NWN Comment of the Week: Steampunk Land Baron Desmond Shang on Why Losing SL Land is Healthy for SL

When I noted that Linden Lab's private estate revenue in SL has fallen to 2009 levels, famed steampunk land baron Desmond “the Guvnah” Shang stopped by to offer his thoughts in Comments: "Cutting back on land mass is actually a healthy thing for the grid," he argued, for "the fewer regions there are, the more it will balance with demand. I say that as someone who is cutting back regions myself right now." Of course, those cuts come with a cost, both for the community and company. Over the weekend, do read Desmond's full, fascinating analysis after the break:

The brass tacks 'business case' for Second Life is pretty simple. Unlike many online experiences, it's one of the few that can charge some users hundreds of dollars per month, rather than the typical 14.99 USD or whatever. That's pretty important. It's why the servers stay on; everything else is secondary. Proof: if there were more money to be made by converting Second Life into an online plumbing store, how many among us doubt that we'd see faucets for sale the very next day?

As for the product... we aren't being sold virtual land, or prims, or anything like that. Not really. There is no implicit reason to ever 'own' a prim. Rather... we are being sold a degree of creative control, freedom of expression, and a chance to forge a unique identity. Particularly with land, the ultimate avatar attachment. Of course, selling our own data back to us, indefinitely, doesn't hurt the bottom line either. With the 'killer app' being, of course: each other.

That's the product, besides a few educational purposes which are largely off the beaten track. Opensim is a far better environment for corporations and schools, especially if you are dealing with data security or underage students.

I'm going to go out on a ledge here a little bit, and not blame rank and file Lindens for the decline of the world.

There are two factors: Lab induced and externally induced. Externally induced: try the falling Euro and the difficult economy there. Nobody here is going to fix that. It's not their fault.

As for internally induced... yes, there are clearly price point issues ~ but I'm not worried about this at all. That's self correcting. 30 dollar Big Macs will come down to a reasonable price sooner or later. If a few execs lose their jobs during that natural process it won't affect the rest of us, or the company too much over the very long run. There's nothing that says a company has to be large, or make hundreds of millions to be successful. A company of 20 workers profiting by 5 million a year is successful.

There have been some severe mis~steps; for instance the last executive team didn't understand that "more bridges to the larger internet" led to an exodus, rather than an influx. It's easier, and cheaper, to keep up with SL friends on Facebook. It's easier, and cheaper, to buy and sell on SL Marketplace than own commercial virtual land.

These and others were business 101 level errors; in fact since the equity of land was destroyed by flooding the market in 2007/08, the current state of the world was pretty much written in stone.

Cutting back on land mass is actually a *healthy* thing for the grid; the fewer regions there are, the more it will balance with demand. I say that as someone who is cutting back regions myself right now.

The only problem with losing private estate land, though, is that other residents are being cut away with them. I see this firsthand. People who have been at a location for years face the choice: move, or simply dump the SL experience altogether. The vast majority aren't choosing that 2007 era product, the mainland. Instead, they are choosing Rift, or Star Wars the Old Republic. Stuff like that. Basically *anything* that can be done for two hours after dinner is Second Life's competition.

There are a fair number of us that could right the ship with little difficulty; the trick to being listened to, however, is not hoarse~throated repetition... that just gets ignored. And information that will put a multimillion dollar corporation back on track is quite valuable... worth a performance based million bucks easily, no?

Kodak was one of the early leaders in the field of digital photography research. Look where they are today, and how they got there ~ I'm sure they had a lot of highly paid, experienced executives all the way down. If only those guys had focused on the basic idea of customers thinking: "I want to take, keep and share pictures." Just saying.

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Comments

[Ciaran Laval]

There's too much land, Desmond is right, but land losses are a brutal experience.

[Rhianon Jameson]

Spot on economic analysis by the Guv! Competition for users is everywhere, not just from Opensim or other virtual worlds similar to Second Life. People stay in SL when they get something they can't get elsewhere. Much of that is community - whether it's building something that others enjoy, conversing with friends, or selling clothes (or renting land) to the community. Whatever fosters that community helps maintain the user base; whatever fractures that community helps drive customers elsewhere.

[Orca Flotta]

From a business perspective Desmond is correct. Only one point I find a bit unagreeable: I don't believe the majority of SLers are into RP and the themed RP sims. I go sometimes to those islands and estates, look around, have fun, take photos .. and then I hurry back to my home and my "community" on mainland. And I'm not the only one. And I don't even think it has something to do with the facebook "only 1 hour/day" generation, they are on mainland as well as in themed estates.

Nevertheless losing sims hurts. For me the main reason for all the abandoned sims is pure and simple the pricing. It doesn't matter if LL are selling us land, prims, service or whatever; in the end it's just server space. And can you name a single company renting out their servers for a price even remotely close to the SL tiers?

[Dartagan Shepherd]

Not sure how losing land is a good thing other than mainland keeping some sort of value by being harder to get ahold of. This may be a good thing for people who rent mainland, but otherwise really has no good or bad merit to anyone else except for having to look at a bunch of mainland for sale.

Private regions take care of their own supply and demand.

As for this comment: "As for the product... we aren't being sold virtual land, or prims, or anything like that. Not really. There is no implicit reason to ever 'own' a prim. Rather... we are being sold a degree of creative control, freedom of expression, and a chance to forge a unique identity. Particularly with land, the ultimate avatar attachment. Of course, selling our own data back to us, indefinitely, doesn't hurt the bottom line either. With the 'killer app' being, of course: each other."

Agree that we're not being sold "land" or "prims".

Can't agree that we're sold anything to do with creative control, freedom of expression, etc. any more than the manufacturer of my hammer, saw or drill sells me these things.

It's a framework to build with, a service, software. I'm being sold a service and a set of tools.

I can apply the whole selling me a creativity ideal to a local craft store, hand tools and machinery, photoshop, 3D applications or anything that like SL, allows me to be creative.

I can create artwork from a ream of printing paper, that doesn't make it any more than paper, or doesn't turn my hammer or photoshop into anything else but a product that should do what it's advertised to do.

Community is a commodity, agreed. To the company it comes down to how well the tool works for customers.

People provide their own community whether thats a room full of people anywhere, anytime, any place, or penpals in the 1600's or an IRC chat room or the water cooler in the hallway. Community and community activities and ideas happen wherever people interact.

On a business level for the company though, no matter how you slice it, losing land sales and revenue isn't a good thing, it's a loss or decline.

The economy is completely fictional and able to be balanced at anytime via manufactured mechanisms, so land even in this regard has nothing to do with economic balance.

[Metacam Oh]

Losing private estates is not a good thing for SL, that is where their immense profit comes from. There are no expenses that aren't paid for with private estates. On the other hand, mainland is dead weight, and is where the issue lies. If Linden Lab sold off the mainland to some larger estate, the # of sims and demands will even out from there.

[Ignatius Onomatopoeia]

"And can you name a single company renting out their servers for a price even remotely close to the SL tiers?"

@Orca, in the Frank Norris novel The Octopus, a character confronts a rail baron who is destroying California farmers with outrageous rates for shipping.

When asked what he'll charge for his service, the rail baron replies "what the market will bear."

This is the situation for LL. They have no real competition, if you want robust UGC and community. I firmly believe OpenSim has the former. But try to find a crowd there if you want to hob-nob.

Perhaps InWorldz has the community. My time there has been limited.

If LL had robust competition for its special sauce, that $300/ month would have gone down long ago, or we'd have bailed for something equivalent and cheaper.

Meanwhile we are forced to accept "what the market will bear."

[Eddi Haskell]

Just for everyone's information the photograph attached to this article is not of Second Life. That is Desmond in Blue Mars, in his still standing but frozen-in-time Caledonia city -- in which development stopped about one year ago, and which you can still visit. It is a ghost town of course, since Blue Mars has essentially stopped all development about one year ago.

[Desmond Shang]

grins...

Well noted Eddi, and I suspect Hamlet's brilliant use of graphic irony went over the heads of many... clearly not everything I've done has panned out flawlessly, either! I too take calculated risks that don't pan out... and shall again. Failing is a very big part of what I do, but as bad as that sounds... it's better than working for someone else.

Not sure the little snippet was worth a blog post, but... well, there it is. Dartagan ~ good points and very valid perspective... though I stand by the original.

A big part of the problem is that they think they are merely selling hammers for creativity, rather than something more. The product is more abstract than most inherently 'get'.

For instance ~ unrelated of course ~ many game engineers are basically in the business of monetising highly addictive online experiences... not necessarily enjoyable ones. A good grid experience here is at once both more cerebral, and emotionally visceral... but that's another story.

I fully expect few would agree with me. But for any success in business, it's the unexpected insight that wins ~ the point that few else understand that provides the edge.

Commonly shared viewpoints lead to mediocrity, accounting, and decline... and trying to convince others you are correct about something new leads to delays, animosity and ultimately... loss of the edge. Proof: one doesn't see many successful merchants shouting out: "make product X, I'm quietly making a killing!" Imagine arguing that point with your own competition, then 'winning' said argument with the annoyed, combative opposition... oops! grin

* * * * *

Thanks for the attention and the delightful irony Hamlet! But for everyone's sake I shall refrain from commentary for a while :)

[Connie Arida]

Yes..love the Blue Mars shot in an essentially SL story . :)
I tend to agree with what Desmond has to say. A pity the SL "experience / experiences" is so hard to "sell"

[Pep]

LL don't want to listen, Des; you know that. But then, why should they listen when most of their critics are focusing on their own selfish wants, rather than unpalatable (to the idiots in the marketing department who are driving the company down the road to oblivion) truths offered up by the few with real world business acumen who have the time and inclination to offer constructive advice. LL needs to fire their current marketing team and get in someone who doesn't take Facebook as the be all and end all of online models.

Pep (is still astonished that there is no Google-style advertising in LL properties)

[Hamlet Au]

"Hamlet's brilliant use of graphic irony went over the heads of many."

Haha, I can't claim to be too brilliant, I mostly used the Blue Mars pic because that's the only one of Desmond I have on this blog. But I liked the in-joke aspect too. It is too bad the full vision for Blue Mars didn't a chance to be realized, because it would have been good for SL too.

[Ener Hax]

"the trick to being listened to"

that, my friend, is the problem with Linden Lab and has been for years . . .

[Shug Maitland]

@ Dartagan; "--mainland keeping some sort of value by being harder to get ahold of." Are you kidding?? Have you looked at the Mainland? There are whole sims available from LL for L$1/sqM!!
Marketplace, and the resulting demise of stores and malls hit the mainland even worse than the private estates. There is actually some hope that some region owners might move to the mainland, but I have yet to see it happening.

[foneco zuzu]

My 10 Cents!
Want to socialize and do some activities that you love (Sport ones, adult ones, whatever!.
Sl, get in there, get premium account and enjoy!
If you are a builder, soon you will know that Sl is no more!
So close grids are no competition to Sl, im sorry to say, nor Open ones!
But open ones can make those who need land just don't spent a lindn more in them, and just move to where its free (if you host as i do) or less then Usd 50 month for a full 45000 sim!

[Arcadia Codesmith]

Land prices are responsive to supply and demand, but they're hugely irrelevant (except to flippers).

The purchase price is trivial compared to tier over time, which doesn't budge regardless of land surpluses or shortfalls.

Unless tier is slashed drastically (and I'm talking a 90% cut, MINIMUM, if not outright elimination) and other revenue streams cultivated, Second Life is... well, maybe not doomed. It could limp along for a long time on a few rich hardcore partisans. But it won't have any further relevance to the development of virtuality.

And that might be a good thing. The more I think about it, the more appealing I find the idea of a self-sustaining, free public space devoted to more important considerations than base economics.

[foneco zuzu]

Open Sim can be all, Close grids dedicated to profit, close grids dedicated to education, open ones with only one goal, to make all enjoy a tool that can make our dreams made true!
Still, for what i saw this Sunday, Sl was full with activity, and is still, for the best and worse, the place to be, to show to engage, to enjoy!

[Ignatius Onomatopoeia]

I love OpenSim, foneco. But right now it still lacks the sort of good premade content that SL has for pennies or a a few US dollars.

Over the past year, I've made and downloaded tons of good CC-licensed content for my OpenSim build. That said, it's still not up to what I found in SL 2007, in terms of the quality of the marketplace.

I cannot comment on closed grids. I don't favor them for educational use.

Where I work in OpenSim, stability is stronger now, hypergridding exciting, but we need a really robust cross-grid marketplace as well as a means to deliver content. I worry that Imprudence, with its import/export feature, may vanish.

[Pussycat Catnap]

Here I come for today... :)

@Orca: "I don't believe the majority of SLers are into RP and the themed RP sims. I go sometimes to those islands and estates, look around, have fun, take photos .. and then I hurry back to my home and my "community" on mainland"

Agree. I'll add too, that many people who do land on estates also go for unthemed ones. As garish as I personally find it, a vast number of SLers want the same basic prefab with palm tree and beach view. Personally can't stand beaches - even though I live just over a hill from one, I've never been to it in the 10 years I've lived where I am, and I have the athletic body suited for the environment there. ;)
- OK so I'm a freak... but that said, most folks apparently aren't.

I go to estates and they don't seem to want what Desmond and his ilk offer. They just want a clone of a prefab. People end up on estates because they don't want to share that view with somebody else's build down the sim (like on mainland).

Its the rarest creature that wants the themed estate. But such folks I suspect covet that dearly. I know I'd be one of them if I trusted estate landowner - but coming from the ghetto, I don't trust anything I can't see in writing and policed by someone who can't use bias to discriminate against me; even if I trust the people behind it, I don't trust the people behind it. ;)
- So I end up on mainland where the policy is written and cold, even if not really to my liking.

My personal guess is popularity goes like this:

1. Unthemed rental estate that offers exclusivity and no views of others. The 'every net-geek is her own island' sort.
2. Mainland.
3. Themed community estate that enforces build style and/or quality, and comes with "built in" like-minded folks to chat up.

(not counting squatters and those who don't care to have land.)

These different groups also tend to have a -lot- of trouble comprehending how people in the other groups could possibly be 'like that'... :)

[Pussycat Catnap]

"Just for everyone's information the photograph attached to this article is not of Second Life. That is Desmond in Blue Mars"

And of late, I've started seeing a few avatars with that quality of skin in SL, and builds with that quality in very limited amounts via mesh.

SL might catch up to the graphics Blue Mars was hinting at, without needing a PIXAR mainframe rendering-hub to run... :)

[Emperor Norton]

Ignatius Onomatopoeia @ "This is the situation for LL. They have no real competition, if you want robust UGC and community. I firmly believe OpenSim has the former. But try to find a crowd there if you want to hob-nob."

They do have some real serious compitition- free to play MMORGs. What ever the numbers the beach party set has going now that group isn't going to grow, it's gaming that has the huge numebers LL has said the future is in with gaming. Heck, even Facebook the latest Holy Grail has it.

So it's 300 a month sim verses a 15 subscription and it's pretty cleat the 300 a month isn't wining.

[Pussycat Catnap]

"Losing private estates is not a good thing for SL, that is where their immense profit comes from. There are no expenses that aren't paid for with private estates. On the other hand, mainland is dead weight, and is where the issue lies"

I'll argue the opposite.

Estates are risky for LLs. Its always bad business when your income is generated from a small number of high end purchases.

Mainland is more spread out income. A Walmart model. Much safer to have your income generated from a wide spectrum of low end purchases.

You cannot afford to lose 1 estate that generated $100,000 in revenue as much as you can afford to lose 10,000 renters that generate $10.
- Much easier to withstand fluctuations in the small purchasers. Because you are simply a lot less likely to lose 10,000 customers than to lose 1. And they're more replaceable.

Estates are not dead weight, they're dangerous ropes that risk becoming nooses.

Mainland on the other hand, is a source of constant potential revenue - even major fluctuations like the loss of perhaps 10% of holdings would have less impact than the loss of a single large land baron like Desmond.

LLs is pushing premium accounts because it spreads the income generation around.

Ideally they should lower the burdens to becoming premium, increase the benefits, and over time make it harder to become and estate holder.

The estate system only makes sense where you can attract corporations to sign multi-year contracts; and that's just not the business SL is in now that M. Linden is gone.

[Pussycat Catnap]

"For instance ~ unrelated of course ~ many game engineers are basically in the business of monetising highly addictive online experiences... not necessarily enjoyable ones."

Hold on let me get back to you on that.

/logs into WoW account to get 3726 more Lucky Heart Charms to ride around on a pink ostrich and buy a glowy stick of gobliny doom that will be obsolete in 3 months with I need to replace it with panda nunchuks.

Ok... what were you saying there again?

[Pussycat Catnap]

"So it's 300 a month sim verses a 15 subscription and it's pretty cleat the 300 a month isn't wining."

I'd wager 99.99% of SL residents don't need to spend $300/month. And most get by on free, with a few bucks here and there spent to buy clothes, skins, AOs, and sexhuds...
- Spending maybe less than $10/month on SL.

If you went into one of those 'free to play' MMOs and spent $300/month on the goods they offer, you'd get less for it than you get out of SL for that, simply because it isn't there at that scale.

But your argument is comparing the extremes at opposite ends. You can't compare the people who overspend in SL with the freeloaders in the competition and then say SL has the wrong model.

Compare like for like. Typical user versus typical user is your best bet. And in SL, that user will end up looking a -LOT- like a player of IMVU or even Yoville: someone who buys enough virtual goods to look pretty, and then hangs out, getting some addons now and then to stay prettier then the others in their scene, and a toy or pet here and there.

In SL, going premium and getting land as well as the above, can still be done on $10/month even if you pay monthly... That then comes with $1200L/month - enough to keep up with fashion and pets at a basic level.

In other words... SL -IS- priced competitively to those "other free games", for most users.

In fact at that price range, I could also kit out a RP "toon" ready to join the action in a host of different SL RP sims, and then switch out to a gown/tux for ballroom enjoyment, or trendy clothes for a dance club, and keep up food bills on a couple Meeroos or Fairies or something. In those "other free games" - I'd get one of these options, not all three, for that price range of added virtual goods.

[Metacam Oh]

Sorry Pussycat, but I think you're wrong. If you had to ask Linden Lab candidly, I guarentee they would get rid of their mainland ownership. Every empty plot that just sits there costs them money. Private estates will fluctuate up and down but with private estates you are not LOSING money if that customer leaves, just potential profit. You will never have situation where private estate will sit there and cost you server money.

Think about all the empty mainland parcels that are costing the Lab money right now by not being rented. That is server space that is costing and not generating. Its why private estates are so much money. They are paying for the rest of SL, all the freebie accounts, and all the abandoned land that will never fill up again.

[Pussycat Catnap]

Servers are dirt cheap. Severely so. Maintaining an empty server is a drop in the bucket. Just because they charge you $300/month for one doesn't mean it costs them that for the hardware.

Costs come in with user support and elsewhere.

And I'm pretty confident I'm right about LLs desire to get more people on mainland - just look at all of the pushes to get premium signups. That's very different from M's day, when they were pushing for estate signups.

Its all about, as I noted, risk.

There's a major risk with every large land holder that they will pack up and leave. LLs offers those big guys special deals not out of the 'kindness of their hearts', but in fear of what would happen if one just suddenly cancelled.

If Desmond cancelled his SL account, people at LLs would lose jobs. If Anshe Chung did it, we might lose SL.

It would take hundreds to a 1000 premium accounts cancelling to equal -one- Desmond cancelling.
- Much safer to bank on being a Walmart.

You can fit 128 premium accounts into a sim if you stuff it full of basic premiums. That's $1280/month, versus the $300 they'd make selling that as an Estate.
- It only takes 30 512m premium accounts on a sim to equal an estate sale (more if they buy annual passes).

Mainland can be profitable with much lower density.

[Pussycat Catnap]

Also, if a private estate quits, SL is still stuck holding that hardware, waiting for another estate sale. If a mainland sim empties - its still getting used by people passing through - a visible billboard saying 'buy a spot here', and only takes a few residents moving in to bring back into viable economics. Two residents with lots the size of my mainland home, or 30 on 512s... (ack, I've got too much land for what I use it for).

[Pussycat Catnap]

blog just page wrapped comments, my comment above will make no sense without reading the last comment of the first page first-which has the first half of my comment... :)

[Metacam Oh]

I still disagree. Them pushing premium subscribers does not prove your point. Mainland is not recyclable, nor is it ideal for anyone. You are usually a newb when you get suckered into mainland, then you realize you dont want to have to worry about the imbecile next doors ugly build ruining your view. If SL is shrinking like the #s indicate, mainland is a liability. How much mainland is vacant right now? 20%? more?

[elizabeth (16)]

@metacam- i think you have to factor linden homes into that. when u do then premium mainland occupancy in raw numbers is probly higher now than it was previous to linden homes

[Masami Kuramoto]

Pussycat's analysis is spot on and deserves its own blog post. The loss of private estates is indeed a healthy thing for Second Life, but not for the reasons pointed out by Desmond. The simple truth is that land barons have fallen out of Linden Lab's favor, at least since Rodvik is behind the wheel. The reasons for this are many. One of them is that for quite some time, land barons have been thinking they were the ones running the show. You can still observe that mindset in Desmond's post. By being middlemen between the Lab and residents looking for land, they took a share of Linden Lab's revenue, but apparently that wasn't enough for them, so they started overriding Linden Lab's customer policies. For example, when the first alt tracking systems (CDS, Red Zone) hit the market, estate owners were their most ardent supporters, torpedoing the Lab's own privacy policy. And more recently, when the Lab introduced mesh, land barons jeopardized its adoption by wholesale banning of all mesh assets that tenants or visitors might rez/wear on their estates. Not to mention the many other cases of land barons screwing their own tenants.

As Pussycat pointed out, the Lab will do better getting the middlemen out of the way and promoting premium accounts. Server space has become so cheap that a single premium account generates enough income for the Lab to host a full sim, even if the account owns no more land than its default 512sqm. This means that even if there were only one premium account per mainland sim, the Lab would still be profitable. Check out the current rates of VPS hosting if you are in doubt. By the way, the abundance of mainland makes it easier for residents to form self-organizing themed communities, which means that land barons are no longer needed. Since there is plenty of cheap land around, Metacam's example of the "imbecile next door" has become much less of a problem.