The Hard Facts About the Second Life® Economy

Finding proof through anomalies

So where do my numbers come from? Why 100,000 and not a million — or ten thousand? Obviously I have not done a thorough research, and the few scattered data I’ve got has little more than a year and a half at best. It comes more through intuition at lateral thinking at the numbers, and some surprising oddities.

The first hint, of course, is the obvious one. Why did the number of Premium Accounts stop at about 100,000, and has remained so long at that level, even if the number of new users continues to grow — even the number of active users and simultaneously online users? That was a bit puzzling, since one would expect it to grow at the same rate (if it grew faster, it would mean that LL found out the magic words to turn Basic Accounts into Premium Accounts, but, alas, that did never happen — one of the reasons why they’re abandoning the whole concept).

Aha, I hear you saying, but the number of Premium Accounts is going down, so that goes against the assertion that the 100,000 is a fixed number. Not so. Premium Accounts are mostly Premium for two reasons: land ownership and the tiny stipend (which is important only if you’re not a service provider). While the number of Premium Accounts is declining, the number of private islands is rising by the same proportion. What this mostly means is that we’re seeing product substitution: with the low costs of OpenSpace sims (the old “void sims”) and the ability to buy just one instead of a pack of four, people at a certain tier level are simply dropping their Premium Account and buying their own private island instead. So The Hundred Thousand are not “Premium Accounts” by definition; they’re “land owners” in the sense that they all feel they need to own their own land to be in SL. If it’s a plot on the mainland or their own private island — it’s irrelevant. So I expect that the number of Premium Accounts will continue to decline as new private islands are bought by them.

(I’m not claiming that there is a direct correlation; after all, Premium Account owners can have as little as a 512 m2 plot or whole mini-continents with dozens of sims; without more data, it’s impossible to figure out how exactly people are changing their land ownership patterns. Only LL can answer that. However, I still claim there is an indirect correlation — the number of people owning land appears to be constant, since Premium Accounts go down as new islands pop up, and the ratio of increase/decrease seems to be about the same, eg. one new private island per new Premium Account lost).

The other very indirect observation has come from something so unrelated as looking at my blog’s statistics. When I started it there were just a dozen blogs about SL, Hamlet Au’s New World Notes being the major one (since LL sponsored it). I got perhaps 700-1000 unique visitors per day — about 5-10% or so of the SL population would read my silly blog every day. As the number of new blogs started to increase exponentially, and people had far more interesting things to read, naturally the number of readers started to drop abruptly. These days, there are thousands and thousands of blogs about SL, and people have a lot more to read, so this was expectable.

What I didn’t expect was that the number of unique visitors stagnated around 200-300 per day — and has been so for several years. The most plausible explanation is that from among the original 700-1000 readers, 200-300 have added me to their RSS newsfeed, so those are the ones that read me all the time, and there are not new readers. However, that’s oversimplifying things, since obviously very few of the original readers have remained in SL — most have long since gone, and were replaced by new ones. On the other hand, finding my blog in 2004 was practically impossible, while these days it gets cross-referenced everywhere. So old readers would go, but new ones would replace them. As SL grows in the number of residents, I’d expect more potential readers; on the other hand, of course, there are more people blogging and competing for attention, so that would take readers away. So what is the expected result?

Now, if my theory about the 100,000 is correct, it means that the number of total potential readers is limited, and has been so for a year and a half at least. So even if SL has twice the number of registered users, they don’t read blogs. On the other hand, the number of new potential blogs is also limited: they will come, at most, from those very same 100,000. I would thus expect an equilibrium: while new blogs are popping up, old blogs are also going away, and once the market reaches reader saturation — ie. there are no more readers and no more bloggers — I should see a constant number of readers for a long period. And this is, in fact, the case — the only “jumps” I see on the statistics are when a post is suddenly published (then of course, for a few hours, the number of readers increase). It never went back to the levels of 2004, of course — I think my record in 2008 was close to 650 readers in a single day — but it also doesn’t dramatically stop. I did an experience — in the past month I have blogged far less than usual. But the number of unique daily visitors hasn’t changed. It’s still the same RSS readers; still the same people; not less, but never more, simply… because there are no more potentially interested readers!

The third observation came from looking at my content sales in SL. Now, I should explain first that I’m not really into the content business (I have no talent whatsoever). But I’m actually a pretty good example of the worst kind of content creator in SL! I thought in 2004 that it would be nice to sell low-quality content very cheaply to the newbies; since my quality is always rather low-quality, hitting the sub-L$50 market should be manageable within my limitations. But for a change I have a very high-quality product for the “middle-class” range.

My sales come almost exclusively from OnRez Shop and Xstreet SL. OnRez sells very little, so the following graphic was not very useful:

.

Sales are so few and scattered that there are no real trends here. The peaks come mostly from launching a new product (which often puts an image on their homepage, thus providing reason enough to make a sale). Also, this graph shows income over time, so the huge peaks show days where by chance I sold one or two of the more costly items.

Xstreet SL shows a more interesting picture. Like many other content creators, money was starting not to be enough at the end of the month to pay tier for the few parcels I rent, so I also initially assumed that I was just suffering from the same issues that all other content creators complain about: people are simply not buying as much as before, and naturally enough, the low-quality content creators are the first to notice that (serves me right!).

Surprisingly, the graphs show a different story!

This is the graph for two L$1 items (they’re similar). They were created in 2005 and as you can see, sales have grown slightly during last Christmas… but even a bit more in January/February… only to stabilise. The second item was more popular early this year, but now it sells as much as the other one (as said, they’re quite similar). But there is no clear pattern of “suddenly everybody not buying anything anymore”. I was quite surprised that these items still sell at all, since they’re so bad, and I’ve even thrown it in a freebie kit by LL — so there is really no point in buying it.

 

On the high-end of the market, my Yet Another Dance Bracelet is a middle-end product and costs L$250. In this age of paired danceballs dance bracelets are not so popular anymore, so I was also expecting sales dropping to zero. The HUD version is more popular than the “chimera” version. Still there are no trends visible; the HUD version got less hits (and even less sales) during the summer, but it’s back at the same level as before.

Completely mispriced at L$100, the Cigarette Holder has totally unique animations done by myself, and I believe I was inspired, because they came out rather well 🙂 But it’s an ancient item; the first lines of LSL on what would eventually become this product were written back in September 2004. But as you can see, although it’s not in the sub-L$50 category, it still sells a bit, and again, there are no trends of suddenly dropping out of sight.

So why was I so surprised? My issue was, with zero promotion of any of those items, over time, they should never manage to get any sales, and, in recent months, I should really start seeing a huge drop in overall sales. Granted, the number of sales is so low that my perceptions might be simply skewed (the ratio of views-to-purchases is somewhat between 3:1 and 5:1, which on the above graphs it means most of the days people won’t buy a single item). But sales have just stagnated — for a huge period of time — and not really disappeared. Stagnation usually means that there is no way, due to the lack of quality and promotion, that I can manage more sales if the market is not growing. But it was my first hint that the number of potential buyers has not changed in the past year and a half. There are not more and not less — they’re about the same (people will still buy much less from me in 2008 than they did in 2005, of course!).

But according to my theory, I should be seeing less sales like everybody else… right? Well, yes and no. I would certainly see less sales if these products had more competition. Apparently, at least in these niche markets, there has been not more competition — or less. If suddenly people read my article and start doing competing products and flooding the market with them — or, worse, giving them away for free! — I will immediately notice a drop to zero. But — it’s only my fault, not the market’s!

To test my theory, I’ve launched two devices with lots of competition — language translators. If the theory holds, next year, when looking at my statistics, I should expect close to zero sales (unless a lot of my competitors drop from SL, of course). Right now they’re too new and still gather some attention, and I have not enough data to make any comments.

So why did my money not last until the end of the month during the summer?… Well, ironically, the explanation is quite simple really. I spent way more than usual 🙂 So, again, this all comes from wrong perceptions of reality. It wasn’t my sales that were down — they weren’t! — but just my spending habits that went up 🙂

Where will we dance next after the last club shuts down?
Where will we dance next after the last club shuts down?

In conclusion, I cannot hopefully claim to the absolute and undeniable fact that the SL economy is in the hands of just 100,000 people, who are the only consumers — but, at the same time, the only producers! — a number which hasn’t changed in the past year and a half. I cannot also absolutely claim, without a shadow of a doubt, that the market, instead of being stagnated because people lost the will to consume, or is shrinking because residents are going away, is simply saturated, and thus the usual laws of demand and supply are hitting the service providers with the force of a hurricane.

However, it seems to me, for now, that this is the explanation that best fits the observations. Those observations lack dept of analysis and research, but they’re also not totally misguided. They are one possible interpretation that accounts for almost all recent complaints about a moribund economy — when LL’s figures show a different picture. My theory takes into account a very important issue when dealing with economy-related questions: more than anything, economy is about people’s perception of what’s going on, and, most likely, these perceptions are misguided because they fail to take into account all factors.

I will also not claim that I have taken all factors in account. There might be something obvious missing here. Or perhaps I should say — perhaps there is something not obvious missing here, and the conclusions I’ve reached are fallacious because of that. And finally, some of the steps in my reasoning might contain errors, mistakes, or wrong assumptions. In that case, I eagerly await any comments to set them right 🙂

What I will certainly claim is that no parochial observation will fully explain the global picture (ie. just because you and your friends are all making less sales, it does not mean that nobody in SL is doing any sales). Any explanation should attempt to both take into account why some service providers are indeed exhibiting less sales, while the number of new registrations are still 10,000 per day (as they have been for ages) and the number of in-world transactions continues to grow. Naturally enough, conspiration theories about LL faking their numbers will be pleasant to read, but not taken seriously by this author 🙂

Note: Unedited version for your pleasure; I might be correcting some grammar and spelling mistakes in the next few days.

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