Wrong Answer, Mr M Linden

Pricing issues

Squeezing money out of the poor residents was always hard enough. The problem, as almost always, is mostly psychological. Most virtual worlds and MMORPGs out there manage to charge between US$10-30 per month for subscription services. In fact, if you look around at what the social websites charge for “premium” or “pro” service, you’ll see this price range popping up everywhere. It’s also the usual price range for services like electricity, water, Internet access, TV cable, or mobile phone monthly subscription fees. Somehow, the market settled in that price range, and this means that this is what people are willing to pay to have a service they consider both “important” and “cheap enough” for them.

LL tried that route with Premium accounts. In 2008, however, the Premium account is not “worth” those US$9.99. You get little in return — L$1200/month in ‘subsidies’, free tier on a 512 m2 plot, and access to customer support. Except for the latter, you’re better off by exchanging US$ for L$ on the LindeX, or paying tier to private island owners (or renting space). Customer support is tricky: the older users will not really need it, and the new ones are very likely unwilling to pay just for support — while they’re starting out and not sure if they’ll stay. So, in essence, the Premium account, as a money-making service, is not a success, and no wonder that LL is planning to get rid of it altogether.

But what comes next…? Wholesale land ownership, for either US$195 on the mainland, or US$295 for a private island outside the mainland. The difference is staggering. It would be like trying to sell a “special” access to World of Warcraft for US$250/mo. — Blizzard would never make any money that way. SL residents, of course, have an advantage: they can parcel out their islands and manage a land rental service. Alas, that is a business, and like all businesses, it has risks — and not everybody is willing to take them.

On the other hand, another psychological factor plays against the cost of a whole island. You can rent cheap servers on hosting providers for around US$100/month, sometimes even less. People always complained about LL’s overpricing; but then again, these same people are comparing apples with oranges. LL actually co-locates at a high-quality provider — as a comparison, companies like Verio or Rackspace, first-rate co-location and hosting providers, charge from US$500 to 1000 per month on top-of-the-line hardware with plenty of bandwidth. And on top of that you have to add maintenance costs (meaning: paying system administrators to run the infrastructure smoothly). Split that by the number of sims you can run on a quad-core server, and you’ll start to see that LL’s prices are actually not that high.

Granted, anyone who has tried out OpenSim knows that it can run on a poor, underpowered server (with plenty of memory, which is cheap these days!). It’s also “alpha” software — and it definitely doesn’t work like LL’s own servers, although the differences cannot be that huge — so most OpenSim enthusiasts will forfeit the “high quality” of LL’s own grid for a low-cost alternative. That includes yours truly, who, when trying to move a 3,000-prim building into her own OpenSim mini-grid, had to reboot the whole grid three times. This is the kind of behaviour that was reported by very early adopters of SL in 2002 or so — since then, we’re used to reliability, and nobody wants to go back in time, even if the costs are much lower.

So the dilemma for Linden Lab was how to address the pricing structure. On one hand, the low-end Premium residents weren’t really getting anything worth their money. On the other hand, providing a high-quality service for sims was way too expensive for the average user. There was no middle ground.

Enter the openspace sims. Yes, they’re a “low quality” product: less prims and less ability to cram dozens of avatars into it. However, they’re still stable enough — as stable as the rest of the grid. And Class 4 servers are not that bad — remember, the grid used to be full of Class 4 servers only two years ago, and while it didn’t run as smoothly as today, it wasn’t the catastrophic failure that residents tend to report (people have bad memories 🙂 ). And you’d get openspace sims for US$75/month — so, about the same price range for a low-end server that you could install OpenSim on it and run on your own, but you’d get far higher reliability on LL’s own grid, and, of course, you’d be connected to a grid with 2.2 billion items and 15 million avatars. The trade-off — less prims, less traffic, but for a much lower price — was more than adequate.

Granted, it wasn’t still a “desirable” product in the US$10-30 price range, but close. Very close. So close that some people report that from the 32,000 or so sims on the grid, 13,000 are openspace sims. If that’s true — and in just 8 months! — this was by far the most successful service ever introduced by Linden Lab. And it earns them about a million US$ per month, or 20% of their income. Not bad for a “low-end” product!

Times change, prices fluctuate

Things, however, were “too good to be true”. Armed with a new technological solution that allowed private island owners to sell cheap plots, openspace sim owners could now effectively undercut mainland (and specially private island) prices, and attract new customers that way. Sure, they wouldn’t be able to have the same level of “density” as on a full sim — but, these days, people favour larger plots with less residents. The times of the densely-packed hundred or so 512 m2 plots in the same sim are over, except for very clueless newbies that became Premium, probably by mistake — a trend that is going away in any case.

During the summer, the first signs that things were going terribly bad was when LL stopped the expansion of the mainland. Land prices continued to fall, as the number of residents willing to pay a monthly fee for owning land remained pretty much the same since early 2008, but new openspace sims were constantly added, at an ever-increasing rate. For LL, the trend was clear: instead of earning US$195 from mainland tier (or US$295 from full private islands), their Concierge team had now to maintain an increasing number of customers — all those brand new, happy openspace sim owners. And the setup cost for LL, even if most of it is automatic, is pretty much the same for an openspace sim or a regular sim. Put into other words: the openspace sim, as a product, was undermining LL’s own income, and, at the same time, dropping land prices so fast without LL’s ability to prevent it. This lead to lots of land owners and real estate speculators to drop away from the market, and they are, after all, LL’s wholesale clients — which LL couldn’t ignore.

What to do?

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