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SL gets $11 million dollars in funding!

Driftwood Nomad
Registered User
Join date: 10 May 2003
Posts: 451
03-28-2006 01:25
http://ecaggiani.blogspot.com/2006/03/second-life-gets-11-million-dollar.html

FULL STORY: http://news.com.com/2100-1043_3-6054598.html?part=rss&tag=6054598&subj=news
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Driftwood Nomad
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Candide LeMay
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Join date: 30 Dec 2004
Posts: 538
03-28-2006 01:28
Great news - I'm so happy for LL that they don't have to worry about making their customers happy for another year or two :p
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Selene Gregoire
Eyes of the Wolf
Join date: 14 Sep 2005
Posts: 681
03-28-2006 01:30
So we can expect an increase in stipends rather than decreases?

I kid! I kid! :D
Moopf Murray
Moopfmerising
Join date: 7 Jan 2004
Posts: 2,448
03-28-2006 01:31
This explains Philip's absence over recent months. I notice Jeff Bezos is involved in this round of funding. You know, getting high-profile names like that involved, can be better than the money itself in terms of both the platform's profile and the weight it has should competition arrive.
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Starax Statosky
Unregistered User
Join date: 23 Dec 2003
Posts: 1,099
03-28-2006 01:31
From: Candide LeMay
Great news - I'm so happy for LL that they don't have to worry about making their customers happy for another year or two :p


;)
Driftwood Nomad
Registered User
Join date: 10 May 2003
Posts: 451
03-28-2006 01:31
Yes, congratulations to Linden Lab! Well deserved! It's nice to see that people are seeing the great potential that SL offers...not just for gaming, but education and training. GO LL!
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Driftwood Nomad
D&D Dogs Co-founder

"Second Life’s first AI companion animal"
The Second Opinion, 08/05/2003

D&D Dogs HQ Pawaii (127, 63)
Mainland Store Kuula (214, 124)

http://www.sldogs.com

SL Dogs Zazzle store!
Zodiakos Absolute
With a a dash of lemon.
Join date: 6 Jun 2005
Posts: 282
03-28-2006 01:32
Eek, that's actually kind of exciting. More money, more budget... hopefully translating into more developers, more bugs squashed, more features added/fixed, hopefully translating into more stable economy/better development platform. And soon. IT MUST BE SOON.
Belaya Statosky
Information Retrieval
Join date: 3 Jun 2004
Posts: 552
03-28-2006 01:34
Linden Lab plans to use its new funding for aggressive international expansion, as well as hiring intended to boost its infrastructure.

Good to see.

Even operating at a loss, $11mil can last quite a bit if you're smart, which is also promising.
Iron Perth
Registered User
Join date: 9 Mar 2005
Posts: 802
03-28-2006 01:36
Well, this changes everything.
Kim Anubis
The Magician
Join date: 3 Jun 2004
Posts: 921
03-28-2006 01:37
Wonderful news! I can't wait to see what the Lindens do with the cash. Yay!

BTW, I wish you'd linked directly to the full article instead of to a really brief summary on someone's blog page with an ad for an SL shop in their post. I'd say more about this, but I'd rather focus on LL's happy news.
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Driftwood Nomad
Registered User
Join date: 10 May 2003
Posts: 451
03-28-2006 01:39
Sorry about that. Shameless plug for my blog :-)

Here's the full link: http://news.com.com/2100-1043_3-6054598.html?part=rss&tag=6054598&subj=news

I also updated the original post to include the full link as well.
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Driftwood Nomad
D&D Dogs Co-founder

"Second Life’s first AI companion animal"
The Second Opinion, 08/05/2003

D&D Dogs HQ Pawaii (127, 63)
Mainland Store Kuula (214, 124)

http://www.sldogs.com

SL Dogs Zazzle store!
Jesrad Seraph
Nonsense
Join date: 11 Dec 2004
Posts: 1,463
03-28-2006 01:55
That could pay a few salaries for many years :) And I hear LL is going to emphasize its international aspect... Eurogrid anyone ?
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Zepp Zaftig
Unregistered Abuser
Join date: 20 Mar 2005
Posts: 470
03-28-2006 02:34
From: someone

And while "Second Life" is on many people's lips at any gathering of video game industry professionals, one thing is clear: It is not always an easy world for new users to get into, and its graphics are not up to the level of competitors like "World of Warcraft" and "There."

There definitely has much better graphics than Second Life eh :p
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ZATZAi Asturias
Artificial Isle
Join date: 7 Oct 2005
Posts: 189
03-28-2006 02:42
Haha Zepp, you beat me to it.
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Chance Abattoir
Future Rockin' Resmod
Join date: 3 Apr 2004
Posts: 3,898
03-28-2006 02:48
From: someone
For now, the company isn't profitable, and it's not clear when it will be, said Catherine Smith, Linden Lab's director of marketing.


Ouch. Way to market our world :\
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Ordinal Malaprop
really very ordinary
Join date: 9 Sep 2005
Posts: 4,607
03-28-2006 02:58
Well, if life is a game and money is how we keep score, the Lindens just got 11 million points! How many extra lives is that do you think? Can you upgrade to spread fire or homing missiles?
Lewis Nerd
Nerd by name and nature!
Join date: 9 Oct 2005
Posts: 3,431
03-28-2006 03:34
From: Chance Abattoir
Ouch. Way to market our world :\


I fail to see how SL can't be profitable - after all, paying members pay plenty for the privilege of playing in monthly fees and land tier.

If it wasn't for the leeches like land barons siphoning off the profits for themselves, I think LL would be rolling in money.

Perhaps it's time to rethink the tens of thousands of 'basic' members, and restrict what they can do, to encourage them to upgrade to a paid account. After all, its perfectly possible to rent land and be self sufficient if you have a rented mall space, and not pay a bean to LL for the privilege of it.

When you see figures of $100,000 worth of transactions daily on the homepage - assuming they are accurate - then there's something really quite wrong if LL can't make a profit.

Let's also cut down on the ability to 'cash out', and return the game to a self-supporting platform.

SL is outstanding, groundbreaking, but if it isn't managed properly then it will fail. Concepts of 'sharing the love in the office' do not make solid business decisionsor give me any confidence in their ability to function. It's a business, not a hippy commune after all.

Lewis
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Doc Nielsen
Fallen...
Join date: 13 Apr 2005
Posts: 1,059
03-28-2006 04:15
The burning question is:


Is $11 million enough to fund the ground up rewrite of the SL server and client software by an independent third-party developer that is so obviously required?

I would like a responsible and credible Linden reply to that question - Phil or Robin preferably.
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All very well for people to have a sig that exhorts you to 'be the change' - I wonder if it's ever occurred to them that they might be something that needs changing...?
Mack Echegaray
Registered Snoozer
Join date: 15 Dec 2005
Posts: 145
03-28-2006 04:19
Linden Labs overheads are probably pretty high.

Firstly, they have a high head-count for such a small world, about 90 people. About 20 are part timers (liasons) and about 70 are full time.

From: someone

Game programmers and engineers with 3-6 years of experience average $68,072 a year and Game programmers and engineers with 6 or more years of experience average $86,243 a year.


From here: http://www.animationarena.com/video-game-salary.html

And we know they have at least 20 developers. Most of them seem to be pretty experienced, but LL is a small and interesting startup and wages are usually lower there because the nature of the job acts as an incentive in itself. So let's take the lower of the two figures, multiply it by 20 to get $1,361,440/yr on developer salaries.

They also have some content creators/artistic staff. But I don't know what their salaries are likely to be. Then you have some management staff, the [part time?] Liasons and so on. I guess management will get the same or more than the developers, and Liasons, tech support staff will get less.

Very rough figures here, let's double that wage estimate, to get $2.6million/year. Now, the sheer act of running a company at all is pretty expensive. The CEO of the company I work for tends to double the raw wage cost of doing some work in order to cover for the overhead cost - and as we're permenantly on the brink of break-even I guess his estimates may not be far wrong. Cost of the company is things like office rent, phone/electricity bills, legal fees, in some cases medical/shipping fees, website hosting, etc. Oops, I don't remember if management costs are in that figure!

So we're up to about $5million/year in terms of wages+company costs.

But then, running the grid is pretty damn expensive too. I believe electricity costs the most, followed by bandwidth, followed I guess by hosting fees levied by the colocation facility they use. IIRC they pump out a gigabit/sec of bandwidth on average. Does anybody know how much that must cost? I found this:

http://www.coloserve.com/san_francisco_colocation.html

Which is possibly where the grid is based ... who knows. But we can get a rough idea of the raw technology cost of the grid from this site. Unfortunately they only give the costs for quite small operations directly, for something the size of the main grid you'd need to request a quote from them. But OK, the above figures are likely way off anyway, so let's carry on.

From: someone

Cages from $999
Multi-homed, five backbone bandwidth from $40/Mbps


Given that they quote $4,000 for 100mbps of bandwidth I guess that price scales mostly linearly. So a gigabit/sec might be about $40,000/month, or $480,000/year. They also have to pay for the physical hardware hosting - cooling, 24/7 security and engineering teams, etc. Cabinets start at $200/month, but they say you get significant discounts for large bandwidth users, and I don't know how many machines (as distinct from sims) might fit into a cabinet. But it's fair to say that they'll get through a fair bit of money just to rent the colo space as well. Let's pluck a number out of the air and say they spend $250,000 on colo fees per year for the space, security, power supply assurance, NOC staff and so on.

Then you have electricity costs .... this is by far the biggest cost apparently. As of a few months ago they used about 250kW but this will constantly go up as they add more land, and of course San Francisco electricty prices are going up too. Pacific Gas and Electric seem to charge 12 cents per kilowatt/hour, so (PLEASE CORRECT ME IF I GET THIS WRONG) that's about $30/hr to run the grid, so about $720/day, so about $21,600/month, so about $259,000/year. That sounds awfully low actually, but moving on ....



$5million/year for wages and "misc" company costs like rent, perks, bills .... about $750,000 for bandwidth+hosting fees, about $300,000/year for electricty, and we're up to about $6 million/year in basic costs.

Then there are tons of stuff I have forgotten about (eg conference fees ...). Way, way, back of the envelope stuff, but it'll give you a basic idea of why they might not be profitable yet.

Anybody care to guess what their average revenue is like?
Lewis Nerd
Nerd by name and nature!
Join date: 9 Oct 2005
Posts: 3,431
03-28-2006 04:48
$6 million a year. It's a fair start.

So....

5,000 residents on just monthly fee, gives $600,000 a year.

5,000 residents on the second tier of +512 sq m a year gives $900,000

5,000 residents on the next tier up of +1024 sq m a year gives $1,080,000

5,000 residents on the next tier up of +2048 sq m a year gives $1,500,000

Just a basic figure of 20,000 out of apparently 168,000 gives is over $4 million a year.

That doesn't include sims sold at $1,200 a piece - plus of course the $2,340 a year that is paid for their tier each. I have no clue how many whole sims are owned by land barons who subdivide them and take the money themselves, paying LL the tier and keeping the profit, but I'd say it was quite a significant number - and of course many of those will be in the remaining 148,000 non paying 'basic' membership residents. Add to that the % fee on all cashouts, plus the $ equivalent of 'sink' money such as uploading textures, thats probably quite a lot too.

When you start thinking of it in these terms, the gap between the two rapidly diminishes.

Lewis
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Mack Echegaray
Registered Snoozer
Join date: 15 Dec 2005
Posts: 145
03-28-2006 04:55
From: someone

Just a basic figure of 20,000 out of apparently 168,000 gives is over $4 million a year.


OK, that's good, these figures seem to be in the right ballpark.

From: someone

That doesn't include sims sold at $1,200 a piece - plus of course the $2,340 a year that is paid for their tier each.


Right, but bear in mind LL won't make much off selling sims, $1200 is only slightly more than what the hardware itself will cost (even taking multiple sims per machine into account). The hardware is high end and expensive, and it's also got to be shipped and installed at the facility. The margin between the cost of running a sim and the tier charged is what pays for LL right now I'd bet.

I guess they cream some off the top of the Lindex exchange, but I don't think they sell L$ gained through currency sinks - the whole point is to take those L$ out of the economy not to resell it back in for a profit! And L$ is not worth much anyway :)
Csven Concord
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Join date: 19 Mar 2005
Posts: 1,015
03-28-2006 05:11
Trying to determine profitability is like chasing monkey points. There are plenty of blockbuster movies that aren't profitable. And I just read that the Smart Car (that cool little vehicle Mercedes Benz has been making and selling in Europe for like 10 years) has never been profitable.

I'm personally not surprised this isn't a profitable venture. The important thing imo though is that someone thinks it's worth the risk to invest this money. And the sources doing the investing are forward-thinking entities who are probably aware this may not ever be profitable, but probably figure that what's being done and what's being learned is worth the money.
Daneel Junot
skype: daneeljunot
Join date: 16 Feb 2006
Posts: 13
03-28-2006 05:12
Linden Labs is not a family business. It's goal is not to simply be "profitable", pay everyone's salaries and pass the company on to Philip Linden's heirs. Investors need an exit (as would *you* if you risked your money in something speculative and lossmaking).

The typical "exit" for investors ($11m this time...how much in total?) is an IPO or a trade sale. How do stock markets and trade buyers value such a business? Lots of ways. But let's assume that the $11m bought one quarter of the business, valuing LL at $44m. A typical Nasdaq IPO for a borderline profitable hi-tech is maybe $100m or $200m. That equates to a 3 times return over the next ...er...how many years til an IPO?

*I'd* invest in LL if I had the opportunity, but only as much as I could afford to lose.

And while I know this industry well in rl, I have *no* idea of the valuation of LL under the terms of the investment.
Nolan Nash
Frischer Frosch
Join date: 15 May 2003
Posts: 7,141
03-28-2006 05:29
Good deal.

Now back to the Eeyore show, because some people just can't handle being positive about anything, even things that are clearly good for us all, without turning it into a soapbox to cry about land barons or whatever else their personal gripes are.
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Fade Languish
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Join date: 20 Oct 2005
Posts: 1,760
03-28-2006 05:38
From: Lewis Nerd
plus the $ equivalent of 'sink' money such as uploading textures, thats probably quite a lot too.


You do know that's not profit for LL don't you? That the L$ from sinks are destroyed, that's why they're 'sinks'.
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