Observations on the Linden Economy

I've been following a lot of the board rants (ok, not following, just reading) about the economy and how LL is making a mess of it, and the complaints of the content creators and blah, blah, blah....

1. I've been playing now for about 3 weeks.
2. In 3 weeks, I've spent $72 for a one-year subscription and subscribed to the $5 extra a month land tier.
3. Through stipends, 2 beneficial land buy/sells and some luck at Extreme (along with the general give-it-away attitude of the proprietor), I have $15 US in my account, enough to pay my tier for 3 months.

4. I've bought 2 pieces of artwork ($175L total).
5. My inventory is FULL of free items. I have more clothing and avatars than I will ever need.
6. I still have $1000L in my account.
7. I've tipped people, paid for 'Pizza' and Video Poker, and generally been a fair consumer.
8. I've taken classes, attended carnivals, live music events, dressed up, dressed down, uploaded 20+ textures, created a shop that has sold a total of $100L worth of content..

At the current rates of exchange, my stipend pays me back my monthly fee in US$..
I'm having the time of my life, virtually free.

From a consumer's standpoint, there's no problem. I'm paying less than I would have to pay for WoW or EQ, and I'm getting my money back!

As a content creator on SL, I do it because it pleases me. Do I expect to make any money in SL? Maybe, some day...but certainly not more than 'hobby money'. If I make money with my camera, I'll invest it in a new camera.

If you make your money on SL, it's because someone wants to buy what you have. If you can't sell what you make, perhaps you should re-evaluate your business. I can't see paying REAL MONEY for content when so much free content is available. And until SL has the infrastructure to support a MUCH larger user base, I don't see how anyone can expect to make rent/food money in SL.

The exchange rate represents the fact that there is a DEARTH of free content available and that the L$ is not needed to enjoy the game experience.

So as for the Demand....there is none.

People NEED L$ NOW for only ONE thing....land. And there is SOOOOOO much land for sale that unless EVERYONE with land decides all at once to double their prices....demand will falter. The land rush is over. Try looking at the map with Land Sales turned on...OMG, so much land supply.

And new users can get land for $1/m^2...! So that's going to keep the price of land down......FOREVER (or until First Land ends).

Since consumers can play the game for basically free, and the demand for L$ is based on a market that can not inflate, the cost of the $L MUST increase for Linden Labs to start to show a profit. And that is exactly what it is doing.

Now, people are paying rent with $L... as the rate goes up, so will their rent. And this will flood the market with land as becoming a landlord is no longer fiscally feasible. It will become a problem for LL to stabilize the cost of land when more is being turned back into them than they are issuing. They're going to have to reissue reclaimed land as First Land, if they haven't already begun doing so. They may end up using reclaimed land to build roads, parks, etc. But looking at the map, and the available land, it already looks like there's a large Supply-side problem.

Another problem is user influx. After the Wired article and BusinessWeek article, I'm sure LL saw a large population influx (Ok, history buffs, lets look at Gold Rush territories in the US to see what happens). But adult users tend to not play older games. As SL ages, it's visibility and its perceived value goes down. SL needs growth to fill all of this available land. And they need enough growth to overcome the apathy that will lead users to leave SL.

The great thing is that SL can probably look at their future SL market quite easily. By looking at the teen grid and measuring their aging teen users, they can gauge adult user influx to the main grid. This is going to be a valuable business metric for them as 'new' adult user population comes to an equilibrium (falloff meets new users).

Then SL will have to go after the teen market instead of the adult market to ensure continual growth. That's certainly not going to be to the benefit of the adult content maker, since teens and young adults will be more likely to offer free content that undercuts adult creators. As the SL community gets younger, the less viable it will be as a way to make money for RL.

In the end.....SL is a game. A game which provided a gold rush for those who found it first. The gold is drying up, and ghost-towns dot the horizon. Shopkeepers aren't able to provide for their businesses, and the lack of shopkeepers isn't going to kill the game. As they close up shop (some louder than others), we bid them adieu.

I'm sorry I'm unable to provide any kind of really cohesive argument. I just wanted to get my thoughts off my chest.

Relax, it's only a game.

Oh, one final thought......a warning to Linden Labs.....At the point that LL decides to sell L$ for US$, Second Life will cease to be a game. Their liability for tracking the L$ as a commodity will increase, and their liability for creating and sustaining a viable economy will increase. Right now, when you read through the original agreement and you play the game, you must realize that any value you place on the L$ is SOLELY between you and the seller/buyer.

If I put L$ into a casino machine and it cheats me, I have no recourse against anyone. It's a game currency in a game world where the rules allow the machine to swallow my money. If the grid crashes, and I lose a day's income because my sim gets rolled back, I have no recourse. (THINK ABOUT THIS!!! IF WE ALL WENT TO CHILLY'S, PUT ALL OUR L$ INTO A JOKER POKER GAME, AND THE GRID CRASHED AND CHILLY'S SIM GOT ROLLED BACK, CHILLY COULD KEEP IT ALL!!!! [NOT THAT HE WOULD]) That would certainly make the exchange value fluctuate, eh?

The value of the Linden is established only between buyer and seller. That LL takes a %age off buy/sell orders makes them a market maker, but does not set any value to the L$ in US$. If they start selling L$, their accountability for that L$ goes up DRAMATICALLY. That same SIM rollback will have to include corporate accounting-level (Sarbanes-Oxley, anyone) measures to ensure that money doesn't disappear.

now that my friend is a long post...

First off - welcome to our little universe! I've been playing around in here about 6 months now and run a successful business selling scripted content.

I completely agree with you about the gold rush fever of SL. People do need to keep in mind that it's just a game. On the other hand though content creaters have worked hard on creating complex items with the expectation that they will receive some reward for their work.

So I'm on both sides in this. Certainly there are a lot of people who will create great stuff and give it away or at least sell it very cheeply for the pleasure of making it and of seeing others appreciate it.

However there are also people who are motivated by getting something back - however small for their efforts. Me, I've been happy to get some money back but frankly I'd working for pennies an hour so it;s not for the money I do this mostly. Mostly I like making stuff and experimenting with the LSL language. The linens I make are mostly a fun little way to see how well I'm doing.

What I certainly wouldn't want to be right now is a large landholder. They have a problem. Monthly teir charges that keep going up in Linden terms and a glut of land. Most people don't realize that the most basic things that makes land valuble in the real world don't exist here, scarecity and location.

I do think Linden Labs is going to have a rough patch as users drop out of owning teir (their primary income) and paid accounts as they adjust to the new economic realities of no dwell, a land glut and hyperinflation.

As for me, well, I'm still having fun. I'll raise my prices some to try to keep up with the Linden but I don't wanna get crazy and I figure my 3 months of making much money is SL are coming to a close.

welcome to SL... certanly a succss story and some good points

Very nicely put. I wonder if they get it yet?

I attended a live music event last night. The singer put out a tip jar and made $1600L in 45 minutes.

That's less than $5 at yesterday's exchange rate.

I'm positive that he doesn't normally make $5/hr to play at local bars. So he must be doing it for the FUN of it. As long as you take that into account, I'm sure you'll be happy with your $5. As soon as it becomes work, though....you might want to reconsider.

Duke

Funny how life is, as you grow older you look back at things your parents have said to you ,and they start to make sence, and you understand why things are the way they are.

The same is here in SL, i have played over 3 years now, someone thats even a year old seems like a newbie to me cuse you havent seen how things cycle.

People dont like change, but this world is all about change and growth, it changes as we grow to fit are needs, long ago you paided a fee, for the prims you used on your land was the system back then that worked for that time in game but would be silly now.

And we had telehubs was a great thing at firstbut as the world grew it became out of date, one thing people just stayed around the hubs land price where to high outer lands worthless well we adapted now people wouldnt go back.

Same as dwell, it had a perpose, to promot growth, but just as the hubs, it cuses people to group in only certain spots, and serve no perpose then to make dwell seekers rich,

Doing away with dwell will be a good thing willpush people back out in to the world and cuse people to be creative again,
When i started there was only a handfull of sims and you knew every one there was no malls no clubs only clothes where those given by lindens hardly any scripts, i some times look back and think what did we do back then,well everything you see now and unjoy and do is what we did, we created and developed what you see now, the idea's and dreams of those then have given you now what you have.

Problem is people come here thinking its a game,blahh, a place where you expect to be entertianed and serve no perpose in its growth,well this is a world a place where your only limits are your self,get out of the clubs, go to the sandbox learn to make things be part of whats here, SL is still only a baby, the world isnt going to end, i have heard that to many times and then see the sl take off in a new direction,

Wow Linkin, you've been here since April of 2003 and this is your first post?

Amazing.

You must have really, really, really wanted to get this off your chest

Very nice first post btw

Lots of interesting information there, most of it agreed with. Just a few simple thoughts / comments I suppose.

It IS just a game, main purpose should be to have fun. Though anything that can be used to offset RL$ put into the game is great, when it's worked out to an hourly rate as mentioned, most people aren't making even minimum wage, and most surely won't get rich. Thus, the "fun" has to be a major component of it. I build a) when I need something built or b) those rare moments I'm bored and nobody's around and I don't feel like meeting new people I also spend FAR MORE than I make and always have.

As far as the subscription stipend paying you back, hmmm. Definitely not the case for people paying monthly. If you pay yearly, this is in fact true.. Today. Though back when I joined in October 2005 when the linden floated at 250L$ / 1$ - this was true for me and my monthly subscription.

Looking at the open buy orders - I see the Linden QUICKLY heading to the 350 level, and potentially hitting the 400s or possibly 500s in the matter of months.

Panic? Sort of. I don't think this is all the doom and gloom end of SL that some are worried about. But it is a self-fullfilling prophecy to some extent. I am guilty as well.

I was holding onto about 150k L$ for a bit, obtained over the months. When all hell started breaking loose, I did add to the problem, dumping all but 30k L$ at 302 to a $, and glad now I did.

I think a lot of people are doing that, driving up the Linden. Though I do think the route cause is too much "free" Linden being pumped into the economy, though I digress...

A depreciating currency in real life causes people to hold on to secure foreign currency (usually dollars or euros) to protect themselves. (To this day, citizens of Russia hold an estimated 80 BILLION rl$ in dollars and euros stashed in their homes due to the devaluation of the ruble in the 90's. Although the ruble has been solid for years, the peoples mentality hasn't changed)

In SL, people hold on to US$ for protection (or the currency of their country) - IE, keep a low Linden balance. The current situation is totally best for consumers, and encourages people to buy linen in small amounts as needed, rather than holding large sums for future use.

THOUGH if you have the guts (I've thought about it, and I dont LOL) you could buy up large amounts of Linden assuming that the Linden should stabilize, I'm thinking around 250L$ / 1$ You could make a LOT of money if this happens, and be the Warren Buffet of SL.

Though in cyberspace you never know what will happen. If we were talking RL i'd be hoarding the currency by the suitcase, however you can look at ALL the market data. Here with SL, you never know what LL is thinking, or doing, they could set the value of the Linden arbitrarily high, a certain land barren could come out with her (or his) own currency - too many unknowns for me.

Heh just my ramble

I wish people would realize that by asserting this all they are doing is exhibiting a self-righteous "I am holier than thou," "My way or the highway" "What I say goes" type of attitude.

I think we can all agree that type of attitude is not cute at all

SL is something different to eveyone. Because it is a game to you does not mean it is a game to everyone. We can all accept it is a game to you, that's fine. But the reality is that it is not a game to others.

I would venture to say that there are currently a good percentage of residents comprising the SL population who use SL for non-gaming purpose such as business, studies, and research to name a few. And this percentage is increasing with every passing day.

So please save us the SL is a game thing. It is grossly innacurate and reflective of a narrow point of view in those who subscribe to the notion.

It is a game. It is not JUST a game. Its different for everyone.

Jonas, I am fully aware you love to play the word semantic game, but the above makes absolutely no sense.

Why not just call it what is is?

A Platform.

...where its users make of it what they wish.

I wouldn't get upset at what people call a game. Everyone has their own definition. To me it is a game. But I'm warped, RL is also a game for me. The difference in what I call a game and what you call a game is probably very different. I take the game of RL very serious and for the most part treat the game of SL almost the same. When peoples lives and happiness is at stake I don't cheat. However when I play a computer game solo I may cheat if it gives me pleasure. Both in RL and SL I will not do anything to purposely hurt somebody and maybe that is the problem you have with people calling SL a game. If they will do things to hurt people for their own pleasure just because it is a game than that is just wrong.