Land - Service Or Not, Build An Ark

Reuters caught onto the land flooding issues which have been around since earlier this year - an attempt by [w:Linden Lab] to decrease the retail cost of land. From Increased supply spurs fear of Second Life land glut, a few choice quotes that are worth noting:

...According to Linden Lab statistics, there are 494 square meters of land in Second Life per premium account (only premium account holders can own land), up from 404 m² in February, an increase of 22 percent. Based on residents who have logged in within the past 30 days, there are 43 m² of land per resident compared to 26 m² in February, an increase of 66 percent in virtual space per capita...

Now this is an interesting statistic. It begs the question - what is the target amount of land per premium account? Where does Linden Lab expect that figure to be?

...New land sales and tier fees are the primary revenue source for Linden Lab. New land is introduced into Second Life either by Linden Lab selling private islands, or the auction of mainland parcels....

...Second Life’s “land barons,” who trade large plots of land before developing them, agreed that even after the increase, the minimum asking price for new land is so low Linden can introduce land into Second Life at will...

Well, in a sense land barons do develop - most don't do as much development as 'land flipping'. And if Linden Lab v. Bragg is any indication, what Land Barons really do in the context of Second Life land is resell a service, as they have stated in that case that they provide service - and that land is part of a service. The stark reality is that it is 3d hosting that the economy is built on - like shared web hosting.

...Jack Linden, the Linden Lab employee whose team coordinates mainland auctions, said the company closely studies a variety of metrics in deciding how much new land to bring online. “This includes the sell prices for those regions, the overall average price per meter, premium uptake, auction high/low, average close prices and many more,” he said in an instant message interview with Reuters.

“Mainland price has been on a fairly controlled and gradual downward trend since early this year, when it was arguably too high at L$12 per meter. We’re now at a healthier L$8 - L$9 per meter,” he said. “We’re pretty careful about how we manage land supply,” Jack Linden said. “Clearly a lower L$ per meter level helps new premium members step onto the land ownership ladder.”

As far as new people buying land, there are problems - and the billing and trading limits are a part of that. For the first day of an account, the billing limit is $10 US. That's 2,770 Linden dollars as a ballpark figure - which means to purchase a 512 m² plot, the price would have to be below 5.5 Linden dollars per square meter. In the Reuters article, Jack didn't mention what the target price was.

But here's the fun part that Linden Lab doesn't recognize, or does recognize and is quietly capitalizing on. As Unga Pau pointed out recently:

...Prior to the hacking of the WSE, I would attribute this weakness to the fact that Linden Labs has been printing land faster than it can be absorbed. Land sitting unsold in second life causes money to be drained from the economy in usage fees called tier. More dollars are going to Linden thus fewer linden dollars can be multiplied within the second life economy.

Linden has been auctioning off land for profit well above in world retail prices. This too has slowed the economy as losses are recognized in real life dollars.

What Unga was getting at there is apparently something that a lot of people haven't connected the dots on. That is that land barons, as they are called, hold land until it is sold. During that time, they pay the land tier for the land - which is a hidden cost of the land barons and causes their costs to go up. Linden Lab gets that money one way or the other - either you pay, or your land is repossessed and resold by Linden Lab (part of the service!).

What this means is that an entire mainland simulator, if held, has a cost price to a land baron which goes up $195 US/month. In Second Life terms, that's about 54,015 Lindens a month. And assuming that the simulator is 65,536 square meters of land (some are not), that means that there would be a raise of 0.8 Linden dollars per square meter every month. So if someone bought at the new minimum price of $1250 US (unlikely), their cost would be approximately 5.28 Linden dollars per square meter which would go up by 0.8 every month that the land is not sold.

Land, in the real world, appreciates because there is a limited amount of it. Land in Second Life appreciates because of land tier costs, etc - and if you factor in [w:Moore's Law],. the value of the land in Second Life actually depreciates in value every 18 months. Meanwhile, enterprising people try to get into the land business and buy up simulators at auction, or from auction bidders, and end up soaking up costs while Linden Lab produces more.

This is why after writing Making Your Mark in Second Life: Business, Land, and Money I got out of mainland real estate. There's no zoning, issues with land glitches can cost people thousands of real dollars (something the media continues to pointedly ignore in what could be seen as irresponsibility), and ad spam extortion continues. In focusing only on cost, Linden Lab has pointedly not protected the value of mainland.

That's the trouble with focusing on numbers.

So, the word is this: If the flood continues, build an ark. If Linden Lab cannot protect the value of land - be it a service or a virtual object - how can they protect the cost? Einstein once said that problems cannot be solved at the same level of thinking that they were created at. It's time for Linden Lab to rise above their level of thinking. Policy change is necessary on many different levels for them to have a responsible economy - because as it is, land in Second Life is increasingly looking like a [w:ponzi scheme].