Economy (of words, not)

You probably aren't going to read all of this!

But if you are interested in Second Life's economy and want to get a rough idea of where it has been, where it is now, and where it might be going... Reading what I've put here might turn out to be interesting or thought provoking. (I can only hope...)

Changes to Second Life's economy have been constant, but I've picked a few major divisions to block out...


Phase I: (the early days)

Sources:

1. New players get a starting amount of newly-minted L$.
   
2. Everyone gets some newly-minted L$ each week.
   
3. Well-rated players get additional newly-minted L$ each week.
   
4. Players hosting well-attended events get an additional sum of newly-minted L$ each week.
   
5. Players with high-voted locations earn additional L$.
   
6. Players that sell objects get recycled L$ for them.
   

Sinks:

1. Players spend L$ to buy land.
   
2. Players can spend L$ to rez objects.
   
3. Players need to spend extra L$ each week to keep objects rezed.
   
4. Direct teleportation costs L$ relative to distance traveled.
   
5. Players can buy objects made by other players with L$.
   

Results:

1. Many sources and sinks of L$ can result in imbalance to the system if the behavior of the players makes some less-used and others more-used. So if players mostly don't TP but instead fly, that sink is less effective. If they host many, many events then that source adds more L$ to the economy. Also, any source or sink that could be gamed WOULD be gamed, such as the Voting poles, thereby adding further imbalance.
   
2. Three classes of players: casual users that earn only stipend and ratings bonus and spend mostly with object purchases, event hosts that earn money from those to buy objects and to keep objects rezed, and creators that make objects to sell and spend to keep things rezed. (Some cross-over, of course, but these are representative of the majority.)
   
3. Players that earn more than they would normally spend have no outlet for their earnings and so could only sit on them. The only advantage to this is the "reward" of being high on one list of the Leaderboard. Once this break-even point is passed, a creator (or event host) has little reason to do more than maintain current activities. (Excess wealth could also be used to take and hold unused server resources either in the form of unused "prim banks" or with continuous building. This had the side effect of slowly pushing out less wealthy users from the area. The "area" being anywhere there was a wealthy player.) Some wealthy players chose to give their excess to needy players since it was otherwise valueless to them.
   
4. Money had a one-way life: minted through one of many different source situations, occadionally re-absorbed by a sink, but otherwise tucked away in a user's pocket. When a sink was a Linden dollar's fate, it was cycled through Linden Lab hands. When it ended in a players bank, it was virtually out of commision. (Except in the case of players turned philanthropic by the knowledge that the excess money was valueless to them.)
   

Phase IIa:

Very similar to IIb (now) so I'll skip it for the moment and just mention a few key changes.

1. Object rez limits now tied to land.
   
2. A new "Basic" membership is added that gets a lesser weekly L$ amount, but pays no US$ on a monthly basis.
   
3. Land Voting L$ rewards are abolished.
   
4. During this phase, ratings are altered several times to reduce the amount of L$ minted.
   
5. New land auctions require that US$ be paid to get the land added to the grid, thereafter L$ is can be used to buy/sell the plots.
   1. This creates a need for players earning extra L$ to convert them to US$ in order to participate in US$ land auctions.
      
   2. This need is met by the formation/attention of 3rd-party exchange sites that can move money from one player to another for a fee.
      

Phase IIb: (now)

Sources:

1. New players get a starting amount of newly-minted L$.
   
2. Premium players get a set amount of newly-minted L$ each week.
   
3. Basic players get a smaller amount of newly-minted L$ each week.
   
4. Well-rated players get additional newly-minted L$ each week. (depreciated)
   
5. Players with high-"trafficed/dwelled" locations earn additional L$.
   
6. Event rewards have been (by and large) eliminated.
   
7. Players that sell objects get recycled L$ for them.
   
8. The money spent to add new land to the grid is now entirely US$.
   
9. A minority of players purchase L$ from other players for a US$ fee through 3rd-party sites.
   

Sinks:

1. Players spend L$ to buy land.
   
2. Players can buy objects made by other players with L$.
   
3. Small weekly L$ costs for directory listings and the like.
   
4. Some small land auctions for L$ (released to public plots).
   
5. A minority of players sell L$ to other players for a US$ fee through 3rd-party sites.
   

Results:

1. Sources outweigh the sinks resulting in excess L$ in circulation. This eventually results in a lessening of the percieved value of L$ and that in turn would lead to inflation of prices.
   
2. As less than half of the population is aware of the 3rd-party sites, the L$ that move through those services begin and end with only a portion of the population. The recycling of L$ these services cause does not include the majority of the player base.
   
3. Removal of event hosting rewards reduces the numbers of hosts to only those that can achieve sufficiently high and prolonged numbers of attendees to cover costs through dwell/traffic rewards.
   
4. There now exists a cycle whereby L$ rotate between players through 3rd-party sites.
   1. This means that L$ do not stagnate.
      
   2. The "energy" that powers this cycle is external and is applied with the expenditure of US$.
      
   3. But the majority of players that are not participants of the 3rd-party sites are not part of this cycle
      
   
   

Phase III: (things to come... perhaps)

Sources:

1. New players get a starting amount of newly-minted L$.
   
2. Premium players get a set amount of newly-minted L$ each week.
   
3. Basic players get a smaller amount of newly-minted L$ each week.
   
   
4. Ratings no longer provide L$ rewards.
   
5. Players with high-"trafficed/dwelled" locations earn additional L$.
   
6. Players that sell objects get recycled L$ for them.
   
7. All players have equal and obvious access to buy L$ for US$ from other players.
   

Sinks:

1. Players spend L$ to buy land.
   
2. Players can buy objects made by other players with L$.
   
3. Small weekly L$ costs for directory listings and the like.
   
4. Some small land auctions for L$ (released to public plots)
   
5. All players have equal and obvious access to sell L$ for US$ to other players.
   

Results:

1. Sources and sinks now nearly balanced, though a slight imbalance towards sources remains
   1. This imbalance is in the new player's favor.
      
   2. A better first experience means greater chance of staying with Second Life.
      
   3. A larger player base means a more stable economy.
      
   4. So this imbalance is better, over all, than perfectly matched sources and sinks.
      
   5. Also, interactions at the system (Linden Lab) level using L$ sets a baseline for the percieved worth of L$, which in turn steadies the L$ to US$ relationship.
      
   
   
2. The cycle of L$ that is powered by external application of US$ now extends to the entire player base, removing the one-way L$ flow through basic and new player hands.
   1. This gives all players the power to participate in any aspect of Second Life they deem worth the cost.
      
   2. (This valuation will vary person-to-person and pocketbook-to-pocketbook.)
      
   3. The choice of having to create or pay US$ to get ahead in the Second Life world is better than having only the one option of creation.
      
   4. Those players that dismiss the creation option out-of-hand might complain about having to pay US$ to get ahead, but they must overlook that the option was not always available to them to do so.
      
   
   
3. The rewards for traffic/dwell are the only "scocial engineering" L$ source remaining, but their payouts can be throttled behind the scenes as needed.
   

Phase XXX: (long ago in a grid far, far away...)

1. The continued doubling of the player base resulted in the removal of weekly stippends, but a larger starting sum of L$.
   1. This was because adding a new player results in both a set increase to the L$ in circulation (initial funds) AND an continuing source thereafter (stipend).
      
   2. That continuing source can not be maintained for millions of participants without destroying the economy.
      
   3. The larger initial sum gives a new participant a bigger sense of starting "worth".
      
   4. The stippends were phased out slowly by putting in an age limit towards which the stipend amount continued to decrease until stopping entirely.
      
   5. The cut-off was reduced in steps to a final three even, weekly payments for new participants. (Encouraging them to return over their first month and hook them.)
      
   
   
2. All event payments, including educational, were terminated.
   1. Classes, the last remaining source of this nature, are paid for by the students.
      
   
   
3. All traffic/dwell payments have ceased.
   1. Events and locations use the long-ignored ticket feature along with newer features that permit property owners/renters/operators to collect payment for their organizational efforts.
      
   2. It took changes to the ticket feature (such as automatic pro-rated refunds for not remaining at the event for at least half of the alloted time), an increase in the quality of the events, and a sudden, mass migration to its use before it truly took off.
      
   3. The separation of ownership from black & white to shades of gray along with finer control over permissions -- for everything from objects to land to group settings -- also helped make events self-sufficient again.
      
   
   
4. The economy at this time is stable, and shows every sign of remaining so well into the tens of millions of participants.
   
5. Expanded data flow in and out of the proprietary Second Life system in form of web, live audio, live video, chat, and 3D scanning and print technology have enervated its populous to new heights of creativity.
   
6. 3rd party open-source servers using a variant of Linden Lab's server software also provide additional variety to the Second Life experience, some expanding the genre into new and unexpected (and highly creative) directions.
   
7. In the last presidential race, each candidate made no fewer than five apearances in second life, and one visited on an almost weekly basis.
   

Interesting Tiger.

For clarity's sake you might want to focus sources and sinks purely on the creation and destruction of L$.

On the creation (source) side, yes you have:
- weekly stipends,
- initial pocket money for new players,
- dwell payouts
- educational support
- Linden Lab purchases for design work (such as train stations, recruitment centers, etc)

On the destruction (sink) side, you have:
- upload fees
- land purchases where you are buying from LL, not another player (for example: first land)
- fees for directory listing

The rest is all currency circulation: avatar to avatar land/object/script/clothing sales; avatar to avatar currency sales


Edit: also in response to your post, when talking about stipends and starting amounts, one key factor in the economy is whether the population is growing. LL needs to track both the mean and median $L for the residents. It can get away with higher stipend amounts while the population continues to grow. Same thing applies to land -- LL has to be very conscious of how they increase, or allow the increase, of land supply depending on what is happening to world population.


A couple questions:
- how long will LL be able to pay L$ for development/design work? They do this obviously because the actual RL cash impact to them is minimal, while the recipient still gets some value. The typical hourly rate within SL for work is incredibly low, but if this starts to rise, would you see bidders demanding RL cash rather than L$? Maybe not... there is a certain amount of prestige and pleasure that comes from being selected which acts as intangible value to the winners.

- will dwell payouts be phased out? answer is probably yes. This may have to wait until ticket systems are more functional.


A few required next steps in the advancement of our economy:
- SL participants need to become more aware that when they are purchasing something, they are receiving something of value created hy a resident. Rather than forcing members to pay a larger up-front fee and attempting the impossible task of LL compensating residents for their creations, LL allows you to "pay as you go/need" in the form of purchasing currency from other members. Will consumers realize that this is not a "game" where you pay an "all you can eat" monthly fee and the goodies all come as part of the monthly cost? Will they understand the basic premise that they are buying from other residents, not LL? Will they adjust?

Other next steps long discussed them here in the forums:
- better collaboration and group tools, enabling team projects, more flexible permissions allowing team builds, and possibly even flexible distributions of income streams to team members
- development of either LL-created or resident-created contract/agreement "proof" system as at least a starting point... this won't give cheated parties true recourse (hell, they often don't get recourse in the real world either) but at least would allow the community to know the truth... an important first step (Robin referred to this lightly in the 5/11/05 town hall)
- more advanced ticket system enabling service/event providers to finally have an efficient way to monetize their efforts... of course, this will need a change in consumer behavior as well.

for sake of already failed brevity I'll stop there for now lol

I realize this is hypothetical, but I'm confused...how can elimination of all sources, but sinks staying in place stabilize the economy??? Please don't give LL any ideas!!



if this is so then why is SL still being marketed on Gaming sites??? Why shouldn't the RL money I pay into the game result in Game money for me? And I am speaking of my monthly costs. It costs $L to upload textures required to create content...why shouldn't a basic or even premium user be able to do so without having to delve deeper into their pocket? Maybe players need to be warned by their friends invinting them that they are putting RL $ on the line with SL and that it's not a game. It's just another form of gambling.

for one thing, you can see my response on this issue in this other thread:
/130/23/60303/1.html#post632021

I see no reason why LL cannot advertise on multiple sites and in multiple places. Dell doesn't just advertise in computer magazines. There are some things about SL that are game-like and it appeals to a lot of gamers. That doesn't mean it's built like EQ or WoW. If people don't have the flexibility to try a different business model, then they won't stay. If people find SL boring, then they won't stay. That's OK.

You aren't gambling. When you go to the pub and buy a beer for your own enjoyment, you are acting as a consumer, not a gambler. When you go online and buy a product or service for your own enjoyment, you are also acting as a consumer, not a gambler.

And again, to take your question: "Why shouldn't the RL money I pay into the game result in Game money for me? "

the answer is: it does. Any RL money you put into the game above your basic payment to Linden Lab would buy you L$ currency to use and enjoy as you see fit.

you misquoted me...I was asking why shouldn't my basic fees provide a stipend? $10.00 forever and $10.00 a month plus land tier fees is an awful big monetary difference to only have the game difference of being able to own land which you have to pay extra for. If there is not going to be a stipend difference then everyone should pay the same membership fee. Seriously $110 per year difference for the "right" to hold land?

hmmm maybe you are saying "why would they take my 500/week stipend away as part of my $10 a month payment?"

They might not. I suppose you can think of your $10 a month premium payment (less if you do annual rate) as broken into two parts: 1 part pays for land (i.e. permanent server resources), and 1 part pays for 2000 L$ stipend.

They may need to alter that stipend amount depending on population growth, sink usage, etc. but that isn't up in the air right now.

Personally, I think the $10 one-time fee for Basic users is one of the best deals on the internet right now... and probably should be phased out at some point. You get unlimited bandwidth, asset server resources, ability to rent, play... and buy whatever L$ currency you need as you need it

That "right" is a payment to make permanent use of a portion of a server. If you aren't making permanent use of a server, you don't have to pay it.

And stipends aren't going away NOW. They will have to someday if SL continues to grow, however...


I estimate that 5 times as much money has entered circulation as a result of sippends than has been added with new player pocket-money over the last year.

If Second Life's growth trends continue, that will become 6... 7... 9... times as much. Because stipends are cumulative they will have a bigger and bigger inflationary effect on the economy as Second Life grows.

And worse, if that growth drops off, the number will shoot upwards even faster, throwing everything out of wack.

We won't need to dispense with stippends any time soon, but we WILL have to some day... Either because SL has gotten so large, or because it has stopped growing. Both good AND bad scenarios result in similar numbers.

So I'm confidant in that prediction.


The question is, how can we adapt and improve Second Life NOW so that, when the time comes, and end to stipends doesn't hurt us as much.

What would YOU like to have in place of a free weekly handout?

I can't think of anything that would make the loss of my stipend not hurt. Maybe not having to pay for my land, or an unlimited amount of prims for my land. But unless I am able to create something someone will buy, I need that stipend!

I second that

I can't imagen having to pay for Land and any $L that I want.

All the more reason to start thinking[/] about it now, long before it ever becomes an issue.