Lower tier?

This has been eating at me since the sim price rduction notice.

LL lowers the purchase price of islands because hosting costs have dropped yada yada yada...

Would it not make sense then that an across the board tier reduction would be appropriate as well?

Lower hosting costs = major profits on tier for LL or do I misunderstand the process?

They just lower the set up cost they still are get 295 a island a month...
If more buy Islands the set up cost is nothing to LLabs I assume.
They aren't hurting in money they just want more island owners at higher monthly
tier one would assume.

Yes, they appear to be a little greedy. Lowering tier across the board would stimulate land ownership on mid sized parcels (to the detriment of my rental biz). A lot of those 1,000 dollar sims will not last, as the market for residential and commercial rentals is finite. The new sim owner will have a difficult time covering tier.

1,000 us dollars sales price and a few months tier, followed by abandonment. A great business model.

I don't think we ever got a more recent figure, but for 2006 tier accounted for 70% of LL's revenue and at that time Zee claimed that $195/month just wasn't profitable (although not a loss either).

LL has to pay for the hosts sitting in a colocation that are actively being used, for all the spare hosts for redundancy, all the servers that make up the back end (asset, inventory, etc), all of LL's "charity" (mainland water sims, educational sims which are a net loss to them, OIs/HIs), staff, external costs (JIRA, voice, downloads, support and the blog are all run by third parties), etc.

The last time they increased tier was 7 months ago (they claimed to be remitting VAT already so passing it on to sim owners netted LL more revenue) and Zee claimed it was necessary because LL couldn't afford it on its own.

Unless something significant changed in a short time I don't see how tier on sims could go down.

LL didn't claim hosting cost went down, the setting up of sims got cheaper, probably because of the automated process in the delayed new land store, it makes sence because the biggest cost factor for any company is manhours.

My mistake. Thought the savings were widespread due to lower tech costs for hosting servers.

Jannae scuttles off to leave the thread to those more techie.

I think there could be potential for the price of sims and tier to come down. I guess something like this happened, It is only a guess though,

The price was set at $195 to be attractive and profitable. But the huge growth in late 2006 generated a huge demand for cash to fund the growth. So although LL may have been profitable it was using way to much cash. The price was adjusted upwards to generate more cash and control growth. The price of island setup was kept high for the same reason.

Now that growth has slowed and fixed costs are spread over over vastly more users/sims. (I'm thinking the cost of developing a new simulator code is the same whether there is 10 sims or 10,000) There is room to lower prices to attract more sustainable growth and maybe discourage competition. Probably the first price to come down would be sim setup, as that is big hurdle to new buyers.

It's only a guess though.. I could be wrong.



p.s. If $195 was not profitable I doubt they would have grandfathered it. Who would lock in a loss making proposition for so long?

There is a difference between not profitable and making a loss.

We can calculate how much money a rack brings in, but we do not know the costs. Most racks contain 42 units, making 42x4x295= 49560 dollars. That doesn't include UPS and backup units, as they probably are centralized.

From that 50k per month per rack, a lot must be payed of course. Think for example man-hours, bandwidth, backup units, ups units, community sims, asset servers, and so on. It does seem quite some money to me, but as long as I do not know the cost-side, its impossible to say how much they actually profit from this price level.

On the other hand, the more servers they have, the more certain costs can be spread. So the tiers will eventually come down, the question is though how much.

The good news is that my landlord lowered rent quite a bit, so my "tier" already went down Though I did expand my parcel with another 2500 m2, I still pay less then before!

Its just like cell phone folks. The idea is to get the RMR. The upfront costs will always be made up down the road. With LL's business model -- the thing that attracts is the income. If you sold a thousand SIMS tomorrow without tier -- where does that leave you. A nice attractive up front profit but no income. If you gave away 1000 sims tomorrow and got just the monthly tier what do you have? Sustainability and a stable platform for development and growth. Investors look at those numbers. their profitability margins, and their growth curve.

lower island costs was just to reduce sim transactions between residents
old island owners won`t sell
new island owners will buy a cheap new island

outcome:
old island owners stay in SL with their monthly tier while selling new islands, no one leaves and LL get more tier
with all the problems, they prolly saw it coming as they`re unable to fix it and needed to close the back door...