VAT: Discussion w/Zee Linden July 31-Aug 03 2008

$195 was covering the operating costs at that time. They raised the price so they could bring in more people. They hired what some economists would refer to as a "shitload" of engineers and programmers which raised their costs. It's pretty silly to think that they're costs are the same now as they were then. Zee has stated that LL is "marginally profitable". "Marginally profitable" does not mean "we can take a 20% hit and still be profitable".

That's quite true. However, as I said - the time of engineers and programmers who work to maintain the computers, would be part of the running costs.

The time of engineers and programmers who work to improve SL isn't linked to the running costs per sim. SL doesn't need a certain amount of innovation per sim in order for that sim to work.

Again - IF it's true that Europeans who would otherwise buy islands are being put off my VAT, then reducing the pricing for them would mean that the amount of innovation being paid for per sim was less, but the total innovation budget amount was MORE (because the extra islands would be sold, as opposed to not sold). But others have raised reasonable doubts about whether or not it would work that way, I agree..

Do you think there's some kind of magical money pot that LL is using to pay for the people improving SL? Tier fees are not just for the server upkeep, they help pay for everything. If your statement about LL lowering prices to bring in more money were anywhere close to true, they never would have raised the prices in the first place. There would also be no valid reason to lower prices for one group without lowering it for everyone. Look at the argument you made. If it was true, it would be absolutely stupid to lower the prices for only 1/3 of the user base when lowering the price for everyone would bring in even more money.

It's that "educational" part. I'm willing to subsidize an educational endeavor, not someone's island with their shoe shop on it.

It's called adapting your margins to local market constraints, and every company in the world does it. It might seem unfair, but it's standard business practice to have different price tags in different markets.

See my post #288.

Since when is pricing of a product strictly linked to running cost ?

When you buy a car, or a cell phone do you think the price is simply set as just fixed costs+fixed margin+taxes ? Regional prices are influenced by so many factors that have nothing to do with the cost of a product: competition, prestige, market trends, culture, market share... That's why your car or cell phone won't cost the same price when you buy it in the US as in Mexico or Europe. Why don't you go and complain to Toyota or Nokia about it being unfair.

All companies that operate at a worldwide level accept to cut their margins in some markets in order to gain market share, or because of the competition, and make it up by increasing margins in easier markets.

Every marketing manager knows this. Again, see my post #288.

Discussion about VAT? I think thats 8 months too late. ^^
For content creators like me, it is not an relevant factor. I calculate running costs like VAT into product prices and set the view on quality and service. Its the same in real life europe, we cant dump the prices, costs and wages down to a level of eastern asia. So we have to try to work with higher technical know how, a better quality of products and an individual costumer service.

But VAT was another point to crash the inworld market. VAT is most relevant for real estate business. And thats @Terra Box is the different between calculating costs in real and second life. On a real world you have parameters like duty or transport costs. In secondlife you are only one click away without national borders.
Why i should buying parcels from european estate manager, if i can get the same parcel size from e.g. canadian and save nearby 1/5 of my money? VAT is FAT^^

Now i can say, thats no my problem, i set my own prices for products. False. You shouldnt think too short. Many good conent creators, club owners and estates give up since VAT charge. But before they were going off they placed an inworld market time bomb. They floods inworld market with a mass of high qualifiet freebies. Stuff which is sometimes better then offers of oher active member with high prices. Why should somebody buy something, if he could get it for free? So active member exchange is falling and he cant pay anymore the high tier fee or buy stuff from other content creators. High qualifiet freebies are good for Newbies? No. SecondLife have no "gaming target". If i like to chat or talk, im using Skype or web portals, thats much easier too handle. That means member of SL need another "gaming target" on their first days. They want to explore and fit their avatar with fine stuff. Avatar fitting is also i kind of event. You need to earn money, travel around and speak with people from all over the world. If an beginner reach the goal on first day, which factor he have to relog to the game next time?
So VAT turn spiral to crash inworld market one step down. You remember, you create the content and trade with it (inworld market) is unique selling point of second life against other online games. And we have excessed the point there LindenLab can say, we want not catch into content. Secondlife is dying in parts since nearby a year. Ban of gambling, an search engine which isnt based on traffic, VAT, mass of reseller/freebies, cheap openSpace Sims and lowering of sim setup costs and in future openSim interfaces leads to crash the real estate and content market.
I remember to people who loosing more then 30.000 US$ of investment in secondlife, because of intervention crashed their business plans. Thats a little bit more then a lollipop. Too bad!^^ Most of real world agencies and comanies left secondlife or stopped investments not for the fact that an VAT is existing, peculiar the insecurity by changing the rules in this game. Someone buy a sim today for 1700 US$ and tomorrow he loose 700 US$ of his investment. But you are right, VAT is not a problem for companies, they can setup it on their tax return.

So i think, why we should discuss about VAT, it is too late.

Terra, actually it wasn't answered on page 1 - I suspect you miss my point. (Also - thats a dead url link, although I DID read the directive at the time of the original VAT debate and it seemed quite clear to me then it wasn't as clear cut as is being asserted by LL).

Most people - including commerical tax advisors within my employer's company - agree that the directive NEVER actually took into account the Second Life model & is being freely interpreted in this instance to be inclusive. Probably because SL is conceptually unique and difficult to spacially understand - not a game, not a business, not a website hoster, not commercial server storage per se, but open to misinterpetation as any of them.

My challenge stands - I suspect LL and/or their advisors are taking the path of least resistance and have allowed an unfair, (and expensive for non-US Residents), precedent to be set. (Zee acknowledged earlier that LL are not inclined to try and influence/educate tax authorities on grounds of limited resource. Seems odd to me when you are talking about your core business model being undermined outside the USA.

I think your comparison is flawed. You compare apple with bananas here.
LL don't sell Items in Europe, they offer a service.
But even if we shall use your compare, then it is more like I buy my cell phone in america on eBay. I (as an European) have to pay the same price like an american, but (and there we are back at the point) I have to pay the tax of my country too. And I am sure, no american will lowering the price for me, only because i have to pay my tax at home.

The reason you pay tax at home is because European firms selling mobile phones would be disadvantaged if you didn't. It's a protectionist policy.

Applying this as a one size fits all policy fails miserably in Second Life, because it disadvantages Europeans. As someone above said, a virtual world like Second Life wasn't considered when these policies were made.

This is why people should be complaining to their politicians in Europe, rather than Linden Lab.

Indeed Rusalka and I agree with you on that point, but my comment was aimed more at those who cry "I'm not subsidising anything". If people stop and think they'll realise that a lot of things are subsidised, sometimes as a means of generating economic growth.

I too would be miffed if I was subsidising someone's shoe store, but that doesn't mean that in certain circumstances it wouldn't make sense for the greater good.

I'm not convinced it's for the greater good in terms of VAT, the evidence suggests the opposite, otherwise Linden Lab would have continued to absorb the costs.

A couple points regarding some comments that have been made here. Some say LL is taking the easy way out by not challenging the EU on the VAT taxing - come on, look what happened to Microsoft, with all the resources they have they got fined billions for not kissing the EU's rear and doing what they wanted (even though the EU never really did make it clear what they should do exactly) LL is in the same boat, but with a lot less resources than Microsoft, all they can do is follow the advice of their lawyers.

On tier prices Mainland vs Island, the reason the the 'initial' tier on mainland is $100 less than islands is that rarely does a mainland sim stay owned by just one person, it gets parceled up (even if a mainland sim is only divided up into 1/4 sims LL then gets $300 in tier payments per month). Even counting all the people using their bonus 512 of tier, I'm sure that LL averages well over $295 a month in tier payments per mainland sim.

Paying taxes is a drag no matter where you live, even in the US, the tax rate varies from state to state, and even from city to city, and tax laws themselves are often so confusing and open to much interpretation, but in the end it is usually the tax imposing body that wins any argument (and if they lose, they just change the rules so they will win). There is no 'fair' resolution as life is never fair, we just do the best we can.

Me too - and it makes good business sense to give "not for profit" organisations a good discount. Good for publicity and brand image and exposure to lots of potential future customers. Like the banks giving special deals to students.

Again, the issue is not about subsidization. It is not even about taxes (read my previous posts).

The issue is whether LL made a strategic error by introducing discriminatory pricing within Second Life's single, transnational community/market.

Discriminatory pricing balkanizes the SL community and distorts the inworld market.

Such a balkanization of the SL community and distortion of the SL market affects Linden Lab as a business. It creates a set of inworld social and economic costs that undermine the current and future revenue stream of the company.

Just out of curiosity, what happens after I enter my VAT ID? Is the only result that I do not have to pay VAT? Or will the ID be checked against any EU records or used to contact my local tax authorities?

It might be checked, that's my impression, and if it's checked and deemed an unjustified claim you might be left with a hefty tax bill.

This is something I think could lead to a lot of tears, whether tax returns are accpeted.

That's the big question. If it works ANYTHING like the age verification debacle, people can get away with almost any string of numbers that happens to hit the right algorithm. Was the age verification data in any way confirmed against existing records? In most cases it wouldn't even be possible for a lot of non-US residents...

I have no problems with Europeans in general, just the ones asking everyone else to subsidize their gameplay.

making the point ll should let,ibm that has the resources lobby for them on this subject in brussels. Could be worth todo it.

And you are as entitled as any other Resident to hold an opinion. Sadly, it doesnt progress the issue when posters polarize the discussion along "them" and "us" nationalistic lines.

There have already been several informed and intelligent posts in this thread relating to widely utilised trans-national / global pricing strategies.

As has been stated repeatedly, Absorption of variable local costs within COGS as a means of embedding in key markets is not uncommon - indeed is a standard option within the marketeer's tool kit. (I'm not saying that absorption is feasible here - only LL know the truth of that).

However, regardless of whether or not it is feasible in this instance is not the point. What IS relevant is that it is a LEGITIMATE avenue of discussion with any company offering a global service.

And its certainly FAR more complex than rudely labelling a huge percentage of SL Residents as "these people" or pointing fingers in a subjective way.

Divisive reactions like that simply dont advance the argument Cristalle....

Like I said 3 or 4 days ago on the original Blog......this discussion will change nothing....so all it has done is to allow people to vent their feelings; completely pointless and a waste of time.

making the point ll should let ibm, that has the resources, lobby for them on this subject in brussels. Could be worth trying it.

It is rudimentary that, without localized pricing that increases the price for Europeans proportionate to VAT, if you ask Linden Lab to absorb the (onerous) cost of VAT that LL's costs are then largely borne by everyone else, and operates as a subsidy to Europeans. It is simple arithmetic. Further, in order for LL to maintain their marginal (as stated by Zee) profitability, the cost for everyone has to go up, and the majority of that is shouldered by everyone else. Again, simple arithmetic.

It is not a matter of nationalism - I have no problems with most of my global neighbors. I'm very happy to meet people of different nationalities. But I have no desire to pay anyone's taxes for them, as they have no desire to pay mine. And they're not.

The tax in and of itself is what is divisive. It works against its intended purpose because it does not contemplate services being offered within another service. The only "these people" I'm talking about are the ones in this thread asking LL to absorb the cost and force an increase in prices. It has nothing to do with anyone else.

rent your tier from a a good group that is not eu based if u check them out first u should be ok there normaly cheaper then lindenlabs anyway, they mange that by not giving the 10% extra land that is avaliable from group land but hey its better than the vat

rent your tier from a a good group that is not eu based if u check them out first u should be ok there normaly cheaper then lindenlabs anyway, they mange that by not giving the 10% extra land that is avaliable from group land but hey its better than the vat