Second Life Economy

Dear Economists at Linden,

I have a few suggestions that, if implemented, have the potential to turn Second Life into a free and efficient economy that is truly integrated with the global economy. Please take these suggestions very seriously. If these changes are made, not only will the economy more closely mimic the capitalist ideal, it will generate even more popularity for your world and income for your bottomline. You guys are already very close to the ideal, but there are a few more crucial changes that must be made. I will cut straight to the point.

(1) Everybody should be able to own land. Linden Lab has a monopoly on the creation of new land, so why limit the customers of this product to premium members only? Removing the land owners/non-owners caste system would not only be beneficial to Linden Lab's bottom-line, it will greatly increase the activities of Second Life residents and create a much more liquid secondary real estate market. This leads to the next point -

(2) Abandon the paid membership system. Paid membership greatly hurts popularity as a lot of casual players are turn off by the upfront committment of paying a recurring fee. In order for the virtual world of Second Life to reach the popularity of, say, Google (and I believe this is entirely within the realm of possibilities), it has to be completely free to play. Linden Lab should instead focus on selling its two monopoly products - land and Linden Dollars - to its massive player base. The casual players are likely to buy these products in small piece-meal quantites in the beginning, and then get more and more involved and start spending more and more as time goes on, if they weren't turned away by the membership fee in the first place.

Also, the membership fee puts a ceiling on the appreciation of Linden Dollars. A premium member pays $10 a month for around $1700L in stipend per month. This effectively limits the L$/US$ exchange rate to 170. If we remove premium membership and the stipend system, L$ can be allowed to appreciate without any artificial limit. Residents who want more than what they earn within Second Life will have to buy L$ from the currency exchange. Since Linden Lab is the sole producer of fresh Linden Dollars, it can seek to increase income by maximizing the (quantity supplied * exchange rate) equation without disrupting the economy.

(3) Remove the buy/sell cap on the currency exchange. Economic barriers prevent true integration of economies. Residents should be able to trade Linden Dollars as much as they want. Linden Lab has the power to mimic RL central banks by controlling the supply of its currency to quell disruptive speculations. By removing the cap, residents can spend to their hearts' desire, and Linden Lab can profit from the full demand of its currency. Neither deflation nor inflation will be a major threat. In the event of deflation, Linden Lab can flood the market with new money to combat it. In the event of inflation, Linden Lab can either (a) tighten the money supply to reduce the aggregate demand of SL residents, or (b) it can sell enough Linden Dollars to satisfy aggregate demand while using the US$ income to buy more servers in RL to process the additional activities generated by a larger virtual money supply.

Implementing and maintaining these changes may require a competent "government" or "central bank", but I am sure the benefits to all residents and to Linden Lab outweigh the costs.


Your Resident Economist,
Gene Chambers

...No, not really.

I'm not even going to ADDRESS the first two but I'm pretty sure the third is in place to avoid real-world tax issues which are already up in the air and kind of sketchy.

While it would be ideal for Second Life to run like an actual country, unfortunately, it's not. It's a computer program. What works in some places will not work for it because unlike an actual country, outside of itself it only qualifies as a business.

Yeaaa..... No paid member, no tier fee, no money to pay for the servers, no one can keep them up and thus no sims, no Second Life, and no Linden Lab.

Nargus, I guess you missed this line: "Linden Lab should instead focus on selling its two monopoly products - land and Linden Dollars - to its massive player base."

The potential for Linden Lab to make money by making Second Life free to play while focusing on selling these two products to everybody more than compensates for the $10/mo that they will lose from premium members.

But it doesn't work like that. If they sell land for a one-time fee, then how do they make the MONTHLY COST of keeping the land IN EXISTENCE?
What about selling your own land? How does LL make money there?

Active land is maintained by charging owners a regular "land use fee", which is being done now. The only thing different is that land use fee should also be charged for the first 512m of land.

The land use fee *is* charged for the first 512M of land. The only difference between what you're talking about and what they're doing is a matter of marketin terms.

I'm still of the opinion that people might be more willing to buy land if tier charges went up in steady 512 sq m increments, instead of having to pay for an extra half sim when you just want 512m more land. Other than that, meh.

OK, if you're talking about having finer grained tiers, I can get behind that. But I don't see any huge advantage in changing the name of the first 512M tier from "getting a premium account with stipend and free 512M tier" to "Stipend bonus* with first 512M tier".

Once you commit to paying tier for land at all, your land is a hostage locking you in to paying the tier no matter what the first 512M is called.

* Getting rid of the *premium* stipend would just increase the economic stratification in SL... reducing it to pay for other income sources like dwell, ratings bonuses, basic stipends, sure... but getting rid of it, no.