Will Linden Lab's New 15% Price Discount on SL Sim Tier & Increase on L$ Purchase Fees Hurt or Help the Company? NWN Does the Rough Math

For Second Life's 15th anniversary, some 15-themed news from Linden Lab:

Effective July 2, monthly maintenance fees on Private Estates are dropping by up to 15%! In addition, one-time land set-up fees are also reduced by as much as 41%. And remember, the setup fee includes your first month’s payment... Education/Nonprofit (EDU/NP) discounted full islands will be re-priced to maintain their 50% discount off the regularly priced full islands. The new price of $124.50 will go into effect at the start of that island's next invoiced billing term.

According to Tyche's latest SL economic data, there's now 15,969 private sims on the grid, So by making this discount, Linden Lab is taking an annual hit of a few million dollars a year about $8 million per year [Update: See Comments].

But wait, Linden Lab has a way of offsetting that discount -- raising the price of L$ purchases by 50 cents:

In addition to dropping prices on land, on July 2, we will also increase the cost to buy Linden Dollars to $1.49 per transaction (compared to the current rate of 99 cents per transaction).   This increase will help us offset the revenues lost on land, and to keep Second Life a vibrant world that continues to push the limits of possibility - for another 15 years to come.

A bit more difficult to guess how much that L$ fee increase will offset the new sim discount -- Linden Lab stopped reporting L$ purchase rates back in 2011. However, here's a very, very rough guess:

• Insiders estimate about 400,000 SL users buy Linden Dollars every month.
• Assume they do so at an average rate of twice a month.
• That'd be $800,000 that Linden Lab makes in fees every month, I.E. $9,600,000 a year.
• With the fee increase, Linden Lab will be making $14,400,000 a year in fees.
• I.E. $4,800,000 more from L$ purchase fees.

So if that's right, it may not be a it's not a full offset. On the other hand, if Linden Lab could strongly grow its userbase of people who buy Linden Dollars, they could offset the sim discount and then some.

On the other other hand, maybe more people buy Linden Dollars at much higher rates than I'm estimating above. I doubt Linden Lab would have made this sim discount if that wasn't a case.

Comments

[montecore babcock]

Would that affect grandfathered Sim tier too? Or will they stay $195?

[Hamlet Au]

It won't affect them, it's noted in the announcement link.

[Darling]

high fidelity you can run the server at home. Prices on digital ocean are $5.00 to $100. The size dwarfs what you can get in SL.
VRchat it is free. The size dwarfs what you can get SL.
janusvr they are nothing but web sites. You can do everything you can do in SL and more. A lot of the services you pay for in SL are free.
The size dwarfs what you can get in SL. Since they are websites and the servers that takes care of avatars are separate and manage the avatars on multiple websites. You can have as many as you want.
You don't even need to run those servers. You can but their free.
The fact that there are still people using SL is stupid.
They aren't even close to being competitive in this market.

[Galatea]

Hmm. I have yet to see an alternative that's competitive with SL. There are plenty of cheaper alternatives, but lacking SL's population and economy, they really can't compete. Maybe someday...

[Gordon]

"...there's now 15,969 private sims on the grid, So by making this discount, Linden Lab is taking an annual hit of about $8,815,000 a year."

This calculation is so wrong that it is embarrassing even for Wagner James Au. Wagner only assumes full regions that do not have a grandfathered or non-profit status. Of the 15,969 private estates, about half are grandfathered -> no losses for Linden Lab. And of the remaining 7,984 regions, half are Homesteads, Openspaces and Non-profits -> less loss due to smaller discounts.

In the end, Linden Lab may have a loss of 1 to 2 million USD per year. If it were actually $8,815,000, Linden Lab would never have introduced the discount.

[camilia fidelis nee patchouli woollahra]

The increase in the cost of trading L$ seems a fair deal. Landowners have borne the brunt of those costs of running Second Life for a long time. The easiest way of mitigating the increase in L$ trading costs is by by buying less often, but buying more each time.

[Darling]

population
I'm guessing most people do not have thousands of close friends on SL.
I have hundreds of friends. But my close friends aren't that many.
Who cares if there are tons of people I will never talk to.
There's no possible way that you could truly talk to all those people.
Or would you want to.
The marketplace
I make most of my models. I'm not interested.
But there are tons of web sites that did not exist when SL started that sell models.
And I get the added benefits that I can take my models wherever I want.
No barriers to bring my models to other platforms.
It also keeps the company honest. Charging us too much and we'll simply move to the next.
And new programming languages like aframe look two have the possibility of adding all this to a standard web browser.
Look up mozilla hubs.
If that was ever implemented. Mozilla would blow SL away. Even if a small percentage of their current users started using hubs.

[Hamlet Au]

"Of the 15,969 private estates, about half are grandfathered -> no losses for Linden Lab. And of the remaining 7,984 regions, half are Homesteads, Openspaces and Non-profits:

Source for half the private estates being grandfathered?

You're right (per Grid Survey) that 43.9% are Homesteads & 0.6% are Openspaces -- should have factored that in, my mistake. Correcting and updating!

[Pulsar]

The discount could also help to mitigate a little the loss of private sims. A still paid sim is still more revenue than one that has been closed down, of course. Losing sims also means to lose some user's motivation, because there was someone who still enjoyed to visit there - whichever often or at least sometimes - or they had memories there; plus with fewer sims you have less variety to offer to your users. Then you have fewer users who pay transaction fees, buy on the shops, keeping alive other SL activities and so on. So saving a few extra sims from shutting down may possibly contribute to retain both the revenues and the user-base, at least a little. Who can't afford or doesn't feel convenient to spend $295/$125, maybe they won't do that for $249/$109 either, but someone will. Meanwhile the big reduction in set-up costs may encourage the opening of some new sim, which would help too.
There may be indirect effects on raising the transaction fee when you buy Linden Dollars as well. E.g. someone, maybe just few, would feel annoyed or discouraged a little or someone would choose to do fewer transactions but larger, to compensate. So when you raise the price, it won't turn exactly into a 1:1 revenue increase, but you have to find what could be the most profitable balance.

[Aleandro]

What about the old LL rule about HS and OS regions?
You have to own at least 1 full prim region before to have HS and OS regions market allowed?

[Clara Seller]

I don't applaud LL very often, but they are taking incremental steps in the right direction. I see Homestead sims being the sim of choice for the average user and this still looks like it's requiring a broker to offer that to the little people. Will the savings trickle down or will they end up being absorbed in the process?I don't know. I guess we'll see.

I would have liked to see a more direct line of sim ownership being offered to the average user. LL could have collected more premium memberships in that process. It's cheaper on one hand, but is it breaking down barriers? I'm truly sorry, really, for feeling that this is merely expanding happy hour discounts on the Titanic. I really don't want SL to sink and I feel radical change is the only shot to save it.

[Gordon]

@Hamlet Au:
"Of the 15,969 private estates, about half are grandfathered -> no losses for Linden Lab. And of the remaining 7,984 regions, half are Homesteads, Openspaces and Non-profits."

Source for half the private estates being grandfathered?

Two sources:
1. Tyche Shepherd before the buy down progarm from Linden Lab:

"About 9450 - of which just over 11% are already grandfathered,
and ~8010 Homesteads of which about 85% are grandfathered"

2. Tyche Shepherd seven weeks after the buy down progarm from Linden Lab started:

"The Buy Down offer announced 4th April 2016 (https://community.secondlife.com/blogs/entry/1941-want-lower-tier-now-you-can-get-grandfathered-land-rates/) which had good uptake in April hasn't changed much this month 20.7% of Full Regions of all types are now at Buy Down tier rates while 3.8% of Homesteads are now Buy Down, homestead uptake of this offer has been low because most homesteads are already grandfathered (85% of them), This is very much in line with what we saw at the end of April , implying that there has been very little Buy Down this month Overall to date I estimate there are 1995 buy down full regions taken up since announcement and another 292 Homesteads , the margin of error on these estimates is +/- 150 and 61 regions respectively"

Now make your math with all these numbers.
15,969 private estates
56% Full Regions = 8,943
44& Homesteads = 7,026
11% grandfathered full regions before buy down program = 984
21% grandfathered full regions during buy down program = 3,353
85% grandfathered homesteads before buy down program = 5,972
3.8% grandfathered homesteads during buy down program = 267
total amount of grandfathered private estate regions: 10,576

This is more than half of all private estates, but because the majority of the sims are homesteads, I've rounded that down to 50%. :)

For these regions, Linden Lab will not suffer any losses from the current price reduction. I think you have a good connection to Tyche. Ask her if my calculations are correct.

[Chic Aeon]

@cClara

I would have liked to see a more direct line of sim ownership being offered to the average user.

There have been official comments about offering new and a wider choice of options for land purchases. One being considered (this from official comments) appears to be an "on demand" sim like Kitely. There are pluses and minuses there (I was in Kitely for a year or more) but that is a viable option for those not coming and going all that often or who don't need to "remain open" all the time for business purposes.

Those sims seem to be targeted as being less expensive -- certainly for maintenance and I would guess on a purchase cost basis, mostly to entice folks to buy. This just what I am taking away from the comments made by Ebbe.

[Lyn B]

This will destroy them. I for one have already been deciding to pick up my stuff on my parcel and abandon. I don’t own a sim I buy linden to pay tier as most people do so while sim owners will benefit they won’t have anyone left to spend money on their stores if the price of lindens go up. I’ll be done for sure.

[irihapeti]

@Lyn B

if you're buying L$ 4-weekly to pay your rental like many of us do then it is about $6.50 a year more

[David Cartier]

Should landowners pass along their savings - I have the feeling a lot will, to remain competetive - their tenants will recover a lot of the increase. It's also very likely that, given an across the board drop in rental expenses, tenants will go for larger parcels of land (thus necessitating more sims) or use their savings to buy more Lindens. It's a win-win.
Linden Lab still would have been better dumping it all, to selling sims the way airlines sell seats: from a $50 "Steerage Sim", with 1000 prims, up to a $200 "Business Class" with 20,000 prims.