Why's Linden Lab Discounting Second Life Land? Latest Tyche Report Helps Illustrate Why

Linden Lab's new offer to lower its monthly land tiers has caused a lot of conversation, and as usual, the latest report from RL statistician and SL land surveyor Tyche Shephard has the data which explains the likely reasons for that move. Here's her March 2016 summary, posted on the SL Universe user forum. Key points are continued decline of monthly revenue from tier payments, down around $5 million+ a year compared with 2013, and strong consolidation among the private "land barons" who now own and control a whopping half of private estate regions:

Taking these figures a good estimate of private estate tier due each month is US$3,385,000 +/- US$43,000. (Calculated using known grandfathering rates but excludes any academic reductions and is rounded to the closest US$1000), this figure is significantly down on Nov 2013's estimate of US$3,857,000 by $472,000 (down by 12%). The top 20 landowners currently control 49.1% (+/- 1.3%) of private estate regions, This is significantly up on Nov 2013 (39.5%) , using list prices their holdings account for 40.6% of total private estate tier (Nov 2013 was 30.5%)

$472,000 decline in a month comes out to a loss of over $5 million a year in tier. And with tier consistently declining, it makes sense for Linden Lab to discount tier as an incentive for remaining landowners to stay put, and try to find new ways of covering that tier (donations, new content, etc). The discount also seems directed at the land barons, who have been around long enough to have large support staffs and a reliable revenue model. With these discounts in place, they now have an incentive to keep operating in SL, even long after Project Sansar launches. At some point, I imagine nearly all private estates in Second Life will be owned by these barons, who'll keep SL operations and (marginally) profitable for years to come.

My immediate, at least -- how about you?

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Comments

[zz bottom]

I do think it is a good way to see it.

[Shockwave Yareach]

If LL can afford the Atlas pricing for some, then they can afford it for all. Anything else is just some of us being forced to subsidize the land barons.

This is not only not enough discount it is insulting to demand approaching one grand in cash up front. And as we learned with homesteads, ll can then raise the price up again whenever they want for whatever reason they want.

[Ciaran Laval]

The discussions I'm following point out the problems of small - medium estates being able to find the upfront tier. Someone who holds, say, 20 full Islands, needs to find 12k for this and that's a big ask.

[Clara Seller]

This whole scheme just smells of a last ditch effort to milk some advance cash out of land that is likely to fall into the ocean soon. I just don't see any evidence that LL has suddenly developed some fondness for their resident wildebeest and want to herd them to better grazing. Nope, we're still dinner.

[Hottie Something]

This looks, at first, like a shiny new penny if you are a moderate sized estate owner. Even the prospect of having to come up with the cash to buydown 25+ sims seems trivial compared to the potential profit. But then you bend down to pick up that penny, and realize it is covered in boogers.

Basically, it's a dick move by the Lab. Sure it's great for these top 20 guys. If they didn't already have mostly GF sims anyway. But the rest of us are faced with the prospect of selling kidneys to come up with the cash.

We could just ignore it. Stick our heads in the sand. But the cold hard truth is if we do not buy down NOW, our businesses, which were only just starting to recover from the freeze on grandfathering in the first place, will be dead within a year.

The best case scenario is that everyone will wait for about 6 months before the free for all begins.

Then there will be a tug of war between keeping prices up to pay off the cost of buying down, and providing the lowest price to get more tenants. It may never fully go down, because the cost of expanding your sim holdings now comes at a premium. But make no mistake this will have a backlash in the market. We are already seeing an uptick in the number of Lindens stacking up on the Lindex, which may well drive down the value of the Linden Dollar.

For those who can afford to (and I use that term loosely because we really can't afford not to) buydown, right now, the best case scenario is that we can hold on long enough, and the prices can stay high enough, that we will make back our investment within 6-8 months. Worst case is prices tank tomorrow and it takes more than a year to make back that investment, if our businesses survive that long.

For those who decide not to buydown, it will mark the beginning of the end. Inevitably, prices will fall and if you don't have grandfathered prices your income to expense ratio will go upside down. And if you can't buydown right now, and wait 6 months or so to do it, the prices will have fallen and you won't be able to make back the investment as quickly as those who do it right now.

So in effect the Lab is putting us between a rock and a hard place and literally forcing us to rebuy our sims or go out of business.

Not only does that suck. But it shakes my confidence that SL has a future. Because even though this will be a big cash infusion for the Lab, it's just an advance on 6 months of profit, after which they will losing about a third of their revenue. It make me suspect that they are trying to get a cash infusion for something else, something new, something meant to continue on past the death of SL....hmmmm.

And why should I give them money for a service they are no longer developing? A service that they are implying has no future because they are putting their focus on bigger and better things? There has been a known physics bug in Homesteads for like ever, and they just shrug it off. Most of the perks of being a mid-sized land owner have just quietly disappeared.

Don't get me wrong. As much as I whine, I have had a business for 10 years which would not be possible without the Lab. And I am grateful under it all. I may have been forced to shrink my holdings since the grandfathering took effect, but I have always managed my business well and never had a year without a nice little profit compared to my time investment.

But once upon a time my land business was grossing half a million USD per year. And all of that was flowing through the Lindex as Linden Dollars. The grid was built the backs of the entrepreneurs who took a chance on this crazy idea of selling fake land for real money.

The freeze on grandfathering just about killed us. The lifting of that freeze may well slam the final nail in our coffin.

[Adeon Writer]

I'll buy a region directly from LL if it has a reasonable monthly rate and no setup fee.

[joe]

I see a rise in virtual homelessness due to rising rents created by the collusion between the land barons.

[Carlos Loff]

LL has a huge margin between land revenue and server costs. Astronomically high - Why dont they just lower every god tham Sim by 10 times and get almost every user building up it's land and than making the whole world reacher in contents and diverse in options ??? Because they do not want expansion, they have Samsar, they prefere decline while milking and squeezeng the very last drops on the eay down - Im being negative but I will confess I miss SL - If tiers were 10 times cheaper I would be running back to use my huge expensive rich and very diverse inventory on new lands and activities and re-gather my whole bunch of contacts

[metacam]

they don't do that Carlos because they would then be admitting how badly we all have been being ripped off.

[Dirran Skytower]

I wonder if the real problem is that they signed contracts that require the heavy price discrimination between Atlas partners and actual users. That would have been an act of extraordinary stupidity, but there has to be some way to explain a completely irrational price structure that is clearly driving SL into the ground.

[Carlos Loff]

The way to explain is so so simple - People stck with SL and keep paying, lol, so if the caw has milk every morning and keep having, ley's squeeze it hard every morning - Opensim is a very Professional solution nowadays, only content and user numbers are keeping it growing steady but still slowly but, once again, like in the money issue, is all in the users hands, LL will keep cashing in as long users keep droping cash in

[jack allandale]

sl is ridicilously expensive. anyone who buys a full region and hold it a year, can buy a real life car in a year :) so in my opinion those who pay for NOTHING are not so clever people.i prefer buying a real life car to myself instead of gifting it to linden lab :)

[Madbunny]

Old debate about land price. Some people say expensive, some say its cheap and majority of them are just paying.

But i would like to stay on technical side of the story and use my experience to say few words.
Lets bring down this cost of 300$ per sim and the technology needed to make it work.

During the years the prices for servers, bandwidth and everything else connected to it went down, and i really mean down. What you could buy before 5-6 years with 900$ (setup + one month subs) is not even 10-15% of what you can get today. To put into picture how much you could get today for 900 lets calculate how much you would pay one year of renting a new Sim:
- setup fee: 600$
- monthly subscription: 295$ x 12 = 3540$
- total: 4140$/year or 345$/mo

Ok so now we have something more specific and i will use this amount to make my calculations. Lets start with the basics or to say hardware:

1. Powerful server with server grade CPU Intel E5-1650v3 (6 core/12 threads) 3.8GHz, 64GB memory and 2x500GB datacenter grade SSD in Raid 1. Trust me something like this eats small babies alive.
Price: around 180$/mo

2. Now lets say we want to separate a database what is used to store all the information about items but not limited only to that from the game. So to make everything even faster lets take server grade CPU Intel Xeon E3-1231v3 (4 core/8 threads) 3.8GHz, 32GB memory, 2x500GB datacenter grade SSD in Raid 1.
Price: around 85$/mo

3. Last but not least we need some decent backup because we care for our customers. To fulfill this role we can buy Intel Atom C2750 (8 core / no hyper threading) 2.6GHz as backup server dont need strong CPU, 16GB memory and 3x4TB datacenter grade HDD.
Price: around 90$/mo

How much we need to pay: 355$/mo. How many Sim (e.g.
full region/15.000 prims) we can host on this setup? I would say at least 30 up to 40-45 full regions and keep the server under 80% capacity.

How you can see for little more than you would pay one region per month with LL you could have min. 30 regions with each one holding 15.000 prims and 100 avatars. But is not only hosting X amount of regions, because of offloading the database the main server would be fast as hell and do not forget a backup server to keep all client data safe in case of some major disaster.

For the end few important things to keep in mind:
- All servers i took as example come with DDoS protection included in price to f* the competition and their shady practices to bring you down or some clown who got banned.
- This servers are not the top so you could go with more expensive solution and in return you would get much more in server capacity and overall performance, e.g. more regions to host.
- I didnt take into account if you buy more servers and then use clustering and offloading what could increase server capacity for another 20 to 50+% (depends how the servers are connected and average usage per client/use/avatar).
- I didnt calculate discounts if you pay 6mo or 1y in advance and additional discounts if you buy more than one "set" of servers.
- LL servers are: a) way older and less powerful than one in my calculation or b) they are oversold/overused to hell. Reason is simple, to save each cent what can be saved regardless or the quality for the customers (you).

Now if you ask me if LL have outrageous prices my answer would be - hell yeah. I hope my post will share some light why the prices offered by LL are absolutely disconnected with reality.

P.S. I started with DTP and graphic design in 1995 and in the last 5-6 years expanded to web design and hosting. If this means something to you great, if not use Google and check the facts.