LL Endgame Speculation

For those resistant to change, it should be

"Your World, you imagine."

That is because you don't understand Economics or business.

For example...
I work in logistics. If my business is growing and I need more warehousing space to stay in business I have several choices:

1) buy land and build
2) long term lease
3) short term lease
4) buy preexisting

Now #1 is great if I growth is going to happen 2years form now. I can get the best deals on land and building prices.

#4 is usally not available but when it is, it usually needs a lot of fixing.

#2 and #3 each have there own advantages but the real thing I want to focus on is this...

Sudden growth mean I have less options. I would typically have to pay higher costs to acquire the infrastucture needed to keep my business running. This can include higher cost in wages from overtime and jacked up priceing from speculaters trying to make money off of my desperation.

You will sometimes see the term "manageble growth" when people talk economics and business. Growth that is too sudden causes costs that otherwise would not occur. Growth that is too slow causes you to buy infrusture that has to be paid off over a longer period of time (sometimes the equipment will not last that long).

Well, *I'm* not gonna tell them...

Yep, I think you're absolutely right there. But they do need people to adopt their platform, and the harder they make it for people to develop sound long term business plans, the harder it's going to be for them to attract the sort of development they really need. I think the price decrease for island buyin is great, but it isn't the upfront cost that's kept me from buying in. It's the $295/mo tier. That's simple for a university or corporation to write off but it's a huge hurdle for people who want to develop pure entertainment ventures (that don't involve rental properties) that need to become profitable in a hurry.

It was an eyeopener for me realizing how much more land is owned in islands as opposed to mainland, its hard to tell from the map. So I graphed it to help visualize it.

The servers that LL uses are not the latest and greatest anymore. It only makes sense that LL is getting them at a lower cost than before. LL is buying them in far larger quantities than before. It only makes sense that they would be getting a better unit price than they did before. LL is changing the way the Land Store works to be faster and more efficient for the customer, but this involves buying and setting up all the hardware before the customer places the order. It only makes sense that LL would pass their savings onto the customer to encourage a quick turnaround on the hardware and start collecting those monthly fees. I'm amazed that so many reasonably intelligent (as far as I know) people are having such a hard time understanding why they would choose to lower the initial setup prices.

Isn't Zee more internally (internal to LL) focused? It's possible that the "growth" he's talking about here is of LL's expenses, i.e. more employees and an increased % overhead for the grid (which had to move to a much more redundant model in that time frame).
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p.s. Also, FWIW, in office hours yesterday, Robin said that one thing LL was doing was simply passing savings on to the customers. Should have mentioned that before ... d'oh!
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Unfortunately, a reduction in server cost doesn't relate to a reduction in the amount of infrastructure and personnel required to support the server. I would much rather have a $50 drop in monthly island tier than a $675 drop in initial price, even if it didn't apply to the island I already have. Until LL can somehow reduce thier monthly operating costs, I don't expect any reduction in what they charge every month. I will not lose any sleep if I'm proven wrong on this though.

I completely agree, however, the catch is that with anything in the technology field the advances come so fast that you have to sprint to keep up. I'm not sure there is any such thing as a long-term business plan when it comes to technology. There is the plan for the next couple of years, but there is just no way to plan for 5 years down the road because it moves too fast.

Let's face it, land-based businesses in SL is the biggest gamble of all. LL solely controls the supply and can loosen or tighten it to suit their own needs. I've contemplated doing a rental business myself but don't have the risk tolerance for it - especially not with a $295 tier rate. I'll take content creation any day of the week over sleepless nights wondering what the land market is going to do next.....

I belive, as you mentioned in another post, that LL made a huge mistake in allowing land to become a commodity. People want to believe that land is a free market but they forget that the "invisible hand" is just as likely to smack them across the room as offer them coin.

It's a catch 22 for LL. On the one hand, they want to expand their paying customer base (to increase their cash flow) by making buying land (which is the main source of cash flow for LL since it generates not only sales proceeds, but tier/island payments over time) more affordable and in theory growing that base. At the same time, this undercuts the more early adopters and risk takers, especially those in the real estate business, in an effort to grow the base. It remains to me seen whether this is an exercise in cutting off one's nose to spite one's face, or not.

I'm not saying LL is whimful or flying blind, far from it. Those price changes are are in service of some other, bigger purpose, maybe in response to future competition, maybe a complete restructuring of the land market, something bigger than just upping the number of premium accounts and maxing the number of tier payers. That is what I feel. I just don't see the long term goal I feel this price alteration of late is connected to.

The competition angle is interesting. I'm not buying it, as those other platforms are at least a year away to any significant gains, if they ever take off at all, but it might be soemthing in that vein.

It only undercuts people looking to cash out. They are leaving the system anyway. It is a boon to expansion. And people who are in the market for larger/better plots take the prices as they come in exchange for something else. You don't lose anything until you cash out. If you're a property flipper, all you did was mark up the price anyway.

Well, but the ability to cash out is something that defines the liquidity of an investment. People who bought at higher prices will not see gains on sale at this point or at any future point unlesss and until land becomes more scarce and or more expensive in the future. People are always looking to cash out of an investment when the price is right -- when the price isn't right, and is down relative to the price they paid for the investment, obviously this makes people feel less economically secure, because their ability to recoup their investment, never mind make a profit (again, purely on the real estate play, not the rentals), is diminished. It's a real loss for them, whether they decide to cash out or not.

It's not a loss until it's realized. Everyone that panics and sells loses now, whereas, if you wait, the conditions could change again. If I wanted to cash out, I would probably still make money because I bought some land when it was in a low period. I could easily make 3L/m2 if not some more for a good chunk of this land. If I had cashed out last week, I likely would have made more. But being in for the long haul means that I am in until circumstances demand that I not be. If that means I take a loss, it means I take a loss. If it means that I make out like a bandit, yay! But in the meanwhile, I am here. And I haven't lost anything yet.

It's true that you have not lost the actual dollars yet unless you sell now, but the wealth effect nevertheless impacts decisionmaking. If I hold land that I think I can sell for 3k, and suddenly the price I can sell at is 1k, then of course I am going to be less inclined to spend, because while I could have earlier said "well, I can sell the land anwyay for 3k", now I cannot, and so the wealth effect on my inclination to spend is negative. Asset values matter for spending because people make spending decisions based on their perceived asset values (because that is stored wealth). If you make your decisions in a "I dont care how much my asset is worth" mindset, that is one thing, but many/most investors do not. When asset values fall, wealth (on paper) is lost, and spending is curtailed and this impacts the whole economy. Again, if you are in it just to be in it, and let the chips fall where they may, that is one thing. If you are in it for an investment, on the other hand, it's quite a different perspective.

Yep, true enough. It made one of the biggest drivers of SL's economy be a kind of shell game. On the other hand, it's given people without artistic or technical skill a way to participate in the economy and profit from it (or lose their shirts as the case may be).

Investment?

I'm not sure what percentage of people buying land consider that they are investing.
Speaking for myself and for a number of friends, we paid an entry price for land to use for building / playing / experimenting / enjoying.
We have traded land, almost exclusively sold at market price to immediately buy elsewhere at market price. It wouldn't matter particularly if the market was booming or busting at the time.

If SL went belly up, that entry price would be 'lost'.
However, in light of the enjoyment we get from SL and the land, that money could be considered money well spent.

Going into SL is a bit like going on holiday to some really magical place full of interesting people.
Do we consider the cost of travel to exotic places to be an investment?
Do we consider the cost of a great night on the town to be an investment?


I blame an Anse Chung processed by a bunch of marketing muppets for all this "investment" malarkey.

Again, I agree that if your perspective is " I dont care what my asset values are, this is for fun and let the chips fall where they may when I decide I need to leave", the LL's land pricing policies are completely irrelevant. There are others however, who have invested in land (not me, by the way, I have only personal land holdings) and they are impacted by this change clearly. Without doubt it is a small percentage, so perhaps it's fine that LL is screwing them, but it's still a screwing all the same.

LL already "owns/leases" more than it leases out .. consider the 3 million sqm that was "reclaimed" ..
Thats around 45/46 full regions "given back" for free !
Sorry "Recycled"

http://blog.secondlife.com/2008/04/07/quarterly-land-supply-and-island-pricing-update/#more-1849

Coming into 2008 we had a backlog of defunct land so we have been putting a lot of effort into clearing that backlog which improves the Mainland and keeps down the amount of litter. Current numbers show that we have successfully recycled 3,071,056m of land formerly held by closed or defunct accounts in Q1, with a further 700,000m still to work through, most of which are small parcels below 64m in size.

In retrospect lowering prices even to $1 per region is cutting their loss ..
All in effect they are doing by lowering prices is to "lease" "land" on servers they(LL™) already pay lease on.

Lower prices and a near-instant-delivery land store (soon to be here) will commoditise land like few things ever could.

Brace for strong, steady expansion for a while, I'd say.

If I had to call it (and I sure DO have to call it, with 34 regions and 75,200 USD annual tier!) I'd say we are looking at the start of an incredible boom-and-bust cycle economy.

The market controls that the Company has are small levers, in comparison to mass consumer reaction.

Do I think everyone will survive the coming market swings, especially those who deal in land? No. Lotsa casualties, especially among the thinly capitalised, the thinly-margined or the deep-in-startup-debt estates.

Do I think Caledon will make it? Let me put it this way: there's gonna be a lotta canaries dropping dead in the coalmine before Caledon will feel the effects of a bust economy.

Strong estates and the mainland might do better overall, just by picking up some of the refugees.

That's assuming there are refugees. with openspaces now $250 to buy and $75 a month, thats putting them in reach of a substantial number of people.

Edit: forgot about the 'you must have an island first' thing. nevermind

LL sold 832 new islands in March. Even if the 45/46 sim supply that you mentioned was full private islands that had been abandoned, that's less than a 2 day supply. This price drop has absolutely nothing to do with covering losses on abandoned or reclaimed land.

If the island has a interesting or unique build on it then I do not see that is value is impaired at all. People can buy a new blank one but getting hold of a popular, interesting build is still going to cost them surely?