold perhaps a hundred thousand copies of my "Gothic Pants" (two models) that I have created back in 2005 in an hour or so for a newbie who desperately needed them to get a job in a club. Since 2005 I sell them for just one L$. People still thank me for them. They're horrible. I never thought anyone would pick them even for free. But it's not so: they're so happy to get something for L$1... but on the other hand, I'm aware that I'm undercutting the fantastic designers at Armidi who might be selling some extraordinarily created pair of jeans for as little as L$75 or 100 and which took a whole week to get it right.

Of course we can't get away with freebies! They're the only option for the 14 million or so residents who don't care about spending money in SL (they see it as being pretty much pointless) but definitely enjoy having them. But, then again, it means that the top designers will never get compensation for their efforts. The better a designer is, the less likely she will be interested in spending valuable hours at designing good content — when they could be earning money selling clothes in, say, IMVU.

I think we have created an economy where people "demand" free or insanely cheap things, because they're not willing to exchange US$ for L$, and most people are not able (or not interested) in creating their own content. So the vast majority "expects" things to be free, specially when there is so much good free content available.

There is an old saying, "money calls money" and "you can't make money if you don't put some money in it", and so on. The relative minority that actually has a profitable venture in SL are the ones willing to spend money in it. With the end of the stipend system, and camping chairs soon going away (and paying too little anyway), there is no real incentive for people to pay for content, when there are free options available. I still see things like "traffic wars" happening — competing clubs trying to draw attention to their live music offerings, paying quite well to the performers, but... for what exactly? The club rarely makes a profit. In the stipend days, at least some clubs would expect to attract newbies to their shops near the club, and recover some of the expenses that way. Rezzable has re-introduced the notion of "paid admittance" to high quality concerts (something almost abandoned in early 2005 — since then, attendance to all events has been for free) but they're the only ones being bold enough to do that.

I understand the reasoning behind the "No Stipends" rule, but it hurts newbies (who will never think of spending anything in SL and are happy with free content) and content creators (the market with people willing to spend L$ is small and doesn't grow at the same rate as new content is constantly pouring out) — and, ultimately, the whole economy (less sales means that content creators will cut down on their shops, thus hurting real estate managers and LL itself as they tier down).

I encourage Linden Lab to read very closely Prokofy Neva's post on how IMVU, with 25 million users, has solved this issue of newbies having no willingness to spend any money. IMVU has about a million or so items for sale — contrast that to the 2.2 billion items in SL. But it does make more money in its internal economy than SL! Why? Read Prok's article — he explains it all: http://secondthoughts.typepad.com/second_thoughts/2008/08/i-am-view-i-env.html

A direct quote:

"You learn skills very simply through a series of page-through screens that you can opt-out of, but if you are willing to learn, you are PAID. And not paid just a stupid $1, as you are in the Linden OIs (or old OIs, they just shut them down this weekend to replace them all with HIs), but paid an actual $200 IMVU points, whatever they are called, which actually buy furniture. Somehow, it has taken years for the Lindens even to reach the $1 point; IMVU figured this out much faster, and probably make more money as a result. You gotta give to get."

There are more niceties in IMVU. For instance, instead of relying on volunteers to help newbies, they have a more interesting system. You can flag yourself as being ready to talk to a newbie, and IMVU puts you i touch with them. If you're able to strike a meaningful conversation for 15 minutes, you get paid for your effort. Now, this means that you can't get away with monosyllabes and 'bots with canned answers: the newbie might be unexperienced, but they are not dumb — they will quickly leave the chatting session and go away and explore, and there goes your money. So you have to actively engage them and be positive and interesting to make sure the newbie stays around at least for 15 minutes. And no, you don't get just a handful of cents (like on camping chairs) for the effort — you get hard cash which really is worth something, enough for you to buy things on the IMVU Web Megastore.

There are a LOT of those tricks built-in into IMVU. There is, as Prok points out, a very clever design around it. The results are promising: 60% more users registered at IMVU than on Second Life, and a thriving economy where the content creators always find eager customers with their pockets full of IMVU credits.

Will LL ever do anything like this? No way. Instead, they rely on launching a new feature every year or so, and let people launch a new batch of content that uses the feature. Flexisculpties will definitely be the way to go for hair and skirts; 512x512 meshes for sculpties, new avatar meshes, or the "physical" avatar animations will naturally create the desire to acquire new products. Granted, we're currently going through a "low feature" season in SL, as all priorities are on stability: for 2008, I don't expect anything new besides the new touch interface which comes with the Mono servers. Sure, there will be tiny improvements here and there, and perhaps a handful of new programming functions until Christmas, but nothing major. It's going to be just increasing stability and performance, and some eye candy like shadows in the viewer.

So perhaps instead of relying on new features to drive the market of new content, LL should copy IMVU's ideas to encourage residents to do things in return for some L$. I know — this WILL be gamed. But the barrier between consumers and content producers is simply too high. Good quality content is only possible by the best designers with an incredible talent — those are the only ones that will make profits in SL. Ever. And the push for even higher quality (for ever-decreasing prices!) goes on and on. Newbies, for instance, refuse to get "Linden hair" these days, no matter how tastefully designed it might be. They just throw it away as rather good quality prim (and flexy!) hair from 2007 is given away for free anyway.

[Vlad Bjornson]

Obviously content theft is a big problem, but halting production is no way to fight it. Why rob yourself of an opportunity?

Your content may never be stolen. If it is, there are legal means to stop the thieves. Even better: build a business and a brand with a good reputation. You customers will continue to support you, and your reputation will bring in new business.

Look at the gaming industry. Their content has been stolen in an organized and efficient manner for over 20 years, but they continue to create record profits. With the adoption of broadband internet access the movie industry is in the same boat. Even the music industry continues to grow as millions of songs are downloaded illegally every day.

There's no way to keep people from copying digital content. If they can see it, they can copy it. Again, look at the video game industry. Every new attempt at copy protecting a game is met almost immediately with a new scheme to break that protection. It even happens with proprietary hardware systems like the iPhone.

Of course, I would love to see some more effective punishments for those that get caught selling pirated goods. Some good stiff, well publicized penalties might put a dent in the rampant theft and reselling that we see today. But I think that will take some big, RL court cases - something the average creator cannot afford. Even then the International nature of SL makes it almost impossible to prosecute everyone who is caught.

I say if you have the skills, get out there and become an active participant in the SL economy. If you are waiting for an end to content theft, you will never be able to capitalize on your opportunities - because content theft will never go away.

[Eris]

Vlad, this is the fog I was referring to before - when faced with content theft within Second Life the dev's, Linden and some Residents talk about the law and wider precedent and try to abrogate all responsibility for it.

Second Life is a virtual space owned, run and engineered by Linden - it isn't the wider Internet or some new nation state. It's a communication platform that looks a lot like a game and shares game architecture.

What if Linden said tomorrow - here's Second Life, it's free to enter, but if you steal stuff from other people here you'll be banned forever. Who could argue with them? You think any of us have a RIGHT to use SL? It's a commercial platform and Linden have the right to do pretty much whatever they choose with it. All they really need to do is make a couple of rules and then implement them.

Comparing Second Life theft with the games or music industry is specious really. They make their (multi-million) livings from game development and most creators in SL make a few L$ to have some fun with, very few of us make a living here. We're doing it for fun and getting ripped off is not fun. Take away the fun and the best creators stop creating or leave and SL turns into a creative ghost-town. Sound familiar?

[Vlad Bjornson]

"the dev's, Linden and some Residents talk about the law and wider precedent and try to abrogate all responsibility for it."

How is relying on the law denying responsibility? Why should LL insert themselves between the users and applicable laws? Seems redundant and unnecessary to me. Is your webhost responsible for policing the content on your website?

"You think any of us have a RIGHT to use SL? It's a commercial platform and Linden have the right to do pretty much whatever they choose with it."

Yes, they do. And they have chosen not to be Big Brother, to let the users be responsible for their own content. We've all agreed to the TOS and must live our virtual lives based on the limited rights that are detailed there.

"What if Linden said tomorrow - here's Second Life, it's free to enter, but if you steal stuff from other people here you'll be banned forever."

The TOS clearly outlines the options and processes involved with a dispute involving rights infringement. The added info on DMCA claims also says the infringement can lead to banning. It also states that "Copyright matters are real-world rights, governed by real-world systems."

"Comparing Second Life theft with the games or music industry is specious really."

Why? Is there really that much of difference based on the amount of money involved? Getting ripped off is no fun whether you make L$10 a day or L$100,000. I think the comparison is appropriate, especially since the products involved are all just data with no real physical substance.

It even crosses over from RL to SL. Look at these places that sell RL movies or music in-world. All they are doing is selling users the 'right' to watch stolen content. Some even have the nerve to threaten legal action if you steal their stolen content. :D