The value of dirt in Tokyo

Tokyo Skyline, seen from Tokyo TowerI keep running across people trying to make the case that land in Second Life is overpriced, because it costs more than the corresponding proportion of the cost of setting up a disconnected OpenSim instance on an Amazon EC2 virtual server and paying someone to answer the phone, or whatever.

And that’s just silly.

You can’t compute the “natural” cost of a piece of land in Tokyo, or Manhattan, or London or Paris, by working out how much it would cost to buy the corresponding number of truckloads of dirt on the open market.

If the economics were really as these simplistic analyses want to claim they are, then we would actually be seeing a large migration of people off of Second Life and onto the “cheaper but just as good” alternate grids that were profitably springing up everywhere.

And we aren’t.

Yeah, there’s lots of interest in other grids, hundreds of people are checking out InWorldz and Reaction Grid and so on, and setting up their own OpenSim instances on Amazon EC2 servers, but these are actually alternatives or competitors to SL in only a tiny number of cases. Mostly they are things that people do in addition to SL, or they are things that people do who wouldn’t be in SL anyway.

Like a piece of land in Tokyo or Manhattan, Second Life isn’t about the dirt, it’s about the location (and the location, and the location, to bow to the legally required truism). Linden Lab does not host generic servers, or generic regions, or even generic customer support. It hosts Second Life, and Second Life is something that lots of people are willing to pay (in time, in eyeballs, and even in US$ or equivalents) to take part in. And that, presumably, is because it has people and events and builds and experience and wonders and riches and connotations and associations that aren’t to be found in those cheaper generic places.

You could actually do a relatively simple calculation of the location-value of SL, by taking the cost of an SL region, and subtracting that “generic OpenSim region running on Amazon EC2 plus 1% of one generic offshore support person” number that people love to drag out.

But instead of framing that number as “see look SL is overpriced by $X!”, you’d have to say “wow, people value SL over the alternatives by $X!”. And somehow that’s not the conclusion that the people usually doing this math seem to want to reach. ;)

7 Responses

  1. Thanks so much for a needed voice of reason as others fight for lifeboats like Hamlet and his drum beat of doom.

    I would kiss you if I– oh hell, pucker up.

    • Glad to oblige. :) People love to doomsay, ’cause it makes one look all tough-minded and stuff. But I mean really…

      (I hope you have a cute girl AV handy for that puckering stuff; my brain is relentlessly gynophilic…)

  2. Dale —

    I agree with you. For a merchant or service provider looking for access to Second Life’s user base, the premium charged for Second Life land is worth it.

    The question is — how much land is used for low-traffic areas such as personal creative projects and residential regions? And how much is used to provide goods, services or events to a captive audience — say, employees of a particular company, students at a particular school, or (real world) members of a particular club? If these guys are going to create new accounts anyway, might as well have them create accounts on a private OpenSim grid and save 90% of the cost — plus, you can make backups of your regions.

    When Second Life land costs $300 and OpenSim land costs $30 or less, that is a very significant difference.

    If you’re not paying for access to Second Life’s user base (which yes, is very valuable, especially to merchants and commercial venues) then you’re paying a very high premium. You do get voice (SL-style Vivox voice costs extra in OpenSim, the Freeswitch voice that most vendors offer free just isn’t as good). You do get easy access to SL content — XStreet, etc… In OpenSim, the stores are scattered across many grids and you would have spend a lot more time surfing the hypergrid, finding the stuff you want, since there’s no centralized online shopping website (yet).

    Then there’s the convenience factor. Switching to a new platform is painful, especially when you have to download a new viewer to really take advantage of OpenSim (such as multi-grid logins). Then you have to learn your way around the new place and so on.

    I know people who still have AOL accounts. Fifteen years ago, they made economic sense. Today — not so much. They’re paying for services they can get free elsewhere, but the pain of switching is worse than the monthly subscription fee.

    Then there’s the confuseopoly argument (see Dilbert). There are so many OpenSim grids, and so many other hosting providers on top of that who will help you set up your own grid, that’s it’s too confusing.

    Eventually, though, the confusion will start to clear as some OpenSim grids or hosting providers emerge as winners in particular customer segments.

    The problem for SL is the snowball effect. If the private clubs, schools, companies, artists and individuals move to OpenSim, you’ll start to see a shift in population over to the OpenSim grids. With hypergrid (more than half of all OpenSim grids are connected to each other), you don’t just have access to the customers on your own grid, but on all the other grids out there. Over time, Second Life’s population advantage will start to ebb.

    Does SL have to lower prices to compete? AOL lowered prices. In fact, it now offers many services for free and its site is now a portal to the Internet.

    But it doesn’t have to. There will always be people ready to pay a premium for SL’s brand. The question is — how many? OpenSim grids’ land area is growing fast, while SL isn’t. SL could cross its fingers and hope that people continue to be willing to pay its prices, while cutting staff and customer service.

    I don’t know if that’s a sustainable business model.

    — Maria Korolov
    Editor, Hypergrid Business

    • Hey Maria;

      See you posting all around with this growth rate of OpenSim land.

      Wonder if you could tell us about the number of people on these grids. How is that growth rate going?

  3. Thanks for the comment!

    Myself, I’m not actually all that interested in “a merchant or service provider looking for access to Second Life’s user base”, really (no offense, but eww). I’m interested in the user base themselves. And there I think we start to go wrong as soon as we assume that we know (better than they do) why they are in SL and what it is worth to them. The evidence on the ground is the number of people who own land in SL, even though owning the same square footage in some other world would cost less money. I don’t think simple intertia explains much of this; it’s no harder to install the second VW client than it was to install the first one, after all.

    Do you think that a significant amount of the SL grid is in fact “used to provide goods, services or events to a captive audience — say, employees of a particular company, students at a particular school, or (real world) members of a particular club”? I haven’t run into alot of that myself. Even for those people, though, being on the SL grid might have advantages. How many conference centers are there in, say, Manhattan New York vs. Manhattan Kansas? :)

    I’m also not sure just how relevant it is that land area in OpenSim grids is growing fast. A more interesting question would be how fast _value_ is growing. And one crass commercial way to measure value is to look at how much people are willing to pay…

  4. […] of Second Life. I still strongly believe that enabling users to create content, simply and inside a shared world and without mastering any 3D modeling tools or knowing what a normal map is, is key to why Second […]

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