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« CEOs Stand Firm in SL Run on the Banks | Main | Voice-Over »

January 10, 2008

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Darien Caldwell

Stunningly put. The only inaccuracy is comparing the $1695.00 paid for estate sims to "$1000 mainland auctions". Those auctions rarely end for anything less than $1900.00. They have greater intial upfront cost, but of course mainland still has the lower $195.00 a month tier.

MegaMan

I prefer 16m2 plots.... as many as possible.

MegaMan

so, btw, you didn't even makek the top 10 articles of 2007 list LMAO! http://secondlife.typepad.com

Prokofy Neva

Why would I make the top 10 articles list noted by Marc Bragg that looks like a list made by people who mainly took care of their own?

Prokofy Neva

Darien, I don't know when you were born, but there isn't any inaccuracy in my comment.

You may not realize that the $1000-a-sim auctions existed for a very long time and essentially make up the bread-basket of Second Life, if you will.

In June 2005, the Lindens changed to this minimum bid auction of $1000 (more than a year later changed to $1250). It was floated as a leaked memo at one point and it's mere concept made the auction crash for a few days in 2005.

I called it "add-to-my-shopping-cart" instead of an auction.

What happened is that for months and months, well into 2006, the Lindens glutted the market with sims opening at $1000 -- and numerous sims were in fact sold for around that much, $1100 or $1005 or $1500 -- loads of them. Unfortunately, the Lindens never saw the importance of a title office and oldbies stopped monitoring this (I had to give up doing it manually) but if the records of the auctions could be summoned, it would tell this story.

Then what happened is that in November 2006, we had the island scandal, where it was discovered that tier was going to rise on islands and the remaining servers were going to be let go for $195 before the switch, and the insiders in the FIC were given a heads up.

When that was disclosed (by me on the Herald) the Lindens were forced to keep making $195 tier sims available until a fair deadline, November 30 or whatever it was, 14 days. So boatloads of $1250 islands for $195 were ordered and the Lindens had to eat that. It was probably their most painful FIC less ever -- lesson about why having a FIC is actually economically harmful at times -- but they bit back hard.

The didn't have the servers -- or didn't want to get the servers -- to start then meeting the need for mainland sales. Lots of people, including me, ordered the cheap islands who had never had any intention of getting islands but got them now. Whatever servers the Lindens could get their hands on, they had to put into serving those back orders, not offering as first land (they ended that program pronto in January 2007 I believe or soon after), and not as $1000-add-to-my-shopping-cart mainland sims.

Enter the era of the $2500 and even $3500 mainland sim that you're recalling and focusing on now.

So mainland went WAY up, which is one of those peculiar, non-intuitive economic virtualities of the SL reality that doesn't make sense. If there are more islands, and people suddenly buying islands who didn't intend to, then how come mainland would get in demand?

Well, part of the problem is the playing of chicken on the auction. Much the SL economy is explained, as always, by over-testiculated young macho males trying to outbid each other in a pissing match on the auction. They call it "getting market share". Anshe is often a part of this too (though she gave up at a certain island saturation level).

They buy mainland sims just because they're there, just to keep their name on the auction, just to make sure some other guy in the business doesn't buy it -- none of these reasons being valid business reasons, and all of them being psychological "reflexivity" sort of reasons.

So the Linden server shortage, not an economic actuality but a physical techncial one, and the land baron game of chicken, a psychological reality, combined to make higher prices. Combine the end of the first land program, and you have very steep prices, $12,000 or more for 512s, which is absurd, making the cost of starting Second Life $50 US for the subscription and the land, something you pay for World of Warcraft of Assassin's Creed or whatever, but not the game of SL.

So for a long time, land barons could enjoy this very skewed sellers' market, which of course could easily bite them in the ass any time as the Lindens could decide to glut -- and did -- at any time. So people could eternally be caught short.

At some point the Lindens really began to glut in earnest -- to make up their own bottom line (that's why it's always insect politics with them on the grid, they are at cross purposes with us).

Their purpose was not only to pick up sales, because island orders by that time, with everybody having gotten their $1250/195 sims and starting to choke on the $1695/295 sims. They needed to sell more sims, period, and mainland is great, you can do less work/programming/set-up, and get people to pay $3200 for one sim, instead of 2 island sims (to be sure, you only get $195 tier after that, but on the mainland, in fact Governor Linden, Estate Manager, can squeeze more like $400 out of sim if it sells off in parcels, as individual tier levels, not bulk tier levels.

The Lindens also wanted people coming in to have cheaper land. They can't get people on the tier needle every month if they have to pay so much for their first bag of smack. So they want them to have nickel bags.

Today, *we can't see* what sims are going for, have you noticed? It's been months that the memory and visibility of the final winning bid has been available. I asked Jack Linden why this was removed. He said it wasn't going to be permanently removed but was a feature that had to be added back in eventually. That strikes me as odd, given that all ebay technology has records of auctions and what the winning bid was, and this is ebay technology now being used (they changed over to this new software a few months ago).

The only way you can tell what a sim goes for now is by going inworld and trying to see what a land baron is putting it out for. And I do see the same pattern of land barons leaving sims out for US $1000 a quarter sim or whatever they can get.

While a sim is being bid on, you can see it's current bid:

Soye (79,160) Mature 38672m $1,121.00

so more than half is going for $1,121 and will likely not finish up at more than $1500, which lets you know the price of whole sims is going back down again.

We really need to get this information restored again.

Desmond Shang

If there ever was an 'irrational exuberance' with regard to the land market, last year at about this time was it.

I'm actually somewhat surprised that the inworld economy didn't crash much harder - it effectively stalled, but didn't really crash.

For the market to continue as it had, we would have had to have grown by another factor of ten this year - from 10 million to 100 million residents, to maintain the 10-to-1 growth rate of last winter.

For every oldbie content creator, roughly 10 people entered the world and spent money last year. But for each 2007 creator, perhaps one new person entered the world spending money. If that. At this point, there is no other possibility besides competitive shakeout.

Taking a step into fantasy for illustrative purposes... had this been the real world, there would have been plenty of famines and wars accompanying such a pervasive global market correction. This was a very soft landing - unbelievably soft.

Personally, I think the Company is lucky that the world didn't *shrink* - servers going away as demand fell. Or perhaps it will, but not on the mainland.

There are other private estates showing deep signs of trouble - one look at the map is a good indication. I'm not talking about 'land for sale' - it's worse than that. I'm talking about land that was developed but has never, ever been used since last year's boom.

Personally I find this very alarming - implosion of a few key private estates would be a media nightmare, and thus an economic one too, for all of us.

I sense that not all is as it seems, regarding 'value' of estates. One does not 'prop up' the minimum bid of an auction from 1000 USD to 1250 USD unless... there was worry that the auctions would go for cheap. It's a real worry.

I've done a number of market tests by varying the rate of expansion with my own regions. It's almost a textbook-simple supply/demand situation.

But with one caveat: never have too much empty land available, or your value perception is destroyed. I didn't have to test that concept myself, a few other estates inadvertently tested it on their own, apparently trying to vacuum up as much marketshare as possible.

* * * * *

As bad as mainland is in many ways... it is largely healthy, as estates go.

Sixteen empty regions, or about 1 million square meters is hardly anything to worry about. The old Southern Mainland (a.k.a. Sansara on some maps) is something like 50 million square meters just by itself. I'd loosely estimate all of the mainland at something like 1/4 billion square meters - perhaps less than half a percent is available.

True, there is a desperate need to fix things like adfarm towers and so forth - long term ills. It's also a bad idea to sell SL's future by allowing land prices to skyrocket and drive users away when competition eventually comes.

But I think the reason that mainland reform is so slow in coming, is that right now the supply/demand equation is acting in the Company's favour. For now.

* * * * *

Overall, I'm a believer. I honestly think that someday we'll see 100 million users and 100,000 concurrent online on this platform (mostly humans, too).

I don't think an initial gold rush defines Second Life any more than it defined California.

Rather, I think we've struck... not gold, but copper and zinc, in the SL hills. In large quantities.

So it's not so glamourous, and not for the unskilled to simply pick up off the ground and get rich.

But it's still pretty damned useful, and will be good business for a long, long time.

Darien Caldwell

Yes, i'm a bit young, having only joined SL in Oct of 2006. I was still quite the newbie around the time when they raised tier on private estates, so I've never experienced the days of $1000.00 mainland sims. I appreciate you taking the time to lay out the history. Very informative.

Raymond Figtree

Well there is still some nice mainland out there, as you know. Carlisle and Liome, just to name two. Carlisle is one of those rare older sims where the neighbors, led by Random Unsung, have kept it looking exceptionally nice. And prices keep creeping up on the Mainland, albeit slowly. I don't think you can look at one half sim auction and say prices are going down.

Cocoanut Koala

Very well stated case.

coco

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