Economy Change?

I am writting this post at the request of Kreg Marshall who approached me on behalf of Nova Linden that I post my essay about the possible troubles with the Economic Changes. As such I'm providing the content of that essay here.


Economic Changes?

Okay, here is an attempt to break down and provide abstractions to the real impacts of the Linden’s new‘economic changes’:

A 50% less bonus stipend means that you need twice as many ratings to generate the same revenue. That’s 2.

The rating cost hike to L$25 from L$1 means that it’s 25 times more expensive and difficult to give or recieve ratings. That’s 25.

Since difficulty is a process that multiplies upon itself(given from basic algebraic expansion) this leaves us with the following change to difficulty:

Difficulty = 25 x 2 = 50

This means every new player has to put 50 times the amount of effort that existing players had to for the same reward and all rewards heceforth are 50 times more difficult to achieve.

However, it gets better (or worse). The Linden’s state in their annoncement of the economic changes that this should only impact the state of the economy by drying up 25% of the incoming money (sources) into the system.

While this may very well in fact be the case for the system as a whole, the impact on the individual player is an oppresive 98% dry up of the wealth earned from bonus stipend.
If you are an individual who plays stipend to stipend, especially if you are on a basic account, this will seriously tax any ability to buy, build, and in essence gain any reasonable enjoyment from Second Life if you are not a socializer.

From a short-term perspective this may cause account churn(1), which may be a deliberate move by Linden Labs for what the could percieve as good thing. Less bandwidth and resource usage equates to less money they have to spend as a business. Basic Accounts don’t really make money. (...or do they)

The flaw in this short-sighted view of things is that it fails to consider the system dynamics as a whole and the proper management of a virtual world, the following are a small list of shortcommings:

1. Public Relations and the killing power of bad reputation in the real world marketplace.(2)
   
2. Failure to manage player expections.(3)
   
3. Tries to justify the chages by comparing a Closed (Real World) Economy to an Open (Virtual World) Economy.(4)
   
4. Potentially creates large-scale and long term negative socio-economic changes.
   

Since the focus of this paper/post is to discuss the socio-economic impacts I will keep refrain from discussing the other topics in detail here. If you wish to learn more about the other details please feel free to use the sources provided to research on your own.
The major economic change comes in the form of impacting the average user’s income. These players are the meat and potatos of the Second Life population and count for about 70% of it’s make up.(5) With the average user making less money it means that they are less inclined to go out to virtual clubs and shopping malls and spend their L$. Prices will eventually lower, but this is not an overnight change. The events that occur in the mean time are what break, truely break, the economy.

With less money comming into the system small and medium sized-business owners have to close up shop. Clubs that depend on dwell (now called ‘traffic’) to survive no longer break even and can self-sustain. The same goes for mega-malls as businesses in them vacate because they can no longer afford to stay there. This in turn leads to the owners of these Clubs and Mega-Malls have to start laying their paid staff off or shut down completely becuase they can no longer afford it. Worse still some mall-owners and club owners may not be able to afford to keep their establishments without a hefty monthly price tag in REAL WORLD MONEY. This will cause paying account members to abandon their accounts for Basic Accounts or at the very least lower paying accounts. Which in turn creates another deficit in Linden Labs’ revenue.

The long and short of the situation is you now have a recessed virtual economy. Traditionally, only the welthy benefit from a recession as it redistributes more of the available wealth to them. Unless you are a lucky enough to be among the wealthy minority in SL this change is not likely to be very popular with you.


1. Developing Onling Games, pg. 137, New Riders Press
2. Developing Onling Games, pg. 310, New Riders Press
3. Developing Online Games, pg 224-229, New Riders Press
4. Designing Virtual Worlds, pg 265-267;562-575, New Riders Press
5. Developing Online Games, pg. 11, New Riders Press


The information provided here is not meant as an attack or slander on Linden Labs or or any of it’s employees, it is merely the research and opinion of another game designer into the potential problems with the changes. You are free to disagree with any or all points provided in this paper, but you are encouraged to only do so if you’ve done the research to back it up and can directly contest all the points outlined withing. The author of this paper also strongly encourages you to approach this essay with an open mind. The author would also like to take the opportunity to point out that some people may argue the research is flawed because SL isn’t a ‘game’, however SL and many elements within it (such as the economy) are meta-games and the research provided still applies. Please do the research before you dispute. Thank you.


Chrono Templar

To me, the bold line is the root of my support for the economic changes. These places were never able to self-sustain, they existed due to free money from LL.

Of course if people were relying on the rating system as a source of income, that only proves how flawed the rating system is/was. It's not meant for that.

I can stay offline for a few weeks (have) get 0 ratings, host 0 events and still have a few thousand L$ when I come back. My alt doesn't get as dramatic an increase as she is a basic account, having accumulated ~500ish L in the same period. If I decide I want/need money, I make something to sell.

The argument here isn't wether or not the system was flawed. I agree the system was flawed, however, I also know that you can't just fix a flawed system by radically changing it without providing ample warning (two or more weeks) to the player base and discussing it in great length before the change is ever rolled out. This was a failure to meet player expectations.

The concept of a rating system in almost every virtual world it has been tried in, has failed. The main part of your arguemnt against this particular issue is irrelevant. This isn't about wether the system was flawed from it's inception, it's about that how changing the existing mechanic effects the world. You're arguement is therefore moot becuase it doesn't address the instability caused from the change.

What do you think that base stipend every player earns every week is? That's right free money. You can't compare this to a Closed (Real World) Economy because money and resources in the real world all have to come from someplace. This is an Open Economy which means money is created on demand. The only way to counter that is by creating enough sinks in the system to drain the money out from the higher end. Economics teaches you that the majority of the money trickles upward. The major problem with thie impact of this change is that the wealthy get more wealthy and the middle and lower class on Second Life get poorer.

The only way I've seen successful virtual world economies balanced is to provide a soluation that increases the number of sinks as the net worth of the player increases. This keeps the wealth distributed evenly.

Thank you for the reading material; that was a different and interesting perspective.

I think there has been plenty of discussion about the ratings system. To say a change was completely unexpected would be folly.

"While this may very well in fact be the case for the system as a whole, the impact on the individual player is an oppresive 98% dry up of the wealth earned from bonus stipend."

no.

The impact is 98%(if that is even correct) of the currency. The impact on the wealth will be different.

Less money circulating = lower prices = money is worth more.

Monkey math.

Base stipend = $50, bonus median is L$75. Half of L$75 is L$37.50, or about 75% of the basic user stipend. (0.75% of the premium stipend). This means it is not a 50% loss. Dont let the big numbers fool you - it's still only L$37.50/week change. But, this means absolutely nothing (see below).

As for ratings - ratings were never meant to be income.

This change will have a very minimal effect, the reasoning behind this relates to economics 101. Remove X, remaining X is more valuable, ergo your buying power remains the same.

The big reason clubs may close down because of this, is because they exist to act as organised rate mines - if a club is genuinely wanted because of it's content, then it will survive. But this is a trimming of the herd for places that were subsidised by what can be deemed an exploit / abuse of the original ratings system's intentions (it is a reputation system, not a rewards system).

-Adam

It's amazing how many people will read what they want and not read what's there.

The essay clearly states it's a dryup of 50% of the Bonus Stipend It doesn't affect Base Stipend. But let's use your illistration of 'monkey math' to prove your own statement wrong.

base $50 + bonus $200 = $250 -- 1/2 of $200 = $100 ==> $150 Net Change 60%

base $50 + bonus $400 = $450 -- 1/2 of $400 = $200 ==> $250 Net Change 55.55%

base $50 + bonus $800 = $850 -- 1/2 of $800 = $400 ==> $450 Net Change 52.94%

If you continue to solve.. or simply just take the limit of this function you quickly find that it approaches 50% as the values increase... therefore... it is indeed a 50% change.

Please check you math in the future.

And again, the design intent of the rating system at this point is completely irrelevant to the impact the changtes have on the system. The first rule of virtual world design is that players are going to find ways to use your mechanics in ways you never intended them to. That's not adaquatte justification to radically alter them while in a production world. This is what done in beta testing. Regardless of the 'intent' of the system the way it has been used and the consequences to system by changing it now are the only things that are important. Instead of trying to defend the changes by using the 'designer vision' why don't you attempt to bullet point by bullet point dispute everything stated in the essay... if you can't do that.. then your argument is ineefective

Discussion is not the same as announcement well prior to the changes. Official Announcements are clearly different.

Please stick to the issue.

Median value is L$75 for bonus.

The essay also clearly states that change isn't overnight and yes.. net worth increases.. but this si not an overnight change and your arguement has already been addressed in the essay.

As far as decrease in bonus stipped.

1 / 50 = 2% or 98% less

the bonus stipend on existing ratings will only be effected by approximately 50%
but new ratings and new users will be affected by the 98% entirely. Everyone else will fall somewhere in a range between them.

The median only applies to roughtly half of the population (courtesy of the Standard Distribution Algorithm), but just to be nice I'll use only the top quarter of those. That still leaves you a quarter of that 70% of players, the casual ones, disgruntled (17.5%), not to speak for the population in other player types. And just to give you and idea of scale, If the worlds population is only consitsting of 20,000 active accounts that's 3600 people who are unhappy. If they're all paying members that equates to something between $210,000-$360,000, and I beilieve they're up to more accounts than that. I would need to check with a Linden on the logistics.

If you were a business, would you want them to leave unhappy and spreading negative word of mouth about your business, and losing that much potential revenue?

This isn't just about the in world ramifications it's about the business ramification for Linden Labs, and obviously I wouldn't have been asked by a liason to the Linden's to post this if I didn't make some valid point about that.

Not saying you're wrong, but this statement about the "wealthy" is distracting me from the rest of your argument.

I'm not disputing it. I'm just saying that I don't think it's central to your point and yet you chose to close with it.

It just puzzles me.

75???

When I receaved no ratings, I got 750. or 1450 with my 500.

I guess you would clasify my as one of the poor. I have a basic membership cause I can't really afford much else, and I really like SL as a chance to socialise without spending RL$. I agree that the economy change was necessary but could it have been done more gradually?

Since I'm not to big on math I'm not really sure how big an impact this is going to have on my weekly income, but since I don't have the time to make and sell items, it's sure gonna put a crimp in my enjoyment of getting away from RL even for a few minutes a day.

Thanks for the chance to voice my oppinion!
FireDancer