Supply & Demand - too much land

I don't think I see what the problem is from LL's perspective.

If we are likening land in SL to server space on the web, then LL would want as many servers running as possible, as many as people will rent through tier. I believe this is a much greater source of income for them than premium memberships, and probably growing faster too.

I think that that land prices should decline in terms of real dollars over time. It would seem strange if virtual land, which LL lab can make as much of as they like, would grow in price. It may be undersirable for large land holders, but it's beneficial to both the ultimate consumers of land and to LL's long term bottom line.

I hate to say this, because I hate sounding negative LL. But it seems the company is an odd mixture of listening to client input and ignoring the client good.

It is obvious that there is both a land glut and an L$ glut... but we have not seen one step by LL which is a positive correction of either problem. Dropping the dwell hasn't done any good for the economy. I see brand new sims being set up rather than selling/re-using old sims. There are appx 100 new sims being added to the system every month... but the system itself isn't really handling the sims and users that already exist very well.

It seems time for Linden Lab to start taking a back seat and work on stabilizing the system rather than expanding it. Signs of system wear and tear are already showing. What they're headed for is pure and simple a major system meltdown. It will come suddenly, decisively and cause major havok... like the proverbial straw that broke the camel's back. I don't know nearly everything there is to know about SL and surely there are people far more qualified to make such judgements... but I call 'em as I see 'em... and this is what I see on the horizon.

The wonder of "owing" land in second life, NO!

I love living the life of droping for cover at the sight and sound of incoming direct fire! I love the sight of explosions and fire on my land and property. I love dodging getting caged and collared!

The griefers are in control of Second Life and Linden Labs does nothing about it! AR's are a complete waste of time. You wonder why the price of land keeps going down. It is more about the demand or lack of demand.

I have sold the last of my "land" and refuse to buy anymore!

On the point of dwell: I think honestly its way too early to decide if the removal of dwell will make much difference. The full impact wouldn't hit until July or August after it's been completely removed for a while.

I'm sure that after a week of the new stipend policy, people will complain that LL isn't doing anything. The changes may be profound in the long term but in the short term they will be subtle at best.

They'll correct this when they open the auctions to residential listings. Being able to list a parcel will give people a chance to transfer their land directly to another resident within a firm timeframe for the highest bid the auction garners. LL can accumulate small transaction fees and avoid the necessity of having to maintain so much abandoned land.

They are planning to do this aren't they?

People who have miscalculated and think of abandoning and getting out should have a chance to sell their land at auction. That's a really good idea.

They would be better off selling to Anshe Chung or any other Real Estate group than to abadon!

For that matter, so would LL. Then ACS could manage the land masses and LL could lay off the liasons, operate profitably, and concentrate on the developing the code.

This is a good point. If LL were to start offering sims at auction for L$ again, they could peg the initial price according to an upper limit for the devaulation of the L$. If the exchange rate ever hit that limit, suddenly it would be profitable for land barons to buy sims with $L rather than dumping them on the market.

This would act as a major sink, and wouldn't take away money from all the regular users.

A second and probably more equitable sink would be to revive the "Lindens-for-Land" option for paying monthly tier, and set it at a more rational price. The trouble with this of course is it would create a much more violent bounce whenever the exchange rate hit the limit, and LL would see the effects pretty harshly in its real income.

The regions for auction are overpriced. Most inland regions are not even worth $1000 usd anymore. The minimum bid needs to be dropped or eliminated.

With the current rate of defation, even coastal sims are not worth $1000 USD. At $331 linden to one dollar, thats $331,000 linden. Say you net 60,000 square meters out of the sim. Your cost is $5.51 per square meter. On top of that, say it costs you one months tier to move that land. That is $64,545 in linden. Say you paid 4 weeks classifieds at $1000 per week. Added costs total $68,545 linden. Add $1.14 per square meter for these costs and your total is $6.65sm. These are assumptions...$1000 usd purchase, 60,000 sm average, $195 for tier and $4000 linden in advertising....but this is a "BEST CASE SENARIO". Economic Stats for May put average price per square meter sold at $5.72. YOUR COSTS ARE 14% OVER THE AVERAGE price for land.

The six sims currently up for auction haven't moved...nor should they. Remember Linden auctioned 8.5 million square meters of land in May. You have that glut to fight too. Residents have 10.2 million s.m. for sale as well. They, too, are your competition. I wouldn't buy another piece of land at auction on a bet!

Land prices in L$ are currently somewhat undervalued. It usually take several months for changes to L$ value to finally affect the land price.

However, another reason for the dropping land price is that at ACS since our move to China and additional automation early this year we have been able to dramatically increase the efficiency and reduce operating cost. This has allowed us to reduce our sales margin and offer land at lower price, also forcing other land traders to lower their rates or quit. We expect to become even more efficient later this year and hope to set new standard for the low cost virtual world services operation

Nice Anshe...

So, are you saying ACS is responsible for the current drop in land prices (which is also associated with the current devaluation of the L$), and that you intend lowering land prices still further later this year (with the consequent further increase in devaluation)?

Doc,

It's not so much a drop, but more a lack of inflation. Just like WalMart is a major reason the US can avoid retail inflation, Anshe's company is helping hold down land market inflation.

It's a good thing. It will help stave off inflation while the impact from the cutting of dwell and stipends sinks into the economy. All in all it will reduce volitility.

Maybe I'm still not quite getting this, but, land used to be valuable because it was limited, now people can freely buy islands, which makes it an unlimited comodity. I thought as soon as that happened, $L became "untied" from the land. I mean, doesn't that make land pretty much the equivalent of a freely made prim, or more specifically a bunch of linked scripted prims that generates money? (either a toy, a slot machine, a game, or whatever).


By the way... does that mean that unlike with google, China is giving free reign to its SL residents?

sounds like the basic laws governing economics. lower prices by increasing volume. the n00b might have a bottom of 5.00/m2 whereas ACS pushes so much volume, their price bottom is 4.00/m2. making the competition unable to compete on price. in truth, the smaller players will become niche players of specific properties and ACS will be a general land gorilla.

I don't follow that. Land prices peaked at about L$10 m2, they have since dropped to L$5.XX m2...
Over roughly the same period the value of the L$ v the US$ has dropped by about 30% (these figures are by no means precise, I simply can't be bothered to go check).

And there's no connection? Nope, sorry, it doesn't fly for me.

You COULD assume the drop in land value was triggered by the decrease in the value of the L$, but then along comes Anshe and seems to suggest the drop in land value is her doing and she intends to lower it still further later in the year... Which puts a slightly different complexion on the matter, if the two are in fact connected.

Of course it may be that the L$ value of the single greatest commodity in SL and L$/US$ exchange rate are in no way connected - but I somehow doubt it!

There's a connection. It may not be the connection you think of though.

The price of the Linden sets a price floor for land.

When the linden is 250, the price floor for land is about 4.5L/meter^2. This is $1000 + 1 month tier for full sim.

With the linden at 330, the price floor is 6.0L/meter... Even if you can spread out the tier, the hard floor is 5.0L/meter, with no tier.

Anshe is right, land right now is somewhat undervalued. It's below the price floor in many cases, which is going to be somewhere between 5 and 6L/meter, closer to 6 in most cases.

The devaluing linden means that land is less profitable to trade in, as the price floor rises. This drives more people out of the land market, which pushes the land closer to the floor, the gap closes, the market becomes more efficient.

So the devaluing linden has two effects.

1. Upward pressure is put on the prices of land because the price floor rises.
2. Land traders are discouraged as it becomes harder and harder to compete on lower and lower margins. This brings the price down to or even slightly below the floor.

If land traders could just hold onto the land until it sold, there wouldn't be as much downward pressure. But because tier is so high in relation to the cost of the land, it's just not feasible to hold onto land a few months, waiting for the floor to rise to a point where you can get a better margin.

The net result is that only the highest volume, most efficient, land traders will survive.

This is not a wholly unexpected result. In any highly efficient commodity market, the profits approach zero as efficiency approaches 100%.

So yes, the price of land is going to rise more as the linden devalues. That negative correlation you observed was the market getting squeezed to the floor. Now that it's "on the floor" it's going to rise with the tide.

So yes, you are correct, there is a connection, but it's not the one you think.

Exactly! Land right now is slightly undervalued. It's below the price floor in many cases. Land prices will rise, as long as the linden maintains or continues devaluing.

land prices will rise because of inflation, but land valuation will remain flat or decline.

I agree that land prices are not tied to the value of the linden. Land is worth whatever people are willing to pay for it. Land prices will maintain or even increase as long as the Governor is willing to accumulate unused land and resident dealers are willing to pay tier on non-moving parcels while LL continue churning new sims out of the mill.

In other words, if LL are willing to operate servers worth of land that noone is supporting with monthly tier payments and the dealers are willing to pump money into the game with negative margins, they can maintain the pricing. They're just ending up paying the bill as fewer and fewer people want to rent land on the Linden Estates. When a couple decide to cut their lose, the bubble will burst.

There may be a number of reasons that you can still make a profit on land auctions in SL. One could be the exchange rate between the Euro and the Dollar. The other could be your huge volume compared to others and perhaps a discounted tier fee that the rest of us do not enjoy. Anshe, you really are the exception, rather than the rule. My comments were directed at others in MY boat.

I think you said it the way is is: The bubble will eventually burst. How much is it worth to play the game as a business? If there is no profit to be made, why not a free account and we all become explorers.

NOT a question LL wish to contemplate I feel!