M is for Pangloss

There’s an interesting post over at the official SL blog this week, wherein M Linden considers the “State of the Economy“; if you don’t have time to read it and the many responses it has generated I’ll sum it up for you:

M Linden: Everything is just grand! The future is rosy!

Residents: No.

I’m exaggerating, obviously (though not much; the picture accompanying the post shows a virtual tree, but instead of leaves it has, like, dollar bills! So even the illiterate can tell that the economy is booming). M seems to base his optimism on a couple of headline figures – 2008 user-to-user transactions of US$350 million, and US$100 million cashed out via the Lindex in the same period – and a rather vague survey of business owners showing 64% claim to generate positive net income and 61% are optimistic that their revenues will grow.

US$350 million may sound like a lot of money, but for a place with around 1.4 million active residents (according to the latest statistics) it’s small beer. For comparison, in San Francisco, with a population of a little over half that figure, the city council alone has a budget of over US$6 billion. Furthermore, it’s unclear how much of the spending actually takes place in commercial transactions, as opposed to people moving money around between their alts, or other such transfers.

The US$100 million figure has already been debunked by Urizenus Sklar at the Alphaville Herald; I can’t add much to his analysis. M claims that “a good part of [the money] went into Residents’ pockets”, but when asked in the comment thread what Linden Labs’ share of it was his answer is a not particularly forthcoming “We do indeed have accurate and up-to-date figures about how much comes back to us for land fees. It’s not a number we publish which is why I didn’t publish it.”

The survey had a response rate of 15%, giving a sample of 2645; I have no idea if that is a respectable figure for these sort of things, but I would want to see some comparisons between the responder/non-responder groups before I accepted that the results were generalisable. Even if they were, the figures are essentially meaningless without a lot more context. 68% of enterprises are maintaining or increasing their investment compared to the last six months, 15% “significantly”, but how much is significant, and what is the base level? 5% of business owners say that they generate 80-100% of their total income from Second Life, but is that their total household income, or just their personal income, and what are the absolute figures? The guy you pass in the subway every morning may make 100% of his income from panhandling, but that doesn’t mean he has hit on a viable revenue model (or maybe it does).

I long ago concluded that I would never make any money from Second Life, so I shouldn’t really care about any of this flimflammery, but I can’t help but feel that the Lindens should stop trying to pretend that SL is something that it is not, and concentrate on maintaining their income by looking after the people who will be around for the long haul, those who see the virtual world as an opportunity to explore new frontiers, rather than a venue for disposable entertainment, or a place to make a quick buck. Prime mover advantage doesn’t last forever, and there is always something newer and shinier just around the corner, ready to tempt the disaffected away. I’m quite attached to the old place now, and I’d miss it terribly if it disappeared.

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