Friday, April 20, 2012

Is Linden Lab pricing itself out of business?

New World Notes has an article up regarding the rebirth of the Devokan Trust regions being reborn on OpenSim after high tier cost drove them to close down in Second Life.  This is not an isolated incident.  As the developers of other, competing grids build their online communities and work out more bugs, less expensive alternatives to SL are becoming more attractive.  Small wonder that Linden Lab has chosen not to throw itself a huge birthday bash this year — and I don't think the reason is limited to the drama-fests or the poorly implemented events that resulted in entire regions lagging out and crashing.

The main reason has to do with declining revenues stemming from the ongoing collapse of the U.S. economy.  With more and more people losing jobs and wages declining, spending hundreds of dollars a month on SL just isn't viable anymore for most people.  It doesn't help that Linden Lab maintains its unreasonably higher price for virtual land in-world.

Region tier for private, full-sized estates, which provides up to 15,000 prims over 65,536 square meters, runs as high as $295 USD a month.  Linden Lab charges a full one thousand dollars USD just to buy a new full-prim private estate, with the additional $295 a month rental fee.  That's a shit-ton of money to spend in a depressed economy.  Competing grid InWorldz, on the other hand, offers up to 45,000 prims for building at a monthly cost of only $75 USD a month and an initial setup fee of $75, according to the FAQ section.  In OpenSim, pricing is comparable to that of InWorldz (a good read from a year ago may be found here).

Simply put, ridiculously high prices in a depressed economy are driving many landowners in Second Life to lower-priced grids.  The people who stay in SL struggle to maintain their regions, as New London's recent financial troubles can attest.

If the Lab wants to reverse the decline in users, it will have to take a short term loss for long term gain.  Region prices should be lowered so as to be competitive with up-and-coming grids such as InWorldz and OpenSim, and customer support must be improved.  Once land prices drop, more people will be able to afford to buy, compensating for short term monetary losses, eventually leading to a gradual rise in revenue.

In addition, prim-allowances should be similarly raised to compete with other grids that offer three times what the Lab does for their regions.  45,000 prims and 65,536 square meters, with individual prims that can be sized up to 128 meters in diameter, for $75 a month will always look much more attractive compared to one that offers literally half to two thirds fewer prims for much much more.

If Linden Lab doesn't do this, it will continue to lose members to the competition.


  1. "Once land prices drop, more people will be able to afford to buy, compensating for short term monetary losses"

    You haven't mentioned how the compensation happens, and each loss-priced sim returns to profit.

    If the regions are priced to run at a loss, as you suggest, then the more that the Lab leases out, the larger its loss gets - not smaller.

    It can only then return to profitability by cutting back on what it provides, or by raising prices.

    1. You're thinking in the short term, not the long term. That's probably to be expected since today's business philosophy looks only to what can gain NOW, not what can built and maintained over a period of years.

      For true economic growth and prosperity, you start small and work your way up, pricing your goods according to supply and demand. In a depressed economy you might reap short term benefits from gouging people out of a thousand dollars plus nearly three hundred a month, but probably within a year or two you'll lose that customer because that person can't afford the high costs associated with your product. And while you may have gotten your initial bit of money from that, you won't win that customer back and word of mouth will help keep new ones from filling the void. Meanwhile, your competitors are charging less than ten percent what you do for brand new, private estates — and what they offer is a lot more than what you offer.

      That is why revenue from land sales and maintanence is declining in SL.

      Let's say Linden Lab lowered the initial purchase fee to one hundred dollars for a full-prim private estate and lowered the monthly tier to one hundred dollars. Automatically you can sell ten times the number of new regions from before, and if a person can buy two or three regions as opposed to just one, that can compensate for the short term loss. When word of mouth starts spreading, more people will be attracted to buy regions, thus gradually increasing the net profits.

      Raising prices during a time of low demand is a recipe for disaster, and Linden Lab is experiencing the result of this failed policy. Cutting back on services only exascerbates the problem of lost revenue from price gouging. Who but the very wealthy, the very foolish, or both, is going to pay for fewer services at a higher price when others are offering more and better services for lower prices?

      In order to restore growth, the Lab will have to make some tough pricing decisions that might hurt it for the next year or two but will eventually have to be done in order to ensure survival.