Tyche Shepherd

Here is my analysis of the 4th Quarter 2009 SL economy. I'm sure in a few days time we'll have the Official Linden Lab analysis but as I have the figures at hand I thought I'd give my own interpretation.

This report was slightly delayed because of a brief hiatus in SL economy metrics, which Meta Linden and her team have now fixed. I won't be covering SL regions in this post as they have been reported here New SL Sims in past week.


Users

The number of unique accounts logging in in the past 7 days has remained stable this quarter at a daily average of 558530, marginally more than Q3 2009 and 13.5% up on a year ago , though still 1.4% down on the peak Q2 2009 period.Whilst regular users are remaining steady there is a noticeable decline in the more infrequent users (i.e those who have logged in between 31 and 60 days)





Land Sales


For most of this year the amount of land for sale and the number of residents selling land has remained pretty constant though there has been a fall in the number of parcels for sale, indicating fewer but larger parcels are on the market.



Actual land sold per month this quarter was over 125 million sqm, 4.4% down on last quarters record sales but still 13.5% more than Q4 2008. However ,as has been noted by many, this quarters land prices declined to an all time low mean price of
L$0.89 per sqm.This means that whilst volume of sales is high the actual value of land has plummeted. This drop in land value does mean that the relative importance of Land sales to the SL economy has also dropped, Q4 2009 total land sales only account for 1.01% of all transactions, this is down from 2.63% a year ago and a lot lower than the Q1 2007 peak where land sales accounted for nearly 22% of all transactions by value.



L$ Sources and Sinks


L$ Sources overall were marginally down from Q3 2009 (1.4%) though were still higher than a year ago (6.2%). Stipend payments were up on last quarter (11.5%) reversing the slow decline in Stipend payments,Linden Sales on the LindeX for this quarter were the lowest in this Year.


L$ Sinks activity was also generally down this quarter, which was the lowest overall Sink figure since Q3 2007. Classifieds were down 8.3% on Q3 and 27.4% on Q4 2008 as were Group charges (3.9% & 2.4%) Upload charges were stable on last quarter and 3.7% up on last year.



Transactions, Expenditure and Profit
Resident transactions showed a small drop in overall number from last quarter (down 1.8%) but were still 33.5% up on Q4 2008. The biggest decline from Q3 2009 were in the L$1 transactions which were down 7.9%. The actual total value of transactions were down 4.1% on q3 but still 43.1% up on Q4 2008. Generally the story is that there were marginally fewer transactions and the transactions tended to be smaller than last quarter but it's still the 2nd highest quarter on record.



Monthly Customer Spending tells a slightly different story with an overall fall in the number of customers spending L$1 or more but each customer spending more than the last quarter. The total number of customers was 2.1% down on Q3 2009 but overall total expenditure was up by 3.4%. When compared with Q4 2008 , this quarter has 13.8% more customers spending 21.9% more .



Total unique users with positive monthly L$ flow was up on last quarter reaching a new high of 68352 per month, up 2.5% on Q3 2009, and 7.9% higher than Q4 2008. The largest percentage growth was in the >$5000 category who grew by 9.1% on Q3 though the largest increase in number was in the <$10 category. Using midpoint estimates total In-World Profits came to US$7,050,065, Just 0.8% down on the Q2 2009 peak. This quarters total was 2.5% up on last quarter and 7.9% on Q4 2008.




PMLF includes all L$ Sinks and Sources (such as Classified charges and Stipends) but it excludes all US$ costs such as land rental costs.
So if we take the total PMLF figure of $US$7,050,065 per month as gross profit
We can calculate overheads as Private Estate monthly tier of US$5,099,000, Mainland Tier of US$1,076,000, Monthly Premium Account Subs of US$595,000 and typical Monthly new region purchase costs of US$57,000 for a total cost of US$6,826,929 (these figures are based on my Land survey estimates).
This leaves a Net profit of US$223,137 (3.27% of Gross Profits).

Of course this calculation assumes that all costs of business are borne by only the 68,352 PMLF residents and all other users have no overheads and also excludes other external income or costs (such as rental income paid vi PayPal) and ignores VAT costs for European Users.


Summary

Overall Q4 2009 seems to have been a quieter period that recent ones, but overall quality and value of transactions customer spending* seems to be up. Whilst it's not been great news for Land Barons, the drop in value of the mainland land market this year has paradoxically shown that the SL economy is still strong and less reliant on this one sector than in previous years. The statistics seem to show that 2009 has been very much a year of stability and consolidation, Possibly an indication that SL entered a different stage to the earlier times of rapid growth. We'll see what 2010 brings us.


EDIT: All the data used to create this analysis is available at http://www.gridsurvey.com/economy.php and is available for download

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Desmond Shang

Brilliant stuff.

I'm still soaking it all up... my gut reaction is that we are missing some fairly major 'pieces' (not your fault) but this data is good for clues.

I'd love to know what volumes of biz certain various sectors did (clothing, land, vehicles, entertainment &c).

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Pamela Galli

Thanks very much!

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LA GALLERIA

Couldbe Yue

So, If I'm reading this right we're seeing the following:

• the more casual users are drifting away
• the more hardcore/addicted users are spending more.
• some big mainland estate owners are divesting their holdings
• more people are taking out premium to buy mainland (probably because it's so cheap)

the pmlf is an interesting one. The top earner bracket has been the most volatile in the last 6 months. I can't really begin to guess why as there's not a hint of the types of earners this covers. I can only assume the spikes are from people doing inworld contracting work and being paid in L rather than hard currency.

All up, to me it's showing a business that has peaked and now is managing decline.

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Khamon

It does seem that the hardcores are digging in, buying more land, pumping more cash into the lab, while the casuals are migrating away. The graphs also indicate to me that the newbie influx is fairly stable but that retention is, if possible, worse.

We seem to be settling into Second Life to play or work with less expectation of earning our keep, or at least less possibility of our selling products to steady streams of new residents. By "new resident" I mean unique new user that will be still be around two-weeks from creation looking to purchase/rent and decorate some land.

Feel free to correct my take on the data; it's all subject to interpretation. Just be prepared for me to wave my private parts in your general direction.

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Couldbe Yue

Sounds right to me..

consider that around 7% of the millionish people who come through each month have a pmlf.

of those 7%, to get into the top 3.3% of income earners you only have to earn 500USD per month. To be in the top 10% it is just over 100USD per month. Remember, this is before tier/subscription/other advertising blah blah blah.

If you think about it, it's really easy to see why LL don't give a toss about supporting inworld business. Virtually everyone except for a few of the well established businesses or those who have invested a substantial amount in land are working for pennies or in the worst case they're paying LL to create the world that LL are trying to flog to the unsuspecting.

I noticed on one of their recent ads they're still pushing the idea you can start a business in here. I suppose it's true but only if you realise that it's more like paying them money to play at running a business. SL is become less a world and more like barbie playtime before tea.

Sid Nagy

Wow, does that really mean, that I'm a top 10 percent merchant?

Gosh.......

I always considered myself as a peanut player in SL.
Because that is exactly what I am.

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Now with a summer sale until the signs are removed.

Isablan Neva

Depends. RL economic studies have show that those with more money, spend more. (yeah, DUH!) I'll have to go digging for the graph, but if you can get and keep the business of higher income customers, you can ride out a deep recession. Costco, for example, has done extremely well during the downturn because its customer base leans toward the higher end. So, it may well be that LL is following a strategy to hold on to the big spenders and worry less about the small spenders.

Who can say?

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SLU: I came for the community. I stayed for the derails.

Cristalle

We already knew that some of the biggest mainland estate holders were getting out of the game - Elanthius put his millions of meters on the market. I just sold off the vast majority of my piddly little 2 sim holding, but most of that won't show up in the December numbers, they will hit in January. There are people out there who are buying.

I agree with Desmond that something is probably missing and it's the specific data by industry, something that you can't get. The decline in 1L transactions... I wonder if that's a strong indicator of the casual users leaving.

Overall, Linden Lab is showing growth but it may be hitting a plateau.

Isablan Neva

I wouldn't worry too much about Elanthius, I genuinely think it was LL's intention to put him out of business. Land prices need to be kept low to entice new buyers. LL is going to try that strategy first to see how it plays out before they consider tier reduction strategies. A whole lot of people don't see the second cost (tier) until after they buy. I would guess the hope is to get them hooked enough that they are willing to part with $5 - $25 bucks a month, but you gotta get them onto a parcel of land first. Any drug dealer will give you the first fix for free

Mainland reselling has always been a dangerous business because LL can make more land as often as they choose. You can't always plan to buy low and sell high and LL has put just about every major mainland reseller there has ever been out of business. Elanthius was just the biggest one to fall, there were many that went before him.

Ciaran Laval

Whereas I agree that mainland reselling is a risky business I don't agree that LL intended to put Elanthius out of business, they just couldn't control it. LL were doing alright out of selling sims, they used to go regularly for over three grand a pop.

I also disagree somewhat that people don't see the tier cost, lower prices haven't really increased demand, although there are probably external factors at play I think most people see the tier fees all too clearly.

Isablan Neva

Ciaran, it is fairly well studied that the majority of people do not check the "second price tag" when making a purchase. I was referring to those who are new to the concept of land ownership. Anyone who has made that first tier payment is intimately acquainted with the second price tag of tier.

Appliances are the usual example, but it also holds true of automobiles. Most people look at the purchase price and/or monthly payments. They don't consider the energy use of an appliance nor do they consider things with a vehicle like insurance costs or gasoline type. The second price tag is what you pay for regular use and it's mostly the savvy shoppers that know to watch for it.

When it comes to Elanthius, I think LL had to get those land values down to where they were attractive and in doing so they decimated the business of land resellers. A whole lot of people over the years have been in the wrong place (holding a lot of mainland) at the wrong time (LL releases a buttload of new sims and resell value craters.) It just happened to be Elanthius who got caught this time. (I'm not referring to the business of buying sims at auction and reselling, I'm referring to buying parcels on existing sims for resale.) Large land flippers create the same problem in SL that they create in RL - they drive up the base price of the commodity by inserting a flipper premium.

Ciaran Laval

Isablan at Jack's office hour on Thursday he mentioned the low price of land, they're not happy about it. I can't remember exactly what he said, but the price is so low they can't roll out new sims and that was a money spinner for them. They were aiming for a price of L$6-L$8 per metre, that was the price Jack mentioned before the massive slump.

Couldbe Yue

I was at a couple of Jacks office hours mid-ish last year when the changes (I assume) that contributed to Elanthius' decision to tier down were discussed.

LL had decided to provide a facility for transactions to the web. At this stage LL were talking about moving a lot of their functionality to the web and it looked very much like there would be 2 layers to SL - the webby social network/full account functionality and then inworld. Moving the transactions to the web of course would put Elanthius' bots out of business and I suspect that coupled with the land price dive around the time of the Zindra move was the final nail in the coffin of profitability for him.

Whether this decision re the web was directly related to Elanthius I don't know but I doubt. More likely it was to do with those who ran bots that did scoop up those parcels set for sale incorrectly and then refused to refund.

I noticed move to the web hasn't been mentioned lately so it looks as if it was just another one of those LL ideas of having a good time by tormenting the residents and causing them financial loss.

Elanthius didn't fall as such, as far as I can see he made the decision to withdraw his investment in SL and strategically managed it with almost no public impact. Kudos to him for not doing the "screw you" to LL. He disposed of his land without affecting the market too much and has disappeared from view. I certainly wouldn't have been so kind to them.

Couldbe Yue

Poor sweet things, my heart would bleed for them except they brought it on themselves. Not that they'll ever recognise that and even if they do I'm sure they'll find a way to blame us.

and the caravan rolls on...

Isablan Neva

Well, exactly...

If they were smart, they would open up land ownership to everybody, regardless of membership status. Then spice up the premium offering by including 1024 tier free. Anyone not on premium pays the full tier. If premium also came with access to live concierge chat for quick resolution of issues, that would be a real draw as well.

Isablan Neva

Interesting.

Also feeds into the thinking that they need to find other means of revenue generation beyond the quick buck they make from rolling out new sims. These are not good times to be a landlord SL or RL.

Thinking back to the last big run up in prices ($25-$40 per metre for anything good) everyone whined when LL started dumping new sims out and crashed the land market. Now they have the opposite problem. (To be fair the people whining were the ones who had bought high and had all their hoped-for resale value wiped out and land barons. Potential land buyers were pretty thrilled. )

Ciaran Laval

Agree 100% and Tyche's wonderful Q4 stats show how the market for Ll has shifted from that model, 22% of revenue at one stage was land based sales and now it's less than 2%. Times are changing.

Yuo

What hes really saying is that (at last) they see they nearly killed the goose that farts their golden lindens by flooding the land supply for 2 years and now the free ride is over, at least for a long period of consolidation.

Lets not be too sorry for them, we are talking growth not profit..they still make a ton of profit, just they cant keep growing even more profit from land so damn fast any more.