Question about SL Economics

I'm rather new to second life. I've only been around for two or three weeks so far, and I've been having a good time exploring and learning how things work. And as I've been exploring, there are a few bits of second life's economy that puzzle/fascinate me. For the record I'm a chemist / chemical engineer, not an economist. But I like to dabble in other fields, and think I have a fairly decent grasp of how things work.

Now, I’m going to make a few assumptions about how things work. First and foremost is that, like the real world, people in second life who run businesses and such are trying to make a profit. Or at the very least break even with their tier costs. Secondly that business owners in SL are rational and thus, based on the first assumption, items and events that make the owner money will be kept and become common, and things that lose money will become less common and disappear. And finally, I’m going to assume that the exchange rate between lindens and US Dollars is around 250 to 1, which it generally seems to fluctuate around.

So, based on those three assumptions, a couple of things strike me as slightly odd. First off, a player pays $10 a month for a premium account. In return, you receive a weekly stipend of 500L a week. Assuming 4 weeks a month, that’s 2,000L. Assuming an exchange rate of 250:1 and an idea world without the costs of currency exchange, that’s $8. So but getting a premium account and just not spending my stipend, I can sell it back for around $8. Meaning that the actual cost of an account is closer to a mere $2, correct? Sure, that 2000L a month is beign created out of nothing by linden labs, so it doesn’t “cost” them anything to give it to me. But it’s STILL worth $8 to people. $2 a month seems a rather small amount of cash to be making per person.

It also strike me that if demand for Lindens increased dramatically, and the exchange rate went to 200L:1USD or lower, you would actually be MAKING money just by signing up. Of course, I assume Linden Labs would just “print” and sell more Lindens , and let inflation bring the exchange rate back down.

Monetary policy isn’t my strong suit, so maybe someone else has other thoughts on it.

Now, on to a second item which puzzles me, even more the first. Camping Chairs. I can understand them to a certain extent. You’re paying people to hang around your area, and increase your dwell score and ratings and such, which will hopefully bring in more people. Plus you’re hoping that the money people earn they will spend in your area anyway.

But I just don’t see how having people sit around doing nothing is worth the amount that is being paid out.

From what I’ve seen around SL, let’s say that a reasonable payout from a camping chair is around 2L for 6 minutes. I’ve seen both higher and lower, so I’ll take that as an average. That’s 20L an hour obviously. Assuming you spend all your time sitting in a camping chair, and a month of 28 days minimum… 20L/hr * 24hr/day * 28 days/month = 13,440L/month. At an exchange rate of 250:1, that’s $53 USD and change per month. Which means, in theory, someone can make fifty dollars a month on a basic account doing absolutely NOTHING but sitting in a chair and avoiding being disconnected for idling.

Now, that makes almost NO sense to me. Is having an avatar sitting on your property that valuable to the owner? I just don’t see how, logically, camping chairs bring more money into an area than they shell out. Perhaps I’m missing something? Is there an outside influence I’m unaware of that balances things out? I understand there are rewards for having the highest dwell and such, but they would have to be significant to offset the loss, wouldn’t they?

Money Trees I can understand. You’re paying a small amount of money out to a small segment of the population. In return they’re visiting your area, and hopefully spending the money they received there. Plus it helps out new players so that they’ll stick around, and thus provide another potential future customer. But I just don’t see how the camping chairs balance out. So either I’m a) Missing something. b) Camping chairs AREN’T profitable and are or will be fading away, or c I’m wrong in my basic assumption that people are running things like a real business, and are rational.

Anyway, I hope this post wasn’t too long, rambling, pointless, or boring. I suppose I just find the whole concept of a virtual world with it’s own currency and economy fascinating. I love figuring out how things work, so maybe someone can enlighten me on some of these points.

Hi Roburt, and welcome to Secondlife Former Chemist here also - Reseach Organic Chemistry

The calculations for farming stipends have been made a few times over, it's something we all think over when we first get here. Well at least I did, and the math, not the actual doing It does depend on the exchange rate as you pointed out, but it still amounts to very little IMO.

As far as the chairs (and many other traffic catchers) go - well its close to impossible to work out if they pay, at least without trying it out. You get L$ daily from traffic and if your traffic for the month is one of the highest, you also get a developer incentive in US$. Altho there have been threads explaining how these add up, none have been satisfactory I have found. You also have to remember that a lot of people look for high traffic for other reasons other than making money directly. Some wish to make money indirectly by increasing traffic to malls for example. I suspect that for most it's not so much about money, more about being on that 'most popular' list

Well Hiro, it’s not just the “stipend Farming” that I find interesting, or that alone. It’s the whole monetary policy issue. I mean, Linden Labs is taking $10 a month from you, and giving you $8 back, after a fashion. Can they run a business on $2 per player? How DO they keep the value of the linden stabilized? It’s just like in RL economies. Money isn’t backed by anything anymore, except the believe that it is valuable. The same obviously goes for SL. SL is an artificial world, but it has it’s own currency, and an exchange rate with the USD, even though the world exists only on silicon chips. It just raises some interesting questions about the name of money and economies, as I see it.

I can see the point of camping chairs as such. They’re advertising, after a fashion. And like advertising in RL and increasing your products visibility, it’s very difficult to measure just how effective it actually IS.

Now, if only the people with the highest dwells get this developers bonus, I would expect to see camping chairs in only two places: A few very large and popular areas that already have high dwells (for whatever reason) and are trying to come out on top and beat their competitors for the developers bonus, and at small startup businesses that are investing a lot of cash to start to try to draw people in and get themselves up to the top quickly. Maybe that is actually what is happening, since I mostly see them at larger casinos.

The way I see it, money represents the performance of a service others find of use. You make money for, say, building a car. Or writing code for a program. Or playing a song. You make money from these things because other people have decided that what you are doing is of value to them.

I just find it a mite peculiar when “Sitting there doing nothing” is considered of value to others. It makes me wonder at the logic behind it, and if there might be some force behinds the scenes skewing the basic economic model. The invisible Hand of Supply and Demand and all that.

The correct answer is B.

Seconded. Nice analysis Roburt, and welcome.

It's the third party at the bottom of the food chain - the one who bought your lindens off you - who refunded you $8 of your subscription, NOT linden labs... they still have the full $10 in their clutches. You just sold one of the perks of your subscription on to somebody else... that's all.

In fact, if your sale went through the lindex, then linden lab would actually be left holding something more like $10.30, due to the transaction fees you and your buyer incurred on the deal

Plus, a big chunk of Linden's income comes from land tier payments - which you haven't factored in here. Comparatively few premium account holders seem to be satisfied with the 512m that the basic subscription gets you, and therefore pay a larger monthly sub.