Second Life Economy

Dear Economists at Linden,

I have a few suggestions that, if implemented, have the potential to turn Second Life into a free and efficient economy that is truly integrated with the global economy. Please take these suggestions very seriously. If these changes are made, not only will the economy more closely mimic the capitalist ideal, it will generate even more popularity for your world and income for your bottomline. You guys are already very close to the ideal, but there are a few more crucial changes that must be made. I will cut straight to the point.

(1) Everybody should be able to own land. Linden Lab has a monopoly on the creation of new land, so why limit the customers of this product to premium members only? Removing the land owners/non-owners caste system would not only be beneficial to Linden Lab's bottom-line, it will greatly increase the activities of Second Life residents and create a much more liquid secondary real estate market. This leads to the next point -

(2) Abandon the paid membership system. Paid membership greatly hurts popularity as a lot of casual players are turn off by the upfront committment of paying a recurring fee. In order for the virtual world of Second Life to reach the popularity of, say, Google (and I believe this is entirely within the realm of possibilities), it has to be completely free to play. Linden Lab should instead focus on selling its two monopoly products - land and Linden Dollars - to its massive player base. The casual players are likely to buy these products in small piece-meal quantites in the beginning, and then get more and more involved and start spending more and more as time goes on, if they weren't turned away by the membership fee in the first place.

Also, the membership fee puts a ceiling on the appreciation of Linden Dollars. A premium member pays $10 a month for around $1700L in stipend per month. This effectively limits the L$/US$ exchange rate to 170. If we remove premium membership and the stipend system, L$ can be allowed to appreciate without any artificial limit. Residents who want more than what they earn within Second Life will have to buy L$ from the currency exchange. Since Linden Lab is the sole producer of fresh Linden Dollars, it can seek to increase income by maximizing the (quantity supplied * exchange rate) equation without disrupting the economy.

(3) Remove the buy/sell cap on the currency exchange. Economic barriers prevent true integration of economies. Residents should be able to trade Linden Dollars as much as they want. Linden Lab has the power to mimic RL central banks by controlling the supply of its currency to quell disruptive speculations. By removing the cap, residents can spend to their hearts' desire, and Linden Lab can profit from the full demand of its currency. Neither deflation nor inflation will be a major threat. In the event of deflation, Linden Lab can flood the market with new money to combat it. In the event of inflation, Linden Lab can either (a) tighten the money supply to reduce the aggregate demand of SL residents, or (b) it can sell enough Linden Dollars to satisfy aggregate demand while using the US$ income to buy more servers in RL to process the additional activities generated by a larger virtual money supply.

Implementing and maintaining these changes may require a competent "government" or "central bank", but I am sure the benefits to all residents and to Linden Lab outweigh the costs.


Your Resident Economist,
Gene Chambers

Umm.... that's what Linden Lab does focus on now. Anyone can buy land already - the monthly fee is a part of the cost of the land, and that's all you're paying for when you "pay-to-play" - Premium membership is just the fee for that first 512sqm of land.

If you mean that land shouldn't have a monthly fee, that's impossible - Linden Lab's servers do, so they have to get it back from somewhere.



And LL have said this is actually undesirable because a) they don't want to be responsible for someone choosing to use L$ as a savings account, which is possible if it appreciated fast, and b) they don't want to drive new users away by making them pay too much. The LL target rate, as I always understood, was L$250 to the dollar.

First, I used to make similar arguments, but after more thought I realise two things.

First, the premium membership fee pays for your first 512M tier. The "tiers" are really like this:

0-512M2 costs $10 ($6 annual) per 512M2, and includes a stipend.
512-1024 costs $5 per 512
1024-1536 $3 per 512
1536-2604 $3.50 per 512
2604-4652 $2.50 per 512
4652-8748 $1.87 per 512
...

Second, you can "own land" as a Basic by renting it on an island, and for small parcels (up to 4096 or so) it's usually a lot less than tier.

This already happened over a year ago. There was never any commitment to paying a recurring fee - unless you wanted to own land in the mainland you had no recurring payment to Linden Labs - and they dropped the $10.00 initial fee last year.

That is in fact what they do focus on, in fact they've increased their focus on this so much over the past year that they're damaging the long-term "replayability" of Second Life.

Nice to read your thoughts on the economy of SL and all the advise given. You seem to know a lot about the financial market and how to maneuver the cash flow to allow an area and/or department to be finically stable and profitable.

Thus, being the key words, area and/or department, to be finically stable and profitable. Take a look at the residents that have either gotten land from Linden or Rental from Residents and have a business making profits off their creations. You will see items from clothing , jewelry, Houses, Ethicals, Sci-fi Items, Animals, Avatar Shapes, and the market is booming.

The Lindens have set up a community in which the Residents or the Guest are free to explore, build, sell, visit, communicate, own items and sell items all for free and for no cost to the Resident or the Guest. All that the Lindens ask is that to have some land that as with any Real Estate, rent the land for a month fee. That is what it all comes down too. It is owned by the Lindens and kept up by the Lindens just as if we were in condominiums and we had a monthly rental fee.

I worked in banking for 7 years as a Financial Sales Specialist. I enjoyed my job extremely and would give anything for my physical abilities to allow me to return. Seems odd when your brain says yes and your body says no. I enjoyed reading your thoughts keep it up you have a great mind!

A lot of casual players may not do the calculation necessary to realize that they are equivalent. If the premium membership is equivalent to pay-to-play, why not just remove the tiered system altogether and eliminate the confusion? Remember, transparency is an important trait of a free economy.



I agree with the system of charging a monthly fee for land rental. I just think that having a "pay as you play" system is better for the popularity of Second Life than packaging things into a premium membership.



Thanks. I work in the hedge funds service field. I am a life long student of macroeconomics and financial markets, and I think Second Life provides great insights to these fields.

I completely DISAGREE with these statements. No, we should NOT eliminate memberships. Infact all accounts should be memberships and free should only be on a trial basis....say ten free days. If you don't pay you don't play. Playing this game is a privillege as is owning land.

No other platform of this sort gives you free reign as sl does, not WOW not everquest and not starwars galaxies. if you dont pay then you are stuck in a noobie area until you do, which I also advocate. I pay for this privillege and am Pissed that the sims are bogged down with free accounts.

This is not reality. It is not a democracy....ask Phil.

I agree with LeVey- I disagree with the proposed changes.

I haven't run the numbers for 2-3 months, but when I did, I found:

6 months of tier fees was roughly equivalent to the "sale" value of all land on the grid.

Lindex fees and sales were a very small percentage of LL's revenue compared to tier income. Proceeds from the sale of virgin new land didn't compare to tier income.

Land is not a "pay-once" resource... servers require electricity, upkeep, network, cooling. Without a re-occuring fee to the customer that "owns" (I think of it more as leasing really) that resource, LL would have no idea when or if the leasee has abandoned the resource or not.

Being able to reclaim and redeploy abandoned resources is a necessary part of managing a world like SecondLife.

And to top it off... if LL were to focus on selling virgin new land (and newly minted L$) for the entirety of their revenue they would drive down the value of both trying to stay in business. The consequence would seriously cripple the viability of most in-world land and business entrepeneurs that LL is currently collecting a very healthy amount of tier revenue from.

Of course.. .what do I know? I just muck about with particles.

I am not advocating relying on one-time sale of virgin land. Getting rid of tiered membership doesn't affect the recurring "land use fee". That is analogous to property tax and should be charged. This land use fee is a main driver of revenue and it roughly grows at the same pace as demand for server power used to process activities resulting from the active lands.

The membership fee is basically a package of land and money (stipend). What I am advocating is to remove the tiered system, scrap the membership fee, bring land ownership to the mass, sell more land (and charge more use fees) and sell more Linden Dollars through the FX market. Doing this will simulataneously make more money for Linden Lab and make Second Life's economy more fair and transparent.

Um, look at my figures up there. If they did this, then the rent for land would have to increase to match, say:

512M US$8
1024 US$12
2048 US$20
4096 US$30
...

Ah, so some sort of flat or scaled rate per sqm for anyone and everyone then?

An analogy, if you'll bear with me: Cell phone subscription plans... there are "tier" like plans, and there are "rate" like plans, and, obviously, combinations.

There is always a flat rate associated with any subscription plan for the overhead associated with tracking and billing a customer, etc, that's the "membership fee".

Unlike cell phone carriers that allow overages at a dire per minute cost, in SL, you can't go over tier without approving the transition. (fortunately). Can you imagine what the per sqm rate for tier overages would be?

Rate fees may be useful for small users but at the rates that LL charges for land use they might actually LOSE money billing someone who was using only 16sqm of land.

one way or another it's a sticky problem... tier plans are easier to bill, it's based upon customer agreement, not usage. Users get a better 'rate' per sqm if they use their tier completely than if they only use 51% of it, obviously.

Sure I'd love to waive my stipend for more sqm... or have more tier break points for flexibility. I just don't see it happening.

Adopting a "pay for what you used" model instead of a "pay for the right to use, used or not" model will get many complaining about hypocrisy when billed an entire month at the use rate they had for one day or less. Which means finding some way to meter useage continuously.

Start billing people a rate "per sqm per hour?" per minute? It opens up far too many disputable areas... each of which would create a demand for more billing staff to resolve those disputes.

I think a new billing plan would need to be more favorable to LL and us than this.

Gene your suggestion of making it fair for absolutely everyone reminds me of the former USSR.

I agree with this analogy, and Gene in no way am I bashing you. I feel if anything SL is a republic, the way America (as an example) was intended to run. You are proposing a democracy which in my opinion is a failed system. The problem with this idealism is that it gives every wingnut, mental defective, slacker and extremist an equal voice with enterprisers and entrapeneurs like ourselves. It cheapens the "doers". Armand likened your idea to communism, and you yourself likened it to democracy. The goal of both these idealisms is socialism. There is no incentive to excel in this type of system.

I want to know that I have taken a next step and shown a commitment to the community by paying these tiers. It supports the system and feeds the economy. It gives a value to my purchases of land in that if I am paying money to have this I will probably be doing something with my investment. if you take this away then you will turn SL in to a proverbial slum where land is a cheap commodity and people have "cars on cinder blocks in the yard".

And no knock to Phil, but Gene I think he is making his money. $250,000 plus is spent within his platform per 24 hour cycle.

I wish to end by saying that your thought process shows you to be a concerned member of the SL community and you are the type of individual I am glad to share this experience with. The griefers and the curious will come and go, they offer no real investment or commitment to what each of us are trying to build here which, in my opinion, is a new and higher society.

That's not perfect. I was buying a 64m2 parcel for our group a couple of days ago... a parcel that had long been a thorn in my side because it had been owned by a "land griefer" who'd done things like throwing flying saucers all over the sim and putting up ugly structures on the parcel... and while I was doing it a minor family emergency sprung up... so I clicked through the transaction as quickly as I could and went to deal with it.

Well, I clicked "buy" instead of "buy for group".

That 64m2 parcel cost me US$15 because it put my tier over.

My bad, I'll live with it, but I wouldn't mind a more fine-grained scheme, or a way to "lock" my tier from the web page so it simply wouldn't let me go over in SL.
And I don't believe a new billing scheme would necessarily be more favorable to us, but you can be damn sure it'd be at least as favorable to LL.

Gack.. it's been a while since I last played with going over tier... when I did I seem to recall something where I couldn't take full ownership of my new parcel without going to the web page to select upgrade or force is to re-check my total land holding and confirm I was within tier again.



True true. I keep hoping that with the economy of scale and automation that LL has deploying new servers and maintaining old that they'll find a way to "pass the savings on to us" in the form of a break on tier fees.... but, obviously, the market will bear the current rates. I'm sure it would take a vicious competitor to lower tier or force more aggressively compelling pricing plans.


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UFO invasions banished by $15 tier overage fee... news at 11.