Second Life Radically Changes Pricing, Offers $US Incentives For User Content

In an announcement that will long be remembered, the makers of Second Life have revealed a new pricing policy that allows users to turn some of their in-world earnings into cash. Base user fees have been cut significantly [edit: was "monthly fee cut in half", but the pricing is actually more complex than that], making this one of the lowest-cost worlds in the market. Moreover, anyone who pays this fee can now use the object-creation tools within the world to make content (on which they have already received a property right, don't forget), charge Linden dollars for that content, and eventually turn some of those virtual dollars into real ones through a cash Developer Incentive program. Businesses that require little land can operate from the free plot that every user gets. Those whose virtual business requires more land can rent what they need from Linden Lab at rates that decline with total acreage. Under the new system, the land mass of an entire 2L server can be had for $195 a month.

To belabor the obvious: this is a very new thing indeed. Veterans should correct me if I am wrong, but I believe this is the first time users have had direct access to the $US value of the things they create in online worlds. Contemporary economic theory says that property rights and direct monetary incentives are the key to growth.

For more, read the initial announcement and subsequent discussion.

Comments

[Bruce Boston]

1.

"Veterans should correct me if I am wrong, but I believe this is the first time users have had direct access to the $US value of the things they create in online worlds."

How are you defining direct access?..

-Bruce

[Edward Castronova]

2.

"How are you defining direct access?"

I guess it would be this: the people who give you gold pieces are willing to exchange them for US dollars at some rate, in some quantity. You don't have to go to third parties to liquidate your in-world holdings.

This is what Project Entropia has talked about (and I am not sure what the status of PE actually is any more). Now 2L has done it.

[Bruce Boston]

3.

"the people who give you gold pieces are willing to exchange them for US dollars at some rate, in some quantity."

I think this is very interesting and a big step in the right direction, if they are in fact proposing to readily buy back L$ from members. It will also be interesting to see what their buy rate is and how it compares to their sell rate.

"You don't have to go to third parties to liquidate your in-world holdings."

So, for this to be advantageous to members, we would have to assume that the official buyback rate was better than what a player could readily get from a 3rd party. Is that the assumption?

Also, from the wording it seemed like the L$ buy backs would be limited in quantity. So, are we really sure that members will be able to "liquidate in-world holdings"?

However, just to have fun with predictions let's make a few. From what I have read about these changes in monetary policy, I think in the next 3-6 months, we are going to see 1 of 2 things happen in SL;

Case 1:
SL keeps the L$ strong by propping up the L$>US$ exchange value in land auctions and land fees. In which case, I would expect the secondary market value and exchange of L$ to increase significantly.
Case 2:
The value of L$ drops quickly after the introduction of US$ to that market.

I would be very curious if they were able to avoid both a) the rapid development of a secondary money market, and b) the devaluation of the L$. My guess is that they will have to choose one or the other, in which case, I'm not sure how valuable an offer to buyback L$ is going to be in 3-6 months.

-Bruce

[Richard Bartle]

4.

Edward Castronova>anyone who pays this fee can now use the object-creation tools within the world to make content ... charge Linden dollars for that content

This is not irrespective of whether Linden wants that content or not.

Selling people L$ for US$ is one thing, but selling US$ for L$ is much riskier (one bug and KAPOW!). Linden aren't taking the direct bureau de change route, though; rather, they're choosing for themselves the people who deserve to be rewarded for contributions. This makes it more of a competition than work, which is just as well given the minimum wage laws.

Some of their other recent announcements could be more problematic, particularly the one whereby you don't have to pay them L$ to create objects. What's the limiting factor, then? Early social virtual worlds that had "unrestricted building" policies found their databases filled up very, very quickly. Disc packs are bigger today, of course, but that doesn't mean an enterprising player might not create some macro to build an infinitely tall tower or something. Previously, this player would have run out of money before stressing the database.

I'm assuming Linden have thought of this, in which case what's the limiter they have in place?

Richard

[Cory Ondrejka]

5.

Richard> Briefly, the SL used to limit resource usage was via taxation. This didn't really localized resource problems very well plus taxes were universally hated. The 1.2 release will change this to limit permanent in-world content to those who have land, which you do need to pay for.

Bruce and Ted> The Developer Incentives program is not really about L$->US$ exchanges. Instead, there are a couple of ways that users who do great work in SL will be rewarded, including direct payouts from Linden Lab based on dwell, L$ auctions for US$, and others. In addition, users will be able to purchase in-world land use through either US$ or L$, enabling both speculators and successful users to increase their land holdings, and therefore, the size of their in-world builds.

Bruce> Why would we want to avoid a secondary L$ market? We aren't selling L$ for US$, instead L$ are added to the system by creating accounts and the weekly stipend system, so we aren't competing with these markets.

Cory

[Richard Bartle]

6.

Cory Ondrejka>The 1.2 release will change this to limit permanent in-world content to those who have land, which you do need to pay for.

So the more land you have the more you can create? If I wanted to associate a fiendishly complicated (ie. resource-hogging) script with a simple object, I'd have to buy more land?

Can scripts create objects from nothing? That would make resource-hogging even easier.

Richard

[Mark Asher]

7.

SO how many people are playing Second Life? Any idea on the number of active accounts?

[Cory Ondrejka]

8.

Richard> It would actually be easier for you to try SL than for me to detail all of the internal balancing.

Mark> There are quite a few usage details in the paper (for example, over 2000 different people used SL in October). While we are not releasing total membership, we currently have around 750 unique users in the system over any 24 hour period with a maximum concurrency of over 200.

[Euphrosyne]

9.

I haven't gone over the details, but I like the sound of it. Developers establishing their own connections between online and offline economies strikes me as both more interesting and better fated than relying on a third party exchange, and relying on offline and unassociated enforcement mechanisms. It won't make the eBay "problem" go away, but it has potential to make it a non-issue. Innovate first, legislate last (the lesson the RIAA refuses to learn). At this rate I may break down and give 2L a closer look... :)

[Yoz]

10.

To Cory, since he's here:

I'm very interested in trying SL, have been for a while, but I live in the UK and apparently it's only for US residents, is that right? Is there going to be any change to that policy in the near future?

Also, should I wait for 1.2 before jumping in?

[Hendrik]

11.

Sorry, but couldn't you rephrase the entire thing to just "Linden Labs just realized they need more users to survive"?

[Peter Ludlow]

12.

All I can say is that I look forward to the day when I can leave Alphaville and retire to Second Life, where my lifetime account is waiting form me. (And I promise not to violate the TOS!)

[DivineShadow]

13.

"All I can say is that I look forward to the day when I can leave Alphaville and retire to Second Life, where my lifetime account is waiting form me. (And I promise not to violate the TOS!)"
If you buy a lifetime account and break the TOS, is your life terminated? :)
Where can I find Real Life's TOS?

[BBC]

14.

We will be happy to welcome you Peter, although I wonder if our world is juicy enough for you.

bbc

[Bruce Boston]

15.

Cory:"Why would we want to avoid a secondary L$ market?"

There are a number of reasons that many persistent worlds try to secondary markets. Personally I think secondary markets are more in-line with Real World economies, and being one of these 3rd parties myself, I am a big proponent. There are few places in the real world where you can exchange currency without going through a 3rd party, like a bank.

Cory:"We aren't selling L$ for US$, instead L$ are added to the system by creating accounts and the weekly stipend system, so we aren't competing with these markets."

So, I would agree that you are not directly competing with these markets. However, currency traders have many different strategies, but for the most part, many make just as much on the purchase of the currency as the sale.
From a currency traders point of view, whether you are buying or selling currency you are competing, and my guess is that you will effecting both the buy and sell rates with your current monetary policies.

For example, if you except $L as a form of payment for land fees, as well as US$, then the exchange value that you set for $L will greatly influence the rate at which secondary markets can buy at. So, if players can rent a server for $195/mo or x Million $L, then that rate $US/$L will compete with the rate at which secondary markets can buy and sell $L at.

Also, one more question for you Cory, per Ted's definition, are SL member's going to be able to "liquidate in-world holdings" without going to third parties?

-Bruce

[Cory Ondrejka]

16.

Bruce> Also, one more question for you Cory, per Ted's definition, are SL member's going to be able to "liquidate in-world holdings" without going to third parties?

I think that we meet Ted's definition. Yes, there will be ways to convert L$ into US$ (either directly via currency auctions or indirectly via paying for land) as well as direct payments from Linden Lab to developers who provide the best creations, services, or events (as judged by automated methods and/or juries). Users can exchange goods and services in world for L$, so, yes it seems that you could convert in-world holdings to real world wealth without leaving the system. We will obviously continue to expand the user's capabilities in these areas as well.

Bruce>Personally I think secondary markets are more in-line with Real World economies, and being one of these 3rd parties myself, I am a big proponent.

As are we, since we believe our users should have the option to mix the virtual and real economies. As Ted pointed out in the original post, the combination of creator rights and a free market with real-world incentives is a really exciting combination.

[Richard Bartle]

17.

Cory Ondrejka>It would actually be easier for you to try SL than for me to detail all of the internal balancing.

I quote from section 2.1 of the Second Life terms of service agreement (http://secondlife.com/corporate/terms.php):

"Accounts are permitted only for adult individuals residing in the United States or Canada who are 18 years of age or older."

I am not a resident of the Unites States or Canada (although sadly I am over 18).

So, what features do you have in Second Life to stop people from running some kind of macro and filling your database with crap?

Richard

[Cory Ondrejka]

18.

Richard,
Sorry, spaced that. TOS changes are coming with the 1.2 release to fix the outside of US/Canada issues.

Everything that takes of up a macroscopic amount of space in our databases cost L$ or US$. What you can actually generate in world is limited by land ownership, time, and the underlying script concept of "energy" which, while not energy in a highschool physics sense, works well to both prevent and allow easy identification of mass creation for griefing purposes.

Cory

[Richard Bartle]

19.

Cory Ondrejka>While we are not releasing total membership, we currently have around 750 unique users in the system over any 24 hour period with a maximum concurrency of over 200

To put this in perspective, it's on a par with the bigger textual virtual worlds. The MUDConnector lists 22 that have a minimum of 100+ concurrent players, but as I write:
Medievia has 187
Achaea has 218
BatMUD has 364
Others don't give right-now figures, but Discworld peaks at about 230 nightly according to its usage charts and FurryMUCK claims over 400 simultaneously in prime time. The Simutronics worlds don't give any figures but they're going to be in the several hundreds too.

Richard

[Richard Bartle]

20.

Cory Ondrejka>Everything that takes of up a macroscopic amount of space in our databases cost L$ or US$.

I was going to refer you back to the announcement I referred to earlier that says creation is free, except it no longer says that. I guess this means I can stop pestering you about that, then!

>What you can actually generate in world is limited by land ownership, time

Time isn't an issue for macro owners, unless you're putting in some kind of slowdown for people who are pumping the input buffer.

Richard

[Cory Ondrejka]

21.

Richard>unless you're putting in some kind of slowdown for people who are pumping the input buffer.

Yes. Perhaps "rate limit" would have been more descriptive.

Also, the statement "creation is free" is true. However, permanent creation isn't. So, you can play around on public land, land that other users have decided to allow public creation on, or special simulators that we have online called "sandboxes," and create and build to your heart's content, including writing scripts, &c. However, those spaces will eventually clean up your creations. You can derez things you make into your inventory, but that storage is extremely efficient, so the $10 account setup fee covers that.

The macroscopic storage items are (generally speaking) textures and audio, although since we store textures using JPEG 2000, even textures are pretty small. Uploading those into the system costs L$10, so that limits how many you can bring in.

[Scott McMillin]

22.

Yoz & Richard:

While the TOS say "US/Canada" there are many people from UK/Europe in SL (Cory probably can't officially invite you until the TOS are changed). In fact, I have 2 neighbors in-world from the UK and one from France. Come join us!

[Richard Bartle]

23.

Cory Ondrejka>the statement "creation is free" is true. However, permanent creation isn't

So you let people create stuff, for which they own the IP, but then after a while it's deleted by someone who doesn't own the IP?

Richard

[Alan Stern]

24.

(I'm hoping Cory will see this post and respond.)

Two questions.

First, now that I've had a chance to poke around SL and see what it's like and also now that I've heard more about the 1.2 changes, something came to mind. There's no small amount of infringement in SL, i.e. shirts and textures using copyrighted images, etc. Previously I didn't think this such a big concern since the objects are relatively value-less in the real world, barring mass eBay auctions. Thus, a copyright holder might not be too concerned since the person misusing it isn't really making any real-world money off of that use. However, now that 1.2 will allow conversion of $L to $Real, might this be a bigger problem? If I create Superman T-Shirts, outfits and Avatars and then sell them in-game, making a lot of $L which I subsequently convert into $Real, might not the copyright holder now be very interested? I would be reaping a financial benefit from my misuse. The infringement would now be taking place in a commercial setting which then implicates Trademark law and a whole host of potentially severe penalties. Could this become a problem or am I way out in left field here?

Second, I have an account from the State of Play Conference. In 1.2, will we receive a plot of land or no?

Thanks!!!

[Cory Ondrejka]

25.

Alan,

I don't think that you are in left field but most of the IP issues existed prior to our changes since we allowed users to upload textures and audio. The question is what effects the RW$ are going ot have.

Several people had suggested that mass litigation would occur because of our changes to IP rights and I am certain that they will suggest the same outcome now. It seems that if you have real world $ and rights at stake you must have the option of real world laws. To do otherwise would have the world operator dispensing legal rulings, which I suspect the real-world courts would disapprove of :-)!

Of course, there is an activation energy involved with actually pursuing real-world litigation. To my knowledge, nobody has yet crossed that threshold, although we have had a couple of users start the DMCA process.

Also, creators do have a lot of control in SL about how their creations are used. If you don't want someone to misuse it, sell it with correct permissions settings. Moving forward, this is where including creative commons will be a tremendous help, since your permissions settings will actually have legal standing (as opposed to the current choices that arguably indicate intent but have no legal backing).

WRT land allocation, the SoP accounts are being treated as yearly memberships, so you will get a 1024 m^2 allotment.

Cory

[Alan Stern]

26.

Aye, the costs in actually litigating the issue are prohibitively high, especially compared to the quantity of and benefit reaped from the infringement. I was just curious what your view is given 1.2.

Thanks a lot, Cory!