Why Second Life Can't Survive on Its Current Users Alone (And Why Only Mass Growth Will Save It)

Why does Second Life need Facebook integration, point-and-click movement, and other features that much of the existing Residents resist, even though they might help grow SL’s userbase? After all, a counter-argument runs, Linden Lab is profitable now, so the company should just devote its resources to serving and retaining the existing userbase, rather than chasing after a new audience. That might make sense, but here is the harsh reality:

There are not enough paying users now to sustain Second Life in the medium to long term, and the customers who pay the most are the most unsustainable.

Here’s why. Take a look at this very rough estimate of Second Life’s existing yearly revenue:

How do we know this? In a recent press release, Linden Lab reported it had "revenues exceeding $75 million a year." To make an educated guess on where that revenue is coming from, I turned to Tyche Shephard and her invaluable website Grid Survey, which gathers publicly available data on Second Life land. Her site reports that revenue from private estates (i.e. islands) now represent about $5 million a month, while mainland land revenue represents about $1 million a month. If you annualize that out, it comes to $60 million a year from private estates, and $12 million a year in mainland revenue, for a total of $72 million a year from land tier payments. So that suggests the remaining $3 million of Linden Lab’s $75 million in revenue comes from Linden Dollar sales commissions, Premium account payments, etc.

Now again, this is just an estimate based on what Linden Lab has publicly reported, and the data Grid Survey has gathered. (And my extrapolation of Tyche’s data is mine, not necessarily hers.) I welcome corrections/expansions in Comments. But I think this is a fair guess at Second Life’s revenue base.

Now let’s break down how many people are paying that $75 million:

• About 5,500 Residents pay Linden $60 million a year for private land
• About 67,000 Residents pay Linden $12 million a year for mainland land
• Less than 485,000 Residents pay the remaining $3 million a year

The 485K number comes from Linden Lab’s last SL fiscal report of Residents who participate in the in-world economy. I got the estimates of land owners from Tyche; read below for how she makes that calculation.

So the vast majority of Linden Lab’s current revenue comes from about 5,500 Residents. That averages out to around $11,000 per private estate owner, some paying more, many paying less. It should now be clear why this revenue is unsustainable. There are all kinds of reasons for these private estate owners to eventually stop paying this much money for virtual land. Among them:

• Stagnant In-World Economy, i.e. “I’m not making enough L$ to cover my tier.”
• Natural Attrition, i.e. “I’m too busy and spending too much money to keep owning a Second Life island.”
• Organizational, i.e. “Our company/school/non-profit is making cutbacks or changing its direction, so we can’t maintain our SL presence any longer.”

And so on. More concerning, it’s highly unlikely these departing landowners can be replaced. As server costs continue going down and cheaper alternatives like Kitely and others appear, the market for people willing to pay thousands of dollars a year for virtual land in Second Life becomes vanishingly small.

So this is the slow lingering death by a thousand cuts I mentioned last month. (Or more precisely, death by 5,500 cuts.) Every loss of a Second Life sim represents a huge, irreplaceable loss in revenue for Linden Lab. (“The NET loss of private sims last year was 46 regions.” Tyche tells me.) It’s not public knowledge how much profit Linden Lab currently makes from Second Life, but a reasonable guess is $5-12 million a year. And when the attrition of private landowners begins cutting into that profit, and if that revenue is not replaced by other streams, it’s likely Linden Lab’s corporate owners will begin taking drastic measures.

And this is why I worry so much about existing Residents’ resistance to change. Every day I read a Resident blog post or forum comment complaining about Linden Lab’s pursuit of new users, when the existing Residents are the ones who keep the company going. But the hard fact is there’s not enough of those Residents now to keep Linden afloat two, three years into the future.

So yes, Second Life needs mass growth to replace the inevitable implosion of private island revenue. And getting mass growth almost surely means a radical re-invention of what SL is, and who it’s for. A Second Life that looks less like a user-created platform populated only by anonymous avatars, and more like a game with social media integration that resembles The Sims or even, yes, a Facebook game like Pet Society or YoVille. That doesn’t mean Second Life needs to stop being a user-created platform with anonymous avatars -- just that we need many, many, many more users for whom that aspect of SL is a distant or even unknown feature. (At least when they initially enter.)

But here is the good news: Linden Lab is already moving in this direction. The current emphasis on virtual pets is a smart bid to get more non-land revenue and new users who are more familiar and comfortable with casual Facebook games, than a virtual world. And here is the better news: If Linden Lab can find millions of new users, and stabilize its revenue base, we’ll probably see a slow movement back to Second Life as it was originally conceived, and what most of us want: A world where people can be or create whatever they want. But the first goal now is getting enough people in that world -- and paying enough money, to make that world sustainable for years to come.

Appendix:

Tyche Shepherd on Second Life land revenue (and again, my interpretations of her estimates are mine alone):

“US$5million per month is a good estimate of Private Estate Tier assuming List Prices and known Grandfathering rates. It doesn't take into account any Educational Discount still left or any special deals... The Margin of error is +/-$61,000 so it could be as high as $5.1M . It also excludes any private grids left over from projects like Nebraska.

“There is also another US$1.01M covering Mainland Tier per month for the 66813 separate accounts who own Mainland (that's a combination of groups and individuals) - this is just the land tier above their free allotment and includes any Linden home ownership but doesn't include any Premium Subscriptions.

“Unlike the Mainland figures which are exact as they are based on a census - the Private estate figures are based on my monthly surveys of 5000 regions so have a margin of error . Actual number of individual owners is hard to judge but a top figure is around 6000 (My estimate makes it no more than 6300.) However this really is a maximum figure. Taking into account various factors such as the 13% of the grid closed to the public being weighted towards Educational regions and various other figures an educated guess would be about 5000 to 5500.”

Comments

[Arcadia Codesmith]

It's obvious that tier is unsustainable (at least at current rates and possibly at any rate - many virtual worlds now give away land/housing in generous proportions).

I'm a gamer. I like games. But Second Life sucks as a game platform. Performance is abyssmal, scripts hang unpredictably, graphics load slowly or not at all. It's a mess.

"Software toy" ala Maxis? Different (and less demanding) kettle of fish. Still, players of The Sims like their virtual experiences polished to a high gleam, and SL doesn't give creators enough polishing compound to get there.

I would love, love, LOVE for SL to be a viable gaming development platform. Get the infrastructure to the point where we can do a Black Ops or WoW clone that plays more smoothly than the original, then let's talk.

[Ciaran Laval]

People aren't resistant to change, people come up with ideas for change everyday on blogs and forums.

People are resistant to the Facebook borg and rightly so, LL telling people via their message of the day to go to Facebook instead of telling them about events and happenings on their own platform is plain silly. When I tried out Lord of The Rings Online (who have a Facebook page) they pointed me in the direction of their store, not their Facebook page.

Other than LL maintaining a Facebook page to get eyes on the prize and promote Second Life, I'm not sure what Facebook has to offer here.

I agree with Arcadia on the gaming front, I would love to see more of a game experience on sims for those who choose to engage in that sort of thing but the technology just isn't there for it at this point in time, hopefully it will be one day.

Linden Lab need to help their users promote the platform, the forums lack advertising for a start.

[Nalates Urriah]

One interesting consideration is what Direct Delivery will do to land rentals. I rent land to set my Magic Box on. Direct Delivery will remove that need. As I am currently unhappy with my current landlord I may give up having any land. I suspect I'm not the only one.

I think it is obvious we need new players in SL. Something is wrong that of the 10k signups per day only enough people are staying to replace the losses. Player retention has to be a major concern for LL management.

LL needs a flood of new players to either justify the region hosting cost or be able to lower the land prices. It would be nice to know if their strategy is to try and hold land prices or become more competitive. I would hate to be a land tycoon right now.

LL is working on so many fronts and changing so many things at breakneck speed. Chances are something will work.

Resistance to change... that is very broad. I think different residents are resistant to different types of change. I also think the changing user interface is improving. It will be interesting to see if Basic Mode changes the player retention rates over the next couple of months.

[Metacam Oh]

I think the issues are not with them getting new users, its how they go about it. Their big marketing campaign right now is "Be a Vampire" and "Buy virtual pets". It's embarrassing. We all know Second Life is horrible for gaming, and the reason growing virtual pets in SL is as popular as it is, is because it is a supplement to people's lives in SL. People don't come in strictly to take care of virtual pets, and if they did attempt to do so thinking it is something like Farmville they will find out how clunky and simplistic Second Life gaming/scripting really is. There are no smooth movements for these pets because they are just scripting objects and sculpties, so they hardly perform well. When I say SL needs gaming, I mean they need to improve or develop something that makes gaming, GOOD here. Not market SL for its weakest area.

They just simply don't understand what they really have. They could be the birth of the Metaverse with unlimited potential, or they could sit in with their closed walls trying to market SL with whats "hot" at the time only to realize they are not even the best at what its trying to market itself as at the time. The choice is theirs, but it looks like they have made their decision. Open up the Metaverse, Allow sim owners access to the Second Life registration API and change the name of the SL viewer, and thousands of people will do the marketing in their own niches and you will see mass adoption.

[Miso Susanowa]

It's funny to me how you keep harping on "residents resisting change" when what the residents are saying, and have been saying for years, is that fundamental flaws in the basic architecture of SL, like failed Group Chats, rubberbanding sim crossings, mangled asset server events and the rest of the continuing architectural problems would do a lot more to retaining and growth of Second Life than tricks to dazzle children.

Your Overton Window is quite visible. Why do you persist in your obstinate attempts to recategorize these basic business observations? You can't build a platform on unstable, erratic and haphazard performance. Your attempts to shift the debate and paint us all as "recalcitrant" show your profound ignorance of basic business and your profound bias.

The people who CARE about Second Life have been trying to help with this problem for years. I'd point to recalcitrance in the Lab and on your part, as well as some arrogant, "web 2.0" smoke, as being the real problem.

[Wizard Gynoid]

despite my resistance to enabling this obvious troll attempt, here i am again. i warned you hamster. don't aggravate miso. she gets crazy articulate when she gets riled up.

[soror nishi]

....and annoying Wizzy can get you in deep virtual poo.

[Allen Kerensky]

It's tiresome to hear "the old residents resist change" over and over again - when being open to change is one of the things that make it possible to become an old resident. Many people who could not hack LL's random, arbitrary, capricious, inflicted changes left shortly after signup or long ago from the ballyhooed events like homestead price yo-yos or adult-only ghettoization.

Go back to pre-JIRA days and look at how many suggestions for changes and improvements were made and ignore to the point where people like myself killed their JIRAs at their second or third birthday unreviewed.

So, enough with the "its the old folks who don't like change" just because we can't stand Viewer2's inefficient interface and privacy destroying options like Media On A Prim that leak your IP left right and center (for more than a year before the infamous RedZone fiasco). Viewer 2 was an unwelcome change... made even more annoying by the Basic view (why can't LL add a Classic view too and silence the Viewer2 UI critics? Oh they could - but that's not Facebook Vampire CashyBunny friendly enough is it?).

Now - the change I do resist is LL's determined effort to drive SL into the ground like a plane in a power dive trying to hear a sonic-boom before the impact.
They lost their way when Phillip burned out, let M come in and wreck up the place, and ran for the hills leaving Rodvik to sort it out. All the shift from building in-world 3D attractions to building a constellation of 2D websites vaguely "about" a 3D virtual world is the most glaring proof LL doesn't even believe in its own platform.

Let's not forget all this land glut and such which makes renting virtual real estate worthless after mainland has stayed in the L$2/sqm range... for years.
Thanks Jack, I don't miss you.

Search is broke, and LL chokes off the adult-content moneymaking crowd every chance they get and no one even remembers vehicles anymore because sim crossing horror made them unusable years ago before the current "old users" even signed up.

Oh, but none of the actual platform problems matter, blame the decline on old users resistant to change. Cute. Fix the freaking software, already, and make SL fun again instead of a randomly misbehaving mess. Then maybe players and users can have fun instead of constantly crashing again and again and lagging to death from endless rolling restarts and such. Sheesh.

[Hamlet Au]

"fundamental flaws...like failed Group Chats, rubberbanding sim crossings, mangled asset server events and the rest of the continuing architectural problems would do a lot more to retaining and growth of Second Life than tricks to dazzle children... Why do you persist in your obstinate attempts to recategorize these basic business observations"

Miso, this statement is a perfect example of what I'm talking about. The vast majority of new SL accounts do not even stay in-world long enough to experience group chat, sim crossings, or dealing with assets. So again, these are problems that the *existing* userbase has, and fixing them (and they should be fixed) won't directly contribute to new user growth.

[Div]

Let me get this straight ... LL doubles the cost for educational institutions and non-profits to run sims in SL, the very institutions that bring all sorts of new users AND KEEP THEM THERE (students, faculty, researchers, outsiders interested in what the institution is doing), forcing many of these institutions to leave SL, and then The Boys are concerned that they're not getting new users? And this exercise in self-destructive idiocy is going to be solved by ... Facebook and BUNNIES??

[Kala Bijoux]

I'm also getting a little tired of "residents resistant to change" reasoning here. The natural tendency is to NOT embrace change. When Facebook changed its layout, tons of my FB friends complained about it or how they couldn't find anything for weeks. People got used to it for the most part. Residents don't run LL and none of the whining we've done so far has changed much in response to our complaints as far as I can tell. Please start to give residents some credit - we'll adapt and change as necessary, for the most part. Haven't we done that with viewer 2.0 already?

[AskyLoo]

I don't think that LL is any more connected to what it's users really want than Lady Gaga is connected to a sense of modesty and simplicity.

Oh btw, that pesky Viewer 2 was 'phoned' in. LL didn't really design it. This speaks volumes about what is going on there IMO.

I will just leave this here, and do read the result area. Priceless. : http://8020.com/#second-life

[Ehrman Digfoot]

Okay, I used to find these blog posts unnecessarily negative but the urgency and clarity of this analysis has convinced me that change is needed. I was considering purchasing a sim this Fall and I appreciate the sober warning provided here.

These blog posts have generated some very creative solutions, advocating for Facebook integration, however, has not been one of them. True, I use Facebook everyday, and I look forward to the day when I can easily share my favorite SL products and pics through FB, the only problem is, none of my friends have a computer capable of running SL.

In truth, SL is not as glitchy as it seems if you have a desktop computer with an NVIDIA Geoforce card produced in the past year or so. But, none of my friends do. They all use laptops, many MacBooks, and as a lifetime Mac user who recently built his first PC and someone who has researched this extensively, running on one of the very low level 330's or an old iMac with an 8800 encountered major problems unless bootcamp was used. This is due to a number of factors including Open GL implementation in OSX and the mobile components that are used even in the iMac, the most popular apple desktop. The recent shift across the line to ATI cards will make it effectively impossible to experience SL without significant tweaks or substandard performance, even in bootcamp. I know many ATI and Mac users make a valiant effort and some like Gweneth have even tried to help other Mac users tweak their systems (I used to be one of them). But even these people can only expect graphic performance comparable only to the worst gaming experiences offered over a decade ago.

And it's not just my friends . . . :p in class today, everyone brought their laptops, 20 people and 18 were more than three years old, the majority being dirty white MacBooks/iBooks from more than 4 years ago!

Like you, Hamlet, there was a day that I believed in server-side rendering. And then I tried OnLive and I can tell you the infrastructure is simply not ready yet.

My point is, there is a difference between gamers / 3D content developers and the people who can only be bothered to play a casual flash game or download an iOS app. And, everything that SL does well and yes it does many things better than any other 3D development platform . . . EVERYTHING it does well is bound up with a different tech trend, one connected with the development of Microsoft, Ubuntu, Steam, Autodesk, and Blender and not the one represented by say Apple, Nintendo or Facebook.

One of the terms people throw around on this blog is "walled garden." Every time I hear it it drives me crazy, because I've been all around the metaverse and there are plenty of gardens with not only walls but meticulous gardeners that censor all of the flowers that grow there. Second Life is not one of them!

SL does collaborative building building better than anything I've seen and as tricky as it may seem the workflow for 3D program to virtual world import, even when you're modeling sculpties is still easier with old copies of Primcomposer or Primstar than it ever was with collada import to Blue Mars or Cal3d to IMVU.

If we could just embrace what SL is, and the creative people it was made for we'd be in a much better position than we are today, selling virtual dogs on YouTube banner ads. LL could work on making SL a home for quick collaborative prototyping and build a collada asset marketplace to rival anything DAZ 3D or Unity has available now. Some of the work being undertaken by SL's master coders and modelers is already taking us in this direction with the preparations being made for mesh. Something like that would be more economically sustainable and stronger than all these junky app store monopolies being built by Apple and Amazon/Google. More importantly, we would be working from an understanding of our community and industry allies and supporting a consumer trend that desires real advancements in technology.

[Tiessa Montgolfier]

I think the reasoning in this article is deeply flawed. I don't wish to do an 'argument from authority' or something like that, but I have been involved in the strategic financial and business planning at the highest levels of a Fortune 50 company. So, I do have an inkling as to how you go about positioning the company for growth, customer retention, etc.

What I learned foremost is that if you have a handful of customers providing over 80% of your revenue, you do everything in your power to please them. You build features just for them, you continually meet with them to find out what their needs are. You analyze why they spend that much money with you and you make it easy for them to spend more money with you if possible. If they are big enough, you provide them with their own individual account managers whose only job is to keep that person happy, fix their issues, track down problems, etc. For the biggest, you send representatives and the account manager to where they are at to look at their workflow and find ways to streamline it or see how you can change things to help them. Gather their requirements and build things for them. Basically, you coddle them in every way possible.

These customers have already demonstrated they will spend large amount of money with you - the rest of your customers haven't. You give them specials, discounts, and every incentive you can create to allow them to spend more money with you. You do exit analysis and 'diving saves' when one leaves, offering incentives, even ones that temporarily mean you lose money on them just to keep them as customers. Hopefully things will turn around for them and they will start to make money for you again. The *last* thing you do is change things in a way that displeases them. And you definitely don't ignore them for the big pile of customers that provide you with less than 5% of your income. Those customers haven't demonstrated a willingness to spend anything appreciable with you.
Because of the analysis of 'what makes the big guys spend money with you', you can find the ones in the 'second tier' of customers that fit those models that you can grow into bigger customers using knowledge learned from 'the big guys'. Give them special benefits as well, this is how you replace the biggies on your platform when they do leave. Spend some people on this but not large numbers.

It'd be nice to know the percentage of new users that actually spend money in SL. It looks like the average 'low end customer' spends about US$6 per year in SL. If you estimate high and say 50% of new users spend money in SL, you'll see that you need to find about 24 *million* new users to replace the 5500. Even at SL's hey day of user growth that would take many years to accomplish. And anything you do now won't pay off in that large a number anytime soon. You spend a couple of employees in the entire company to worry about how to achieve that, it's a long shot bet. You definitely don't change things to please them that would in any way affect your most loyal customers.

You also analyze the new customer demographics and provide ways for them to mature into that 'second tier' of customers. Hopefully, one of those new ones will eventually grow into one of your biggies. But don't spend too many resources on achieving this, it's another long shot bet.

Given the analysis of who spends the most money with you in SL, you go out and market directly to those people who aren't already customers with you and who fit the demographics of the 'big spenders', hopefully you can attract a few directly into the 'big spender' fold. You offer them incentives, reduced prices and remove all barriers for them to become customers.

If the average big customer spends $11,000 a year with you, you know you can give about $11,000 worth of incentives to attract one of those - sure you don't make money on them in year one, but in year two they bring in more money for you than nearly 4000 new signups would. This could translate to something like, 'we will give you a free extra sim with no setup fees for a year if you sign a contract for two years.' Tweak this so you still make money, you might be able to squeeze that to less than a two year contract to attract more people willing to sign that contract. Find a way to lock in future recurring income as much as possible. The cell phone companies have that right. A diving save would also include a temporary reduction or hold on charges to give them a chance to recover financially, that little bit may be enough to fit their new financial status.

Sure, a lot of the biggest customers make their money by renting land, and for that you need new customers, you need to pull in more people to replace/grow their constituency. There are also a lot of people who make their money from creating content - improve content creation tools.

But whatever you do, don't piss off the people who actually spend money with you. Bend over backwards to please them, even reduce your profit margin on them if it means they increase their spending to compensate.

A company of LL's size needs to focus on their core and their strengths, rather than continually spending significant resources to reach out of that. It's like the apocryphal story of the American table tennis team that goes to China. After the US gets trounced, the US coach comments to the Chinese coach about how the Chinese players were all 'one trick ponies' using one or two swings all the time. He advised the Chinese coach to work with them to make them more 'well balanced' players. The Chinese coach responds, "Why would I spend time working with my players to improve a swing that wins 25% of the time to one that wins 50% of the time, when I can spend the effort to improve their best swing from a 96% win rate to a 99% win rate? They shouldn't use the swings that don't win as frequently as the best one."

LL should focus all their resources on reaching the point where diminishing returns make growing their biggest customers not worth it. I doubt they are anywhere near that. They shouldn't spend resources pursuing something else until that point.

There are a number of things that the number estimates I made don't take into account like costs to support them, but you get the general idea.

[M.A.DeLuca]

I'm not resistant to change. I welcomed 2.0+ viewers, use voice, applauded the introduction of Windlight, look forward to Mesh import, and hope to continue to see improvements. I've tolerated plenty of Linden foolishness and often appointed myself apologist and cheerleader in numerous discussions spread all over the Web.

But the day Facebook and all their snooping, privacy subverting policies become an integral part of the Second Life experience is the day I will drop Second Life like a hot potato and never look back. Open Sim will fill my needs until something better comes along.

[Maggie Darwin (@MaggieL)]

Yes, I'm sure that whoring after more of the category that provides $3million/yr will more than make up for neglecting and annoying the categories that provide $72/million/yr.

Great stategy.

[Kim Anubis]

You want to talk about "harsh reality", Hamlet? Okay ...

Whether a platform becomes useless because it goes under, or because it's changed into something else that is of no use to me, is from a business standpoint immaterial -- end result is the same.

[Botgirl Questi]

Clearly, the way to renewed growth is converting more of the 10,000+ sign ups per week to long-term users and paying customers. I agree with Hamlet that most of the technical issues that annoy current SLers (except for lag) have little or nothing to do with what drives 95%+ of new registrations to bail out within a few log-ins. I think the challenge has more to do with developing a more sophisticated approach to new users, like IMVU's for instance.

IMVU, despite its relatively limited capabilities and somewhat creepy avatar design, is kicking SL's ass in growth and user concurrency. They also have a strong creator community which IMVU supports through heavy marketing to users. I'm not suggesting that IMVU is a better alternative. Quite the contrary. But I do think they have a much better handle on marketing their platform to their target audience. And marketing includes conversion rates.

On the other side of the growth (or shrinkage) equation is the retention of current residents, especially paying customers. As OpenSim providers continue to improve their performance and add features, it's likely an increasing number of long term SLers are going to switch to lower cost virtual land. It seems to me that innovation is coming more from young OpenSim providers these than Linden Lab. Unity 3D-based clients, the phlox scripting engine, cloud-based servers, etc. all show promise.

All that said, LL is lucky that people are resistant to change, because that's what preventing most dissatisfied people from leaving and recreating their social circles on other grids. Oh yeah. That and the huge inventory investments that would be lost.

[MickeyV]

Once again...it is not about being "resistant to change."

It's infuriating that you have not listened to all your comments on all your blog posts, and understand this.

Tiessa spelled out the key for any business. That applies to you too, Mr. Hamlet.

Their current loyal customers (and yours) are passionate and committed people, and will see it through, come hell or high water. (and an example is that they continually come back here to try to square misinformation away, at the risk of contributing to what by most standards would be considered troll posts)

SL is fine - they have a niche - simply need to respect that niche and take care of it properly.

As do you.

Unless of course, an eventual demise of Second Life is what you're after. Certainly appears that way.

[Pixels Sideways]

Did Waglet run out of ideas?

Isn't this like the umpteenth article about SL residents being resistant to change? Makes all those folks who continue to FUND SL (and LL pockets) sound like an MSRA.

Recycling is great except when it comes to journalism.

[Troy McLuhan]

The key quote was:

--- “The NET loss of private sims last year was 46 regions.” Tyche tells me. ---

That doesn't sound like an exodus to me. It sounds more like zero net change, plus a rounding error, because SL has over 31,000 regions.

[Hamlet Au]

"a lot of the biggest customers make their money by renting land, and for that you need new customers, you need to pull in more people to replace/grow their constituency. Sure, a lot of the biggest customers make their money by renting land, and for that you need new customers, you need to pull in more people to replace/grow their constituency. There are also a lot of people who make their money from creating content - improve content creation tools."

Tiessa, it's more than a lot -- it's probably *most* of the estate owners who own the bulk of the private land. (I'll do a follow-up post with some more data from Tyche.) And I agree that the way to make them happy is to bring in more users. Lots of them. It's going to take lots more paying customers for them to cover their tiers and even start making sizable profits and to weather downturns. As for content creators who own land, it's even more in their benefit to bring in lots and lots of paying customers. So the only way to slow the exodus of the 5,500 is mass growth.

But I do mean "slow", not stop -- at least at the tier rates they're paying now. I mean seriously, $11,000 a year? Unless you're getting a good income from that investment, you're just not going to get people to keep paying that. That's a year's worth of real world rent in most parts of the US.

[Missy Restless]

Gosh what long comments. Thanks for the statistical analysis Au, it does give one pause.

From a resident's point of view, I do wish the pricing for private land was more affordable. I live on the mainland with towers of crap surrounding me. However, I continue to encourage other residents to buy a premium membership - see http://missyrestless.blogspot.com/2010/11/cheap-way-to-buy-land-in-second-life.html and http://missyrestless.blogspot.com/2010/08/how-to-make-money-in-second-life.html

Fortunately and unfortunately, we have what we are. The core feature of SL (to me) is user created content. It is also true (to me anyway) that the future success or failure of SL is up to us. LL can enable us by improving stability but really SL is our baby. Buy a freaking premium membership fer frack sake.

And, hey, if the money is in private estates then make them more affordable. I would love to live on a freaking island.

Plus I would really love to understand everything that Ehrman Digfoot said in the comment above. I understand just enough to understand that people reading my comment should probably scroll back up and read that one instead.

Also, I am with you on the whole residents resisting change thing but I wish you would stop using that phrase so I would not have to scroll through their complainy comments.

[Hamlet Au]

"That doesn't sound like an exodus to me."

Troy, a loss of 46 private regions translates into a total loss of yearly revenue of as much as $165,000. A loss of 300 regions translates to a loss of revenue as much as $1 million. There doesn't need to be a mass exodus for Linden's profit margin to face serious threat.

[Tiessa Montgolfier]

I disagree that bringing in a mass of new users is the key to making the land owners and the content creators happy. Remember, the average non-land owning user spends US$6 per year. If the majority of money being made in SL was due to the 'landless' people spending US$3M per year, how does that cover the tier for the US$60M being paid by the big guys? The logical conclusion is that the big guys aren't dependent on the mass influx of new, low spending users, but on the people who are already committed to SL. If they were dependent on the landless to pay tier, they'd already be out of business. Therefore, keeping the people already spending their money in SL happy should be the highest priority for LL.

[Hamlet Au]

"keeping the people already spending their money in SL happy should be the highest priority for LL."

But Tiessa, that just raises another problem -- the number of non-land owning users who spend L$ aren't growing much either. That number's been around 475K for the last couple years. It's such a relatively small number, when their economic activity fluctuates even a little, sim owners feel the pinch. I believe that's why many sims die -- a sim covering tier loses just a few dozen regular customers/renters (who go elsewhere in SL, or just take a break for a few months), and suddenly they're losing money on their sims.

[Ann Otoole InSL]

*yawn* LL has lost more than 46 regions in a week. And gained more the next week. Whatever.

LL needs to start considering legal recourse against people (who work for other 3d world companies) that continuously try to cause financial damages.

[Last Evermore]

If you´re not a succesful content creator or land baron, tier prices are far too expensive for the average user. There´s still an economic crisis going on and it will not be over soon. In big parts of the world, land and rent prices also went down. Why not in SL? Where I live, 295$ + VAT is getting very close to the RL rent price of a 2 bedroom flat. People simply can´t afford to spend that much money. When I joined in 2007 there was no crisis and spending was not a problem, but NOW IT IS and LL, urgently, needs to lower these prices so that more people will buy land again. But I agree with Wagner that LL should do everything in its power to "chase" after new customers, even in FB. Some publicity wouldn´t be bad either, I hardly see any on the net.

[Casper Jideon]

I could not care less

[Stone Semyorka]

It's about advertising and marketing. LL does precious little and it is ineffective. They need to work harder to sell SL to potential users.

[Eli Schlegal]

Again with the point and click non-issue. Seriously??? Stop it. Nobody is resistant to point and click... people are resistant to the idiotic idea that point and click movement matters at all.

[Ignatius Onomatopoeia]

Div noted that Education and nonprofits might bring in lots of new long-term residents. Perhaps faculty, but not students in my experience. They spend very little money in-world and don't stay after class ends.

Maybe fake bunnies will bring Millennials back? Dream on.

There is a type of long-term user I had not considered, however, so I was blind-sided by Dusan Writer's comment, at a recent meeting of our educators' group. He notes that LL lost some important long-term investors when it shut down the Enterprise product. Two dozen military groups had been involved in SL Enterprise. As we know, these folks have BDUs with very deep pockets.

The US military became very "risk averse" after LL's decision, and these groups now invest in a plurality of virtual-world technologies (such as Olive and OpenSim).

I've never seen a cost/benefit analysis of what abandoning the Enterprise platform meant to LL, but I suspect that decision will be seen, in the long run, as more tragic to LL's fortunes than the regrettable, perhaps even cost-effective, end of discounts for edu and nonprofits.

[Arcadia Codesmith]

"So again, these are problems that the *existing* userbase has, and fixing them (and they should be fixed) won't directly contribute to new user growth."

I disagree. Performance enhancements and bug fixes for existing users directly impact SL's most effective and dedicated recruiters, such as bloggers, machinama makers, artists and creators. THAT has a much, much larger impact than marketing alone could ever hope to achieve.

If you want Second Life to go "viral", LL needs to identify its evangelists and potential evangelists and make those people very, very happy with their experience, AS WELL AS making the new user experience mind-blowingly awesome. You have to work both sides of the street. No shortcuts.

[8ball]

Well first of all though I agree that we are missing a couple of things to make second life into a reasonable gaming platform I don't think it's too far off and is technically doable.

Where I will correct the OP though is to point out that using the numbers quoted above, SL is NOT in danger of near term death.

Losing 45 private sims at $11,000 per year is equivalent to a loss of revenue of $500,000 per year.

While that's not chump change, compared to the estimated profit of $5M-$12M that gives between 10 and 20 YEARS at a rate of attrition of $500,000 a year.

Thus from that perspective, perhaps SL is not in quite so much danger as the naysayers believe.

But yeah, I'm with the gamers: make it possible to construct your own version of WoW or Call of Duty on your own sim and we will be the #1 gaming platform in a matter of months.

[Galatea Gynoid]

Honestly, you can pretty much just skip over all the other deeply flawed analysis posted here (including, unfortunately, Hamlet's) and just read Arcadia's spot-on comments here. The exact opposite of what is often asserted here by Hamlet and others is true: only fixing the problems the existing userbase has will contribute to long term new user growth. Anything else is a gimmick that's doomed to failure if the existing users aren't happy. Why? Because SL always has been and continues to be driven almost entirely by user-generated content. If existing users aren't constantly developing new things to do and hosting new events, games, and activities for new users to join in and enjoy, there's no point in trying to draw them in. None at all whatsoever. They won't stick around if there's nothing to do. If, on the other hand, the existing users grow and expand and develop and host and evangelize, more new users will stick around and become existing users themselves.

Few are going to go from being a new user to an established user unless the problems of established users are fixed. If you want to *retain* new users, you need to fix the existing problems. Make the existing users happy, and the userbase will grow. Make the existing users ecstatic and it will grow like gangbusters. If people are having fun, people want to join them.

[Emperor Norton]

Reading articles like this from someone is who is basically an official LL mouth piece make me question why I rent a sim from such a disgusting unprofessional company.

Linden Lab should change the company motto to "it's the customers fault"

[Emperor Norton]

Here is some math to wrap your brain around why tiers are to high; people typical are willing to spend to $15-20 a month on games.

That means to a run a $300 full sim you need 20 people who, against all internet experience, agree on everything and are willing to pay. Since this is the internet only one in a hundred will do this. So you need a group population of 2,000. So by the time you get the magic numbers to make a full sim viable you are in lag hell.

Your mass adoption won't save LL. Sims are priced with the fantasy real world businesses were going to rent them, not consumers.

[Hamlet Au]

"LL needs to start considering legal recourse against people (who work for other 3d world companies) that continuously try to cause financial damages."

I'm not sure who you're referring to here, Ann, but I'm not currently working or consulting for any 3D virtual world company that competes with Linden Lab. If I was, I would have disclosed that up front, or just not written the post. In any case, for future reference, please check this blog's guidelines on civil discourse.

And no, Emperor Norton, I'm not a "mouth piece" for Linden Lab or anyone else but myself. But it's very interesting that I'm being simultaneously accused of working against and on behalf of Linden Lab!

[Nathaniel Flores]

Galatea and Arcadia have hit on where I see a large part of the problem: You can chase all the new users you want but when they arrive in world and are confronted with the existing users griping about the lag, the region crossings, the failures of chat and the inventory system and failure to rez, the tier prices and everything else, they just are not going to stay. They are going to say "if the people that are here think this sucks this bad, I'm going somewhere else".

Word of Mouth, Word of Mouth, Word of Mouth. If your customer is happy they will tell people. If they are unhappy they will tell lots of people. Loudly. It's the basics of customer service.

The idea that someone somewhere asserts that you have to ignore new user recruitment and retention to make the existing customers happy is a strawman. Noone is making that argument. Making the existing customers happy is just one I would dare say -vital- part of retaining new customers.

Give the creators the tools to create and make their creations -work- and they will bring in people to share their creations with. Fix the technical problems so that the games people invent can operate more effectively, bring the prices to a point where the volume of sales can start picking up because right now the customers are telling LL that in an increasing number of cases the price is more than the market will bear. Stop competing with the customers in all the ways that they make income within the platform (Linden Homes), so that they can make income and plow it back into their hobby thereby returning more money to LL.

Market SL as a creative platform, a gathering place, a talent showcase, and a collaborative gaming platform. Hit all of the things that SL -is- instead of trying to focus this months marketing message on how similar it is to something else. SL is not facebook is not the sims is not WoW etc, and should be sold as such. Stop acting like the product is inferior and believe in what it actually is, which is something entirely different from every other game and social network on the 'net.

But most of all, make it a place people want to be, and the people that are happy there will help you keep the new people. If the gripes about service and technical problems dominate the conversation and drown out how cool the various content is, then all the new guy is going to hear is the bad stuff, and is going to find something else to do with their time.

[Ciaran Laval]

Well if you're being attacked from both sides Hamlet, you must be getting something right ;)

[Recka Wuyts]

I see many good suggestions here, and I am always astounded when LL hires some person from some company somewhere other than looking to the people who run businesses in 2nd L. Seems to me there is enough information in this one article and it's comments to improve 2nd L beyond our wildest dreams.

[Hamlet Au]

OMG, Ciaran, I hope so!

[kanomi]

Good numbers.

I am not sure where these millions of new users are going to come from. Facebook? Most of their users can barely navigate their privacy settings, let alone a 3D world.

Maybe Linden Lab should merge with CCP games, makers of EVE Online. Those guys want customizable 3D avatars to interact with their spreadsheet.

I already see many avs that would fit right in and are more creative than whatever jumpsuits CCP will provide.

[Alia Baroque]

I can see the logic, in the post as in the debate and comments. Why not focusing on both sides then? New and existing, sounds a great deal. I also think marketing might need a strategy of attempts as any advertising campaign, let's see how rabbits go for easter, good idea but then remember one of the big strengths of SL:
- making friends
- dating
- creating

Second Life is already a social platform.

Gaming is present but as many said technically still unable to give technically satisfying results for mmo users, even if roleplayers find it a heaven since the lack of level/meter shooting if chosen. Advertising SL as a roleplaying platform too might be also a good move.

Get back to Your World, Your Imagination, that was a great payoff touching the social side part as the practical building side, and spend some money on a good advertising company consulence. SL itself as world still rocks in its flaws, it just needs a good sale panel.

[Del]

Jeus Christs, there are some whiny, self-involved people around.

[Renmiri]

I have rented and owned regions for 4 years. SL is and has always been killing it's golden geese. No there online world requires $300/month to keep a presence.

There simply isn't anything on SL that makes up for this price. Is not worth it, it has never been. SL is not delivering the value it charges. We 5,500 private sim owners persist out of sheer idiocy.

LL revenue stream is deeply flawed. They gouge the people that bring views and logins to SL. Witness IBM leaving. We are going to lose artists who brought value and prestige to SL. LL never supported them, another company did. This story is repeated on many sims, a rich benefactor pays for artists to add content that other SL users enjoy. And instead of kudos or help from LL we get asked to carry the bulk of the cost for supporting SL.

SL will die a well deserved death. As the parasites who drain the host out of all the blood.

[Dark Zebendein]

Simple solution. Increase retaining new users. HOW? By actually paying someone even MINIMUM WAGE to sit in info hubs and teach new users how to navigate the game.

It's as simple as that

Increase profits? Simple... Buy the servers run them yourself and decrease tier payments for islands to the market equilibrium.

[shockwave yareach]

They want and expect new users to buy land and keep the lights on. But they don't allow people to own that land, the IP of what they create, or anything else. So buying a sim is simply taking a K$ and flushing it down the toilet. And they cannot grasp why nobody wants to do that?

Give back ownership and codify how you can lose that land for bans and the like. Simple and legal. Saying someone owns something and they have a reciept, but then changing your mind and saying no they don't own it? Not legal. Not American. Not even remotely cool. And not something I'll reward with any significant amount of my legally-made cash, either.

[Davie]

Second-Life is just too laggy. Driving a vehicle on the maind-land is nearly impossible as lag throws the vehicle upwards in mid-flight and jacks with the scripts. Stores crunched together in festivals often leave avatars unable to move an inch due to massive lag surge.

The environment all around sucks. Trolls infest the hubs and lands with their tiny noses stuck way up their back-ends. Quick rich schemes liter the main-land in hand with ugly buildings that make Nintendo 64 graphics spectacular.

Users are given very little to no hand-books to create items. SL's creator menu is the basics of the bottom and to find anything that is the least of help takes digging in wiki's and group-hopping user-owned chats. Other than run-of-a-mill Torley videos there's not much direction for those who haven't spent years in college scripting or making graphic arts.

Aside from the combination of cruddy customer service and over-all stale environment there is not much else a newbie can do other than clicking the exit button and finding a better client that offers more services at a lower and more decent pricing.

[Davie]

Not to mention the security issues associated with the client and the over-all drama of user conflicts on Second-Life. LL shouldn't expect it's new-comers to stay around if they offer them crumb experience within the first 10 minutes of their accounts, then wave a pretty carrot in their face for a fat fee if users want to have something as common as their own space.

In Second-Life your not even able to pick the land you really want, instead trying to find a piece squeezed next to some giant house or ugly yard on the mainland unless you want to pay an enormous and ridiculous fee of owning a full sim region. Along with the unbalanced prim count cap that forces you to buy more land if u want anything decent looking on it.

Drama+Trolls+Staleness+High Tiers+Shaky TOS= Typical New User leaves and finds a better social client other than their wallets and mind sucked dry.

[Lightpaws]

Second Life charges too much as it is for the land. $200 USD per month for the little space you get is outrageous. Obviously the owners did not understand simple business by lowering prices to consumers you will grow faster, get more people, and higher end results in revenue. You want to grow SecondLife, Lower the sim costs to $50 or $100USD per month and watch the land masses grow, profits soar, and the general overall userbase happier. Everyone wins.