Wrong Answer, Mr M Linden

Quo vadis, Secundus Vita?

Obviously throwing sand in the residents’ eyes is not going to work; even M Linden should know that by now. It’s ludicrous to use a “technical argument” as the reason for the change, when the audience knows better. However, technological startups are fond of using that argument. It worked well in the dot-com bubble days: most users have no clue about the technology, so they might accept the argument: “Oh, ok, if openspace sims really hurt the stability of the grid, well, then it’s all right to drop them”.

But this is 2008, not 2000. Residents in Second Life know about technology — most of them know it quite well (some techies who left LL or tried to apply for a job there are these days happily running their own OpenSim-based grids). Older residents also remember the days of Class 1, 2, 3 or 4 servers — the grid worked back then, and worked quite well too, so there is absolutely no real reason behind the “technical argument”. It’s just a convenient excuse to remove a product that LL doesn’t wish to offer any more. 

Faced with the change, what are residents planning to do?

Major communities who depended on openspace sims are simply quitting. Many have tried the Open Sim grids for the first time, with mixed experiences. According to some, registration with the many OpenSim grids have reached a record, as residents jumped over there to look for a cheap alternative. I’m sure many stayed there. But honestly — I also run an 8-sim mini-grid with OpenSim software, and my own asset server, login server, inventory server, etc. — OpenSim is “not there yet”. Granted, some things are simply awesome — like the modularity of using “compiler plugins” (run scripts written in JavaScript or C#!) and “physics engine plugins” (there are many to choose from!), or the simple and straightforward way that you can use external “messaging servers” (like, for instance, good old-and-reliable IRC) or “economy servers”. But that doesn’t turn it into an “usable alternative” — not yet. It will, in two or three years, but not in 2008.

And, of course, you’ll have to forfeit the 2.2 billion items on LL’s grid. Full inventory integration with LL’s own grid will not happen before 2010, and probably only much later.

So there is really not a “valid” alternative — we could say there is a “wannabe” alternative which is not ready yet — and Linden Lab knows that pretty well.

What will happen next? There are still two months left where people can enjoy their cheap, overcrowded openspace sims, and this means that for a while, people will try to get rid of them as fast as possible. Facing no refund from Linden Lab, anything goes to dump the hot potato and try to recover the losses. But communities will shrink in size, which is inevitable. Universities, not allowed to overstep their close budget, will drop their openspace sims and probably give up on SL altogether (or move to OpenSim, since they have the human resources to do maintenance cheaply). SL businesses, either based on land rentals or shops on openspace sims, will close down — and so will clubs, live event areas, and other similar things.

How big will be the cut?

Well, ultimately, I see no reason for the 13,000 openspace sims to be around any more — at least definitely not by July 2009. A few, of course, will be able to survive under the harsher restrictions of the “homestead” sims — but what’s the point? You can get more than a full sim on the mainland for the price of two “homestead” sims, and without any limitations. For slightly more than that, you will be able to buy your own private island. So, for the residents willing to spend more money in SL (in fact, four times as much as before!), the option will be to migrate to a full, private island — not to a crippled “homestead” sim.

Obviously, for anyone in the land rental business this doesn’t work like that. Rentees used to have a large sim of their own, even if with limited resources and slightly slower performance, will not pay the same to have just a quarter of what they had before — without access to Estate Tools. It’s preposterous to think otherwise. The same, of course, will apply to the ones having built clubs and shops on their openspace sims — they need the Estate Tools to have full control over their region. They won’t be going back and “share” a sim with some strangers — again. They have escaped “shared sims” and willing to pay for that privilege — but just while the prices were fair.

So I believe that almost all of those 13,000 openspace sims will be dropped at some point — at least, 90% of them — and people there will not upgrade. Not to Homestead sims (which is a completely, utterly useless product); and not to full private islands (nor mainland sims, where there are no Estate Tools available). Effectively, Linden Lab has shut down that product line and given a clear message: Second Life is for the ones willing to pay a lot for being on their own private region.

Now consider the numbers. 13,000 out of 32,000 islands will be dropped. At US$75/month, this means that LL is effectively cutting their income by a million dollars, or around 20% of the income in tier (they get a few extras from setup fees, premium accounts, and LindeX fees, but, unlike what I wrote on an earlier article, their US$ 5 million/month income comes mostly from tier fees.

Wow. Think about it. With two blog articles, Linden Lab is effectively cutting down a million dollars from their monthly income!

Sitting down after the shock, I tried to figure out why. Obviously the answer can’t be that LL makes so much money that they need to reduce their income for some silly reason — that hardly makes any sense, since they could spend that money instead, say, by hiring more developers (and Linden Lab is hiring like crazy!). M Linden is also a professional CEO, and he wouldn’t take such a huge step without reason. Some residents claimed (as they always do) that LL needed to show some big income in the last quarter of 2008 “for some reason” (usually that means that they’re going to suggest LL’s coming IPO or merger or selling out.. once again…), but that’s silly: pushing 13,000 sims out of Second Life will reduce income, not increase it. And obviously nobody really thinks that M Linden and his accountants are so naive as to truly, really, believe that all those 13,000 sims will pay an increased price. They hardly expect that. They’re not that naive. They have years of solid business experience.

So… why?

Knowing even less about LL these days than usually, it’s hard to figure out the reason for the massive change, and so, only speculation can help us here. One possible reason is that the outstanding leases on Class 4 equipment are finishing, and, since LL may be starting to use Class 6 servers with 16 cores very soon, they might get a huge reduction in hardware costs. So it doesn’t make any financial sense for them to keep supporting a low density of regions per server. After all, they might manage to hold all the 13,000 openspace sims in… just 50 super-servers. Right now, I can imagine that they run 16 openspace sims per Class 4 server, at most, which will mean… a bit over 800 servers? Bandwidth-wise, the cost is the same as before (and bandwidth will always outnumber server costs). But… perhaps the cost of maintenance of those 800 servers is a million US$ per month?…

It’s not very impossible — but it requires stretching a point. The servers, by themselves, will cost as little as, say, US$100-150 per month, probably less with a good lease. But then you have to hire Concierges to give technical support to all those openspace owners. And deal with complains from clueless residents that had no idea what kind of land they’d bought. Get rid of the openspace sims, and those complains will go away — so, overall technical support costs will go down. Now, I certainly don’t have any idea on how much all of that really, really costs, but one million dollars per month certainly manages to pay the salaries of a lot of people.

I’m at a loss to explain it, then. As I’m at a loss to explain why LL charges more when the density of sims-per-server increases, when logic would dictate otherwise, even if it were only a marginal decrease (as said, bandwidth costs are calculated per region, not per server). But then again, the question has almost two years and I’ve still not figured it out:

Ian Linden wrote:

[…] In effect LL charges a premium for hosting as a means of charging for our software, our central resources, and rights to the SL “namespace” (ie grid spots). So, the more you use our software, the more you end up paying. This is pretty different from most software sales models, but I think software-as-a-service is fairly well-understood at this point. Understand that development is our largest department, while operations is comparatively tiny; the more sims we sell, the more developers we can hire to improve SL.

Granted, this was in late 2006, when Ian sort of hinted that human resources for maintaining SL are negligible compared to development costs. But in that case, there is no hope that getting rid of 13,000 openspace sims will reduce operations costs by more than a million dollars per month, so to justify pushing all those residents out of SL!

Why a company would like to get rid of their customers and lose 20% of their income that way is beyond my humble abilities to explain. I can only hope that the forthcoming announcements will make some more sense.

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