Losing SL's Land Barons Could be "Seismic", Says Steampunk Estate Owner Desmond Shang

Well-regarded steampunk land baron Desmond “the Guvnah” Shang added a very interesting comment in last week's post about the dominance of land barons in Second Life, which greatly complicates the prospect of reducing monthly tier for Second Life landowners in general. As I've noted, Linden Lab fears that any reduction would harm the top 500 land barons who own over 75% of Second Life's private sims; as a "baby baron" (as he describes himself), Desmond adds some very valuable perspective:

"Should Linden Research ever get rid of what is essentially an aristocratic system, equalize everything, and move on? That's a very good question. I can only say what I would do, which is: adapt if I can, and if not, shut down (which is most likely)."

Here's why, as he goes on to explain:

"For others it may be abstract, but if you are paying say, $50,000 or $100,000 USD worth of tier (or even a million) each year, and a change in policy would mean over 30% of your customers would leave, then yes: you are exposed to substantial risk. Unless a land baron is a complete crook, there are high costs associated with closing regions. For instance, to move the last 30% of residents off a financially un-viable region, takes time. Which we all know, equals tier. When do you finally make the call? How long do you give remaining residents? What if they only log in once a month? Closing a region with fairness and grace can easily cost hundreds of dollars. I do know that if the land barons left, and the residents stayed, the change would be seismic."

I've asked Desmond to discuss this subject in more detail, hopefully next week. But again, it's reasons like this which make it highly unlikely Linden Lab will ever reduce tier.

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Comments

[Petr Vanbeeck]

I have thought for sometime that LL should increase the allowable land holding from 512 to 1024 or even 2048 for premium accounts. Maybe it would increase individual land holdings on the mainland. I know i have some land on the mainland but everytime i want to do anything of any substance or size, I have to pay lots of tier or find friends who are not using there land alotment and get them to donate it to my group.

[Archangel Mortenwold]

What was left out from the quoting of Desmond's comment is that he agrees that tier should be lowered.

"What needs to happen ~ yes, prices must come down, this is so obvious it goes without saying. It would even help the barons. Try selling Big Macs at 30 dollars a pop ~ that's the issue. Right now we are in negative growth territory; I'm not sure why this is sustained, other than perhaps they are shy of breaking the economy by improper action. That's a fairly realistic fear; a mere "weekend estate sale" of about a year ago heralded the pervasive decline and was a clear indication to the barons that they (well, we) had better be ready to downsize, *fast* if necessary."

"I do know that if the land barons left, and the residents stayed ~ the change would be seismic. I'm going to overstep and maybe say something that other land holders may not agree with... or maybe they will silently nod their heads. Basically it's this: many of us are looking at other options, and some of us are pursuing them quite diligently (if not diversified already). Diversification is the first thing you do, when the core business model is called into question."

[Hamlet Au]

Trouble is, a general tier reduction translates into a huge revenue loss for Linden Lab, at least in the short term. Hopefully Desmond explains why that's not a problem in his guest post. :)

[Alberik Rotaru]

Shutting down the grid would be a considerably greater revenue loss for LL. Pricing is, in the end, a fairly simple equation. If revenue is shrinking because a product is overpriced then the company has to reduce that price or face demand approaching zero. Neither lab nor land baron can survive without actual customers.

Unless you or the company have discovered some special exception to the demand curve, then you need to take Desmond Shang's advice:

What needs to happen ~ yes, prices must come down, this is so obvious it goes without saying.

[Gaga]

I think someone said previously that if the Barons left then Linden Labs would be forced to take over their rental business's or Second Life would have to close too. Therefore, I am pretty sure they would take over.

In my view they could ease the tier cost down a bit at a time to a level they can still profit from and give the Barons their discount. But I can understand the business model of high tier and as Desmond says, it is essentially an aristocratic system. Better word might be feudalism.

How I see it is that LL being the Overlord or King owns all the land and grants his most loyal subjects, the Barons, privileges in the form of discounts on tier. The rest of the population are basically citizens and shop keepers that always pay the top rates albeit in relatively small sums compared to what the Barons are committed to. So the shop keepers make stuff to help off-set tier costs and because those costs are quite high they have to make and try to sell a lot of stuff. The citizens, or consumers, want free places to hangout and perhaps role play but they will buy what the shop keepers sell - some will actually spend quite a lot! The shop keepers and those running venues as clubs, RPGs, sailing and other arts & entertainments generally will more often than not be renting from Barons and so they have to keep working to off-set those costs and try to turn a profit too.

Now, if the Lab drops tier and maybe makes it possible to buy just one sim then this might upset the balance of the economy for dropping prices too much and too quickly will greatly reduce financial pressure on the shop keepers and venue organizers. Thus, if they don't have to off-set tier costs to the same extent that they were doing this could lead to a drop in the economy with less people bothering to make and sell stuff. In deed, more stuff might be given away free which would create downward pressure on the economy too. Some would take the opportunity to profit of course but if prices are falling eventually the incentive is lost anyway.

Now consider what might happen if more people can buy and own land. In Opensim grids land is cheap and people often own vast estates which ends up very empty land since there is not enough traffic to fill it. Similar could start to happen in Second Life if land became very much cheaper. Not just that but game organizers and venues all want a slice of the traffic and the more people able to set up games and venues just adds to the glut of entertainment for a limited population. Some of the best would probably give up. It is already happening.

I'm a supporter of Opensim anyway but I do see the glut of empty land and lack of activities and events in the open Metaverse as a problem. I might be wrong, probably am, but Linden Labs must be struggling with the land pricing decision which may already be in a Catch 22. If they don't drop prices no one is going to buy more land. If they do drop prices then the balance of the economy might be irreversibly damaged.

Just my thoughts.

[Alberik Rotaru]

I do not think anyone is calling for tier to be halved tomorrow. But it is just ridiculous to argue that any tier reduction will cause a loss of revenue. If you well 3 widgets at $10 but dropping your price to $9 means you sell 4 widgets than a 10% price cut increases your revenues. Lindenomics is not exempt from supply and demand.

[Pienaar]

"Trouble is, a general tier reduction translates into a huge revenue loss for Linden Lab, at least in the short term. Hopefully Desmond explains why that's not a problem in his guest post."

No Hamlet, a tier reduction translates into a new economic balance. Depending on the market demand and the available budget of customers, it could even mean a gain of income for LL. I like Desmonds "Burger" example that should point it out even to the non-economists: If McDonalds raised their price for burgers to 30$ over night, would they gain on the short term? In Hamlet's reasoning yes, but probably no because customers just turn arround... If they lowered the prices by 10% over night and made lots of advertisement arround it, would they have a revenue loss? Not necessarily if they get sufficient new customers.

Now how I understand Desmond is that the land barrons can be compared to the McDo franchise restaurant owners who sell their burgers for the LL company. Right now the situation is for them that they sell a "burger" for "30 Dollars" which is possible because LL has a De facto monopoly on the virtual burger market. However more and more customers are saying: i won't have a virtual burger anymore as the price is too high. So the lan barrons probably could sell more and better at a fairer price (for themselves AND for LL). However what counts for land barrons is that a lower margin per unit is compensated by a sufficient increase of sold units. And that the de facto system of LL franchising isn't changed.

[shockwave yareach]

All private sim owners want is the SAME discount already given to the Land Barons. That's all. Nothing more, nothing less. Just make it an even playing field so that people running RP sims and renting parcels don't charge more in rent than the land barons.

Because anything else means the small fry are paying extra and subsidizing the big fish that are trying to put them out of business.

If LL can afford ATLAS on the 3/4 of the private sims which are owned by land barons, they can afford it for the remaining 1/4 of the private sim holders as well. Anything else is favortism and is making all the rest of us pay part of the land baron's bills for them, and I don't feel like paying Ms Chung's tier for her -- if she's a millionaire now, she can afford to pay for her own ****ed land.

[foneco zuzu]

Premium members being allowed to get more m2 per tier level on mainland!
Lower tier for land barons ONLY!
Sell private sims for those who can buy AT LEAST 100 SIMS!

[foneco zuzu]

That would increase premium membership will allow land barons to decrease their tier prices and to create big plots with good covenants rules.

[Metacam Oh]

Either that foneco, or land prices will simple have no huge impact on Land Barons, if they even just slowly cut tier over a year or two, people will still save money renting from land barons because they won't have to pay the ridiculous premium membership fee on top of the tier.

No matter what the land baron situation is, they can't just do nothing. Doing nothing and letting the place sink would be the biggest blunder of all.

[Cindy Bolero]

******* Tier reduction wouldn't help in the current SL & RL economy! ********

Now that our land group's traffic, sales, and land rental is only 20% of normal, I am forced to reduce our land rental rates for now, just to keep the sims online long enough to make it through our annual Winter Festival (which used to draw tens of thousands of visitors).

Even reducing rent to ALMOST HALF (with me personally paying the unrented balance of each region I own), there are still VERY FEW TAKERS at this drastically reduced rate. Basically our concept is land sponsors who provide an expansive low lag public access recreation area. We are not a rental business.

The writing is on the wall.

Aero Pines Park will stay in 2013 after WinterFest, but we will definitely reduce the amount of regions we've maintained over the years. We've been paying average $30k US per year for our 12 region continent. Another continent of 14 regions we financed and built in 2008 (Avia), went completely offline a couple weeks ago.

Its just too damn expensive and time-consuming for us little guys who financially provide fun PUBLIC places for residents to play on, while land barons get a discount.

[Melancholy Lemon]

I think it's a mistake to analyse the land business in terms of the land barons. At the end of the day, it's the residents who rent the parcels off the barons that matter - without them, the barons would have no business - and nor would LL.

It makes little difference to LL how residents rent their parcel as long as they do - so the question must be - would a gradual, modest reduction in tier (both on private estates and on the mainland) increase the number of residents who choose to rent land in SL?

mel

[Melancholy Lemon]

Or to put it another way...

It's not the 500 largest land owners who LL should be spending most of their time worrying about keeping happy. As you've said, these are land barons - their main business is renting out land.

It's the much larger number of people renting the land off the barons that LL need to concentrate on keeping happy, one way or another. Because if they're not happy, it's not just the barons who lose - LL will lose big time.

mel