Free land might kill your grid

Any grid owner that makes a living by renting out premium residential regions should start planning ahead — for a future in which the effective of residential regions drops down to zero.

Free is already here

Of course, there is nothing new about free regions. OSGrid and other open grids allow users to connect regions that they run at home, on their own computers.

There are disadvantages to home-based regions, however. With a typical DSL or cable connection, they can’t support more than a handful of simultaneous visitors — fewer, if the region is heavily built up. In addition, users have to take care of their own backups and upgrades.

Users also have to figure out how to connect up their regions, which often requires changing firewall settings and forwarding ports.

My first home-hosted region on OSGrid, way back when.

Finally, home-based region owners have to make sure that the computers running their regions are up around the clock — otherwise, visitors won’t be able to access their regions.

Even despite these disadvantages, however, home-based regions are popular with tech-savvy OpenSim users, and helped make OSGrid the largest grid running on OpenSim.

But competing against these kinds of free regions is easy. Plenty of people are willing to pay extra not to have to figure out how to run an OpenSim console, to be able to handle lots of visitors, or simply for the peace of mind it brings to know that a professional is taking care of backups and upgrades.

Almost-free regions

Then there are the companies offering regions that are almost free. For regions infrequently visited, there’s Kitely, where on-demand regions are just 10 cents a month, plus another 20 cents per visitor per hour. And Nova (formerly New Voice) offers full regions for just  $9.90 a month — read more about what you get for this price.

More expensive hosting providers compete against these prices by marketing their robust communities, exclusive content, personal support, in-world economies, and other premium features.

Soon, that won’t be enough.

How we’ll get there

Website hosting prices dropped naturally, as bandwidth improved, storage got cheaper, and computers got faster.

All three of these factors will drive OpenSim prices down as well.

Now, let’s do some math.

Say that the minimum hosting cost of a region today is $10 per month for a low-use, residential-style region. How often is that region going to be visited? The average user spends ten hours a week in Second Life (as per the latest Nielsen ratings) — a total of 40 hours  a month. And how many of those hours will be spent on the home region, instead of at clubs, shops, museums, nude beaches, or other social destinations? Let’s say the user spends a quarter of their time at home. That’s 10 hours of active use a month for that region. If the grid owner sticks the region into storage when it’s not used, the way Kitely does, that drops the cost per user to a little over 10 cents a month.

That’s 10 cents a month for a residential region that’s only activated when needed. With current technology.

It might as well be free already. After all, if a region owner is spending 40 hours a month on a grid, they’re bound to be dropping money somewhere. They’ll need a house to put on their region. Furniture. Landscaping. Then, for when they go out, clothes and accessories. Plus the food for their virtual pets. Club admission. Donations to good causes. Grid owners take a cut of all of these transactions. Pretty soon, you’ve got your ten cents and hosting is covered — and everything over that is just gravy.

OpenSim grid owners can easily impose zoning, so that in-world payments can only occur on commercial sims, so that the merchants and club owners pay for their hosting. And the more residents a grid has, the more it can charge for commercial land. It’s a virtuous cycle.

Stores on GermanGrid. Will the grid lower prices and attract more shoppers?

Meanwhile, grids that charge for residential regions will find their users fleeing to other grids where they can get land for free — and once the users are gone, the merchants and clubs will vanish, as well.

And that’s just with bootstrapped grids.

If a grid has investors, they can simply pick up the cost of 10 cents a month per customer, watch their competitors go out of business, and wait until prices drop even further before they begin monetizing the avatars.

The fallout

Say there’s a grid startup working away in a garage somewhere right now that launches a free land grid tomorrow.

(Given how fast OpenSim has been evolving lately, that’s actually a pretty likely assumption.)

A free land model would significantly impact all commercial hosting operators, especially those that were slow to adapt to the new pricing structure.

The erosion of land in Second Life would accelerate — and charging users more for premium accounts isn’t going to be much help here.

Commercial grids with a strong focus on in-world merchants and content creators would probably see a delayed hit, as merchants wait for the new freemium grids to build up a sizable population base — and prove they can protect content — before migrating over.

Eventually, all grids will either have to match the new price structure, offer features that the freemium grids don’t have, or settle for a marginalized, niche existence — if they continue to exist at all.

I know of webhosting companies that still charge small business by the page for their webhosting — with additional charges each time a change is made. And there are still folks who pay their AOL subscriptions each month even though they have broadband and no longer need it. So I’m sure there will still be some segment of the public willing to overpay for virtual land. That’s a small and shrinking user category, however — nothing to base a growing business on.

How to prepare

First, every grid owner should be keeping an eye on technology that would enable them to also offer free regions, once the time comes. It doesn’t mean that everyone will have to build this from scratch. Vendors that offer grid management tools — such as PioneerX Estates or Dreamland Metaverse — are already working on this technology.

It’s an area that I am keeping a close eye on.

Second, grid owners and hosting providers should keep an eye out for things that they can offer that a free hosting provider can’t. For example, anyone can set up a free blog with or any of hundreds free alternatives, but you’re stuck with their templates and their domain names. Paid hosting offers a much broader choice of site layouts, full customization ability, and a custom domain name, shopping carts, and other features.

What can commercial hosting companies offer that free ones can’t? Private grids and mini-grids are one obvious answer — there are plenty of organizations — and people — who’d want to be able to have their own grid and name it anything they want.

Depending on how free hosting evolves, there might be severe limits on prims, or scripts, or terrains with the free regions.

Commercial hosting companies should be ready to quickly change their marketing and positioning to reflect the benefits they offer compared to a free hosting model.

Finally, hosting companies should be ready to look at alternate revenue sources. such as shop rentals, virtual currencies, private-label virtual goods and partnerships with content providers.

For example, a grid could exclusively partner with a virtual pets company, putting key scripts into a server-side module inaccessible to end users. The pets would only be functional on that one grid, offering the virtual pets vendor a highly secure distribution platform — and profit-sharing for the grid owner.

Related Posts'

Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China. Follow me on Twitter @MariaKorolov.

36 Responses

  1. Yes free is nice but then quality and development comes into place. Open Sim Source Code is itself a very good example of what free does to a product final result. No money no developments. SecondLife has over 35000 regions and their marketplaces is stocked with high quality products and creations. All because of a reason; money.
    Another example is lets say you are homeless and you find a person who can give you a home free and food etc…. You would not have control over that home. Wouldn't it make you feel insecure? You would have no rights!
    Free is a good feeling but with it comes imperfection and incompleteness plus the feeling of not having control over it.

    I much rather prefer to pay a fair price for quality. Because I am certain that the grid which offers quality and charges a fair price (also needed to survive as a business!) Will be able to stand and grow in a much more developed environment.

  2. Alex — Free and easy can be very appealing to consumers. For example, you can have your own website for less than $5 a month and put anything you want on it. But everyone is on Facebook — where you're stuck with their layout – the fact that its free, easy, and offers a bunch of community features and games makes up for a lack of customization. Or you can get a site on Blogger or, where you have only a limited choice of templates and can't edit them or use plugins or other advanced features. And, before that, there was GeoCities, which gave everyone their free page on the Internet.

    For many people, the free offerings are good enough. And the problem that many grids will face, I believe, is that what many folks don't need what they're paying $60 a month for now on commercial grids, and a free residential region will suit them just fine.

    Say, for example, you offered me a free 5,000-prim region on a popular grid with lots of people and shopping and events and groups and virtual pets and fashion shows and all that other stuff. Would I take it? Even if I had to use their choice of houses and terrains? Absolutely. And the fact that I had a house on this grid would help anchor me to that grid, causing me to spend more of my time there.

    Given the choice between two such grids, one with hypergrid-enabled, I'd pick the one with hypergrid. And given the choice between limited and unlimited prims, I'd pick the unlimited prims. And I'm sure, over time, as security and storage improves, we'll have both of those options.

    I used to pay for email. Today, the free email I get online is better than anything I used to pay for. I recommend the free blogging platforms like Blogger and as good enough for most freelance writers. Yes, there are sites out there that offer the same services at a price. But they are niche operations. The big commercial hosting companies all offer more features — template editing, scripting, unlimited storage and bandwidth, ec… And, for the most part, they attract business users and independent professional rather than retail consumers.

  3.' sargemisfit says:

    Much food for thought, Maria.

    AvWorlds, I am looking to make my stand-alone open to the public. So far, based on basic research into the various hosting methods, if you can afford to sink $200 a month into it, you can set up a place with all free land to the people who want to reside there. That would be for a 16 region or equivalent setup.

  4. This is all going to depend on what people consider acceptable performance. Any grid could easily lower it's prices to $10/mo and pack a ton of regions onto a server. However the house of cards comes tumbling down once the service gains widespread usage. Leaving people looking for alternatives that are ready for real growth and real usage.

    There are also many problems with putting regions on ice that are almost never discussed such as asset exchange, neighboring regions, and what happens when the region actually gets busy and popular as far as hourly costs. Also all running scripts are frozen, changing the way merchants have to sell. I think there will always be use cases for always on vs on demand.

    This does not change our direction or thinking at all. I'd rather provide a quality service where I can sleep at night than a cheap service that is overcommitted. Unless someone has found magic pixie dust that has dramatically lowered the CPU, networking and memory usage for simulations I'll stick with working on making things robust.

    If the grid is based on free land, they'll be charging for something else. Whether or not the other stuff they're charging for is acceptable to consumers would have to be seen. I also suggest you follow nymwars. That really demonstrates what the cost of "free" is and I predict in the future there will be more and more laws restricting data mining and more people that would rather pay for the services they use than have companies make money marketing them to whomever they please.

    > "If a grid has investors, they can simply pick up the cost of 10 cents a month per customer, watch their competitors go out of business, and wait until prices drop even further before they begin monetizing the avatars."

    That's an anticompetitive practice called predatory pricing and is illegal in many jurisdictions. If that were the future of virtual worlds you can bet the people that really care about the technology would be gone from the scene very quickly. Surely you wouldn't advocate this?

    • Tranquility — The WWW was built on companies offering stuff for free in the hopes of getting "eyeballs" and figuring out a way to make people pay later. (That day never came, but the companies that came out of that, like Google, are making money anyway. And lots of money.)

      With nymwars, Google might have found the limit of how much consumers are willing to put up with in order to get free stuff. But it's a pretty far limit — and the company was profitable long before.

      It doesn't matter if we want this or not. It doesn't matter if the free service is worse than what users get if they pay for it. It doesn't matter if its anticompetitive. It's going to happen anyway. At least, this time, everyone should be able to see it coming and prepare.

      Meanwhile, judging by your financials — $52,000 a month in income, $31,000 in expenses — the base cost of a region is around $36 a month, a little higher than on other grids, but you guys do invest a lot in technology and community. That works out to about $0.05 per hour. If you were to switch to an on-demand system, a user spending 10 hours a month on their residential region would cost you just $0.50 a month. With on-demand regions, you can automatically use servers with the most capacity. You should be getting about the same performance on these regions as you do now. But people don't expect high performance on a free regions. And they'll be much less densely populated than your $60 regions. So they don't need the same amount of computing power.

      These would be residential regions, not commercial regions. You wouldn't have clubs or stores here — folks who want that, would have to rent real land. And they'd be only up when their owner was in-world — you wouldn't be able to visit your neighbor's island unless she was home.

      It's a totally different way of thinking about land. And not everyone will like it. And some residential users will prefer to continue to pay for land — but their benchmarks will be permanently reset. For $60 a month, they'll be expecting a lot more than what they're getting now. Because if the difference in performance or support or community is small, they'll switch to the free regions.

      Just as people switched to free email. Free online document storage. Free social networks. Free games. Even knowing that they'll wind up paying more in the long run (say, with the free games, or with advertising, or with privacy issues). Because paying a fee up front is very much an immediate, painful price to pay. While paying extra for in-game goods at some future point which may never come — or getting annoyed with ads and privacy invasion — is a pain that will come in the distant future. And, we can easily delude ourselves, will never come ("I will never pay extra to make farm crops ripen faster!" "I'll get used to the ads!" "I won't have my privacy violated!")

      • Hi Maria,

        The flaw in the plan is if the grid gets busy like we want it to there will be more active users than regions at points in which case not very many of the regions will be on standby which would end up making it impossible to sustain operations and still be able to charge the low prices. The same thing will happen to the company that offers "free" unless, as you said, they have some serious (1-5 million+) investment.

        I think I'd still rather shoot for the goal of being busy than start down the path of creating a business that cant grow without investment.

        • Tranquility — I'm basing my calculations on the idea that folks spend a quarter of their time on their own regions — futzing around with their house, pets, spouses, whatever — and the rest on destination regions such as clubs, shopping malls, cafes, meeting areas. The latter would all be paid, commercial, high-use, high-traffic regions.

          •' Ilan Tochner says:

            Hi Maria,

            I believe the calculation you did based on InWorldz stats is somewhat flawed. InWorldz may have 52,000 registered users but their active users per month are likely 5-10 times lower. Meaning that the monthly cost for providing a residential area per active user would be $2.5 – $5 not $0.50. Cloud utility-based systems such as Kitely's can reduce this expense to a degree but costs remain too high for a grid provider to subsidize over time, especially once active user numbers go up and the proportion of premium service buyers approaches internet standards (about 1%).

            I'm not saying your idea is without merit but the current economics don't make sense for OpenSim-type worlds. Additional OpenSim optimizations and cloud utility cost reductions may change this picture dramatically but it probably won't happen in the next 2-3 years. A very well funded startup may be able to overcome these ongoing losses during that time but businesses that need to be cash flow positive won't be able to do so using the existing technology and cost structure.

          • Ilan — I didn't based the calculations on number of registered users, but on the number of regions. High-traffic regions would always be on dedicated servers, up 24-7, and paid for on a traditional basis. Users who don't have land will only be able to visit these regions — and can visit residential regions only if invited by or accompanied by the owner. You wouldn't use a freebie region to, say, hold an art gallery opening. You'd use it to create the art, then rent commercial space for the exhibit itself.

            The base price of a residential, low-use region is between $10 and $36 a month for 24/7 use. I was calculating that they would only be used for an average of 10 hours a month — that's between 10 and 50 cents a month per residential user.

            Meanwhile, the grid's commercial regions will be rented out at existing rates (or even higher, if the number of users on the grid grows).

          •' Ilan Tochner says:

            Hi Maria,

            Your 10 to 50 cents per month per residential user and 10 hours per month of usage means that each user-hour in a residential area would cost the operator between 1 and 5 cents. I can tell you for a fact that it costs more than that just to cover datacenter costs. This doesn't even include all the other costs that go into running and developing a grid, even one that is as highly automated as the one Kitely has spent almost 3 years building.

          • Ilan — Nova offers lightweight always-on residential regions for $10 a month. There are 720 hours in a month, or about $0.0139 per hour.

            And they tell me they're making a profit.

          •' Ilan Tochner says:

            Hi Maria,

            Those $10/month residential regions are on a shared server and each one of those residential regions sees a lot less than 720 hours of use per month. Assuming your previous 10 user hours per month in a residential area that would come to $1 of revenue per actual hour of use per month. Lets assume 6 people visit each of those residential areas for 10 hours each per month (the average size of an inworld meeting if I remember correctly is 6 participants) that would still mean a revenue of $0.16 per actual user-hour. That is high enough to cover costs of actual use so they can make a profit. However with your calculated $0.0139 of revenue per actual user-hour of usage they will lose money.

          • Ilan — Yes, you could use residential regions to hold meetings. But how much time do people spend in-world at meetings in residential homes? Plus, you're not paying for users when you've got dedicated hosting. An always-on server costs the same whether you've got zero people on a region or 60. You get enough servers to handle maximum capacity — not average capacity. That's a lot of unused server space sitting around.

          •' Ilan Tochner says:

            Hi Maria,

            My point was that the average cost per active user-hour you quoted was lower than what it actually costs a grid operator to provide that service. You countered by stating that Nova claim to make a profit from providing residential regions for $10/month so I demonstrated how even a relatively heavily used residential region would still generate more than $0.16 per user-hour of actual usage using Nova's pricing model. This was intended to show that the Nova example does not contradict my claim that the actual cost for the grid operator per user-hour is currently higher than the number you quoted.

            A dedicated server that costs about $100 per month can hold about 100 concurrent avatars. If, as you suggested, InWorldz get enough servers to handle maximum capacity instead of average capacity then each registered user would cost them about $1 per month in dedicated server costs. With InWorldz current registered user base of 40,000 (as of July 2011) that would mean they would need to maintain 400 dedicated servers costing them $40,000 per month just in order to provide free residential regions to all their users. They can probably reduce that number by having residential areas share servers with premium regions but that is exactly what Linden Lab tried to do with Openspace Regions and they quickly raised prices because they found out that the costs of running them this way were higher than they had originally expected (most likely because they could put a lot less of these regions on the same server as premium regions without hurting the premium regions performance).

            It would have been great if the numbers you quoted made financial sense but, from the vantage point of someone running a grid and paying the associated bills, I can tell you that at the current state of OpenSim technology and datacenter costs they are not feasible regardless of whether we use cloud-based or dedicated servers to provide the service. Undoubtedly you are correct and that will change in the future but it will take a few years until the associated datacenter costs for providing free residential regions using OpenSim will fall to $0.01 per user-hour.

          • Ilan — I'm still not understanding you. If you're saying that a $100 server can support 100 simultaneous avatars running 24/7 — that's 72,000 monthly avatar hours, or less than 1 penny per hour per avatar. Most servers that grids have up now — InWorldz, Nova, or anywhere else — are idle most of the time. If they're used in a private cloud configuration, using available server capacity to load up regions as they're visited, you can significantly increase usage rates and drop hosting prices. (That's the whole point behind virtualization.) Am I missing something here?

          •' Ilan Tochner says:

            Hi Maria,

            The server resources required to support 100 concurrent users in the same region are very different from those required to support 100 concurrent users in 100 (or even 10) different regions. Each region has its own memory and CPU overhead even when empty. The more concurrent users you add the more resources the region requires. A private cloud doesn't change this basic truth it just allows you to deploy regions on different physical servers with less work.

            Once you take into account the various overheads, safety margins and maximum number of regions and users that can be effectively hosted on the same physical server you reach a cost per user hour that can at times be an order of magnitude higher than the number you quoted. Once you add user support costs, and other business expenses etc. you aren't left with a lot for salary expenses before you reach the $0.20/user-hour price Kitely charges. The only reason we can achieve even that cost is because of all the proprietary code we developed for automating the entire process (otherwise we would have had to increase system administrator costs and increase safety margins and overheads).

            Getting regions to work on demand in a grid is a lot more complicated than just starting an OpenSim instance in a virtualized server. There are many servers involved that are not used for hosting regions that must be used and are not counted in the aforementioned math. InWorldz had to build and operate multiple asset servers to support their less than 10K active monthly users. Those asset servers are very powerful servers and their data storage costs are a big expense all by itself. The more residential regions you add the more asset servers they would need to get.

            Kitely's cloud-based architecture works differently but there is no getting around the basic costs of supporting many regions using OpenSim. Apache can easily support more than 10K concurrent users on the same server that OpenSim needs to support 100 concurrent users. Comparing OpenSim-based services to Apache-based services can lead you to the wrong conclusions. OpenSim is simply much more expensive to operate and much harder to virtualize effectively while maintaining a grid configuration.

          • Ah, okay. So using Kitely's costs as a model, we're talking 20 cents per user hour — or $2 per user per month for a residential region used for ten hours. That's still not an unreasonable price, especially given how much other companies are paying for user acquisition costs — and given that the number is only going to drop over time.

          •' Ilan Tochner says:

            Hi Maria,

            The $2 per user per month is ongoing not just a cost of acquisition. Also considering the industry standard 1% conversion rate you will need each paying customer to cover $200 per month just to break even. That is a LOT to need to cover. That equates to needing to get a $24/year ARPU or $2400/year ARPPU which is WAY more than the average numbers for free-to-play MMOs. The numbers just don't add up with OpenSim at this time.

            Our model is designed to offer users a freemium-like service by giving them some free Kitely Credits (AKA our user acquisition costs) and having other people pay for some of their access costs (like they do in other grids as well where they pay for region hosting instead of paying for user access time). Our model is a different variation of freemium where each dollars worth of service given away for free to one user is directly covered by another user.

            Once costs drop sufficiently to support free-to-play freemium models that are just based on advertizement, a virtual goods economy and some premium hosting features then the OpenSim hosting industry will probably transition to using them but, until that happens, unfunded OpenSim hosting providers simply can't afford to follow this path.

          • I'd honestly rather empower our land owners to continue selling parcels for reasonable costs and let them reap the benefits than competing directly with them. I think taking a free sim approach really alienates the people that actually invest in your grid.

            It has always been InWorldz stance to never compete with our customers. This philosophy will continue in pricing and products.

            As a matter of fact this article does give me a few ideas on making sure land owners are noticed.

          • Yes — free residential regions will totally kill the land rental business — unless the developers are able to offer sufficient premium features that retail users would be willing to spring for. For example, I can see paying for a home overlooking a nude beach — even if there were homes on standalone islands available for free. Or a home on a region where the developer organized constant parties and matched me up with eligible singles. Or a home overlooking a virtual golf course (if, say, I was inclined to golf) with people ready and willing to golf with me when I wanted to go golfing.

  5. Maria the worst thing you can do to a product is devalue it. That is the worst business practice. I am not saying we should overcharge people. But a fair price that will keep quality intact is the best practice. Open Sim is not by far a complete source code and the main reason for that is because investment was not in the picture. So as I have said before; Free is good but at the same time it will take down a products value and will diminish your ability of quality enjoyment.

    A GRID needs to have POWERFUL regions and quality performances. That is what I advocate and I am a die hard believer in that. I will continue to make AvWorlds competitive among other grids but I will never sell out to less quality by devaluing it.

    Free means less quality, less freedom less value!

    Stick to a FAIR PRICE and offer Quality and Performance. That is my motto.

    Alex AvWorlds
    AvWorlds CEO.

    • The idea of what a "fair price" is will change dramatically once there are free residential regions. You should just be ready for it and make plans to adjust your business processes accordingly if that time comes. If you can't be an early adopter, you should be either a fast follower, or make sure you're not competing directly against the free land by offering something dramatically different (not just incrementally different).

  6. @iliveisl says:

    you can do the math all day long (and I did), you can study a successful person for 6 months (and I did), but none of it means anything

    low price is small part of it but not as important as one would think for building what InWorldz has

    i modeled myself after Anshe and did the same price per prim as she did and did okay (it was a lot of work) but yet people like Jokay were charging three (x3!) times the amount per prim!

    my first sim sat empty for 4 months . . . but at my peak, i had 19 sims and 101 parcels rented out and was bringing in $3,800 a month. it was a synergistic vibe and lots of fun

    sounds like a good amount eh? yearly revenue of over $45k but tier was $2,920 a month and i was making (at most) $10 per hour!!! yikes!

    on top of that, you have to pro-rate the setup fees for the sims . . . it does not take much with LL policy changes to mess up that balance. one of the last straws for me was the Adult policy. all it takes are a few AR reports that someone had a skin showing a nipple in a shop and your sim's rating would get changed. even if there were no adult things, other shop owners did this as a tactic to hurt competition. i found myself having to police my commercial sims and fearing this would happen. reversing an Adult rating was taking about two weeks at that time. i never had it happen, but that added another couple of hours a week, and killed the joy i had at running the estate

    anyway, the actual cost has little to do with it, it's all about value which has nothing to do with price (or else no one would buy Bentley's or Veyron's)

    people still buy sims everyday from LL and InWorldz has a community that loves it because of what they offer, not what the charge

    to us, $160 a month is well worth it because we 100% control our grid

    Alex is right – fair price is good, defining fair is complex =)

    • Ener — Yes, and there are still people who pay for AOL subscription even though they've got cable or DSL internet and can get the same AOL services for free. The InWorldz or SL community is not based on residential land prices. The only times you improve a community by raising prices if you're going after high net-worth individuals — say, if you have a dating site, raising prices will screen out the guys still living in their parents' basements. Or if you want to have a virtual Bentley dealership, you might want to put it on a grid that charges for residential land.

      The thing is, over time, prices tend towards the marginal cost. Not all prices (not branded stuff, not unique items or high-end stuff), but base, mass-market prices. That means that land is going to go towards a few cents a region a month, because the technology allows it, or will soon allow it, for your basic, low-use, residential region. And that is going to be good enough for a lot of people. There are a LOT of regions sitting around mostly empty most of the time, both in SL and on the OpenSim commercial grids. That's not a luxury people are going to pay for for much longer. (Some will, of course — but gambling that there will be enough of those people to continue to support your grid is a very risky bet.)

  7.' sarahblogging says:

    I think you underestimate the problems with the economy you dream of. Second Life has a serious problem, and that is that products don't devalue over time. So theres smaller need for anything and the big "players" in Second Life, who make enaugh money to call it more then a hobby are those who have grown with second life from before or shortly after the hype.

    Its nearly impossible for a creator to built up a good revenue. I myself earned quite a bit money on a closed grid, enaugh to pay my rent there 😉 (So its still hobby) because there was a need of anything, just like it once was in second life.

    On the other hand you have hypergrid enabled Sims, where there is a free as in free beer culture on items (sadly, with the DRM System still runnig its often pretty obvious that the culture of Open Source / Content was not understood) and this means that many people now easily can share creations over a large number of grids.

    And it works. Now the thing is, the cost might actually be similar for a content creating user, he has to pay less for infrastructur, but can earn less or more likely nothing.

    The missing incentive is not the money in itself, its the feeling of others valuing your builts. And people learn more and more, that this reward can be gotten by seing your content all over the grids or presented in Blogs.

    This wonderful place was done all with free items found in the hypergid:

  8. Sarah — Yes, the transition to a free culture is extremely painful and difficult. But you can look to the Web for examples of how this was done.

    For example:

    * Exclusive content. Branded, licensed products and new releases encourage folks to spend money. With improved hypergrid permissions (or just with today's closed grids) these products would only be available in limited locations. it takes time and effort and money to develop a brand — or purchase a license from an existing brand.

    * Fremium content. Many online games are free to play — but once you get caught up in them, all the bells and whistles cost money.

    * Ad-supported content. It took years for the Internet to get advertising to pay off, and it's still valued less than traditional advertising. Virtual world advertising is no different — it will take time for folks to figure out how to make it work but, eventually, people will start making money. Big audiences drawn in by free land and content will help multiple the eyeballs.

    * Limited editions and collectibles. For some reason, people are willing to pay more for something if they know it's going to be gone tomorrow. I can't explain this one.

    Meanwhile, today, freebies (that is, Creative Commons-licensed content) have a big advantage over commercial content — you can own freebies. You can make backups of them. You can take them to your own grid. You don't lose them if your commercial grid closes — or if you decide to switch grids. But eventually this will change. We'll have third-party avatar hosting companies that will take care of content protection, while allowing us to use our stuff on multiple grids — kind of like iTunes allows us to play our songs on multiple devices. When that happens, folks in OpenSim will be much more open to paying for content — even content available elsewhere for free — if it is reasonably priced and convenient.

    •' sarahblogging says:

      I hope you did see that my comment was directed at AvWorlds Metaverse.

      The points you made (o my was that a bad typo). Well there is a problem with virtual world business and that is there is no "Killer application" where 2D (and nonvisible) Internet had several. So I think there will never be a wide base of users.

      I have yet to meet a visitor of an OpenSim who had not initially an account at Second Life.

  9. Sarah — There are three killer apps for virtual environments: immersive training and immersive collaboration and immersive games. Government agencies and big corporations are spending hundreds of thousands of dollars on immersive training and collaboration because it saves them even more money. Think flight simulator — with multiple simultaneous users, and lots of different kinds of equipment. And consumers are spending millions on immersive, 3D games (when's the last time a kid paid $50 for a 2D, PacMan-style game?)

    I believe the move towards 3D is inevitable. Sure, Second Life is doing a lousy job with their user interface. And OpenSim is growing purely by word of mouth, since nobody is doing much marketing of any kind. But the majority of OpenSim users are actually not coming from Second Life — they're coming from schools that are rolling out behind-the-firewall grids for classes. The Immersive Education Initative is doing a lot of this, as well as the Academic Consortium in OSGrid, spearheaded by John Rogate. NASA has a moon world project it's delivering directly to schools. There are schools overseas doing immersive English learning using OpenSim.

    It's all in the early adopter stages right now. If the projects succeed, growth will expand dramatically. After all, the early Internet started out with the military, with colleges, with large tech companies — it took years for people to figure out how to commercialize it. As late as 1995 people were writing serious, thoughtful articles about how the Web was never going to amount to anything and nobody needed it.

  10.' sarahblogging says:

    Actually I'm more interrested in what can be done from Inside SL or OS. I could think of games that work in OS, but not in SL, but there are a few drawbacks, one of which you mentioned yourself.

    When it comes to immersive learning there are a few things one of which is that it is for singlepurpose users who will hate the usabiltity of the interface, yet with the most basic functions.

    Secondly it only works well for persons with intact mirrorneurons or even synestesis (expanding to other brainareas).

    And sometimes not even that. I don't see the value of sitting in a classroom with the focus on the teacher and switching back and force to a display vs the same thing in 2D internet with a Videoconnection and a life conference via skype.

    I think a lot what is done now are just "fanboy" projects, leaving those who am unwillingly drawn in only with frustrating experiences.

    So Learning might be interessting for a subset of people, yet it is hardly a killerapplication.

    • Sarah — I'm not talking about learning as in standard classroom learning. I'm talking about learning simulations. For example, there's only so much you can learn about flying in the classroom. At some point, you have to get in the cockpit and start flipping switches. You don't want your first few flights to be in multi million dollar aircraft. Similarly, if you're preparing for combat mission, doing a few virtual run-throughs can help team members get acquainted with the layout of the land without putting lives at risk. Surgeons practice on simulated bodies before moving on to cadavers and then on to living people.

      But you can extend this to more ordinary learning, as well. You can learn about Greek tragedies by reenacting classic plays in actual ancient Greek theaters (and I know of teachers doing this using OpenSim). You can watch math equations come alive around you. See how biosystems evolve. Practice programming skills on making robots move around instead of creating the typical "hello world"-style data-driven programs.

      Kids can take field trips to foreign countries and practice language skills on native speakers — or on pre-programmed NPCs. Many subjects benefit from having an immersive component to bring the material to live and make the learning permanent.

  11. What is happening in SL is a DEFLATIONARY problem. They created DEFLATION ( a rapid devaluation of its products and services)
    The worst part is that SL created that problem and KEPT and even RAISED its prices. The deflation happened to the land owners and store owners the most.

    What I am talking about here is that it is not good to DEVALUE a product. This is a big no no.

    FREE is good but it will destroy your GRID.

    • You can't avoid deflation in the technology industry. Prices will drop, and they will keep on dropping. There are three major forces at work — technical innovation making everything more powerful and less expensive, economies of scale making production even cheaper, and the economic principle that, with open competition, prices tend towards marginal cost over time.

      That is, if several companies are making a product and their versions of it are indistinguishable to consumers (anything generic, say) then over time the price will converge at what it costs each company to make one more version of the product. That's because the initial startup and design costs will have long been covered, and the fixed overhead will be distributed over a bigger and bigger number of sales.

      Take television stations. It takes them millions to set up. And millions more to produce their content. But it's distributed free because the incremental cost of adding one more broadcast customer is zero — the radio towers are already up — and several stations are competing for the same viewer.

      With virtual land, the marginal cost is dropping fast. With virtual goods, the marginal cost is already zero.

      That means that unless you've got some obstacle to competition — a monopoly on land sales, or a monopoly on your brand name, or a monopoly on your functionality because you just invented it and the competition hasn't caught up yet — then you have to adjust your business model.

      Second Life has a monopoly on the cost of its own land, and it's been able to keep prices at $300 a region. Rolex and Cartier have monopolies on their exclusive brand names, and can charge a premium for their watches.

      OpenSim grids that want to keep land prices artificially high need to find their own monopolies — exclusive relationships with hot designers, for example. Or exclusive licenses to hot role playing systems or brands. Or technical features that are unique to their grid and other grids can't copy.

      Avination and InWorldz have been doing exactly that — bringing in designers, and rolling out unique features (Phlox scriping, Vivox voice, etc…) that other grids can't have.

    •' sarahblogging says:

      The deflation for land owners and store owners is nothing Linden Lab has any influence on. The market slows down because products don't rot, once bought. You don't need to replace anything. Smaller closed grids like yours will run into the same problem in the future.

      Actually LL did something that will activate the market with meshes, now there is a good step between new products and older ones that will initiate a need.

  12.' Lawrence Pierce says:

    Of course Second Life has a monopoly on the cost of its own land, but it does not have a monopoly in the marketplace of virtual worlds. It still holds a dominant position because participants are willing to pay for the perceived value they receive. Second Life is a comprehensive world with a well-developed system of participation. Nonetheless, a smaller but significant number of people are now exploring other grids. In part this is because they do not value, or cannot afford, the land rates in Second Life. In part this is due to the value of issues of security, control and technical capabilities. And there is also a broadening of thought about the potential of virtual worlds, which exceeds the actual and implicit goals of Linden Lab. As alternative providers develop value in their products, there will be a natural flow into those products. I do not think it is an issue of monopoly, but rather an issue of value, very strongly influenced at this time by availability. Understanding what the market will value is the most challenging question of all.

    Some measure of "free" products and services will probably continue to be a part of the virtual world paradigm. Our modern culture of entitlement regarding media products and services is deeply entrenched. And the idea of loss leaders and other low to no cost enticements is nothing new in marketing. In the long run, however, "free" is not enough either. MySpace (now Myspace) lost market dominance to Facebook and they are both free. Value is always the bottom line for products and services. We do not live in a world of generic products only, even after decades of technology production, because markets are constantly refreshed with new versions of products and services that offer the perception of renewed and increased value.

  13. I have yesterday decided to test the FREE market. As I have stated before free will lower quality and productivity. AvWorlds now offers free 4096 sqm lots, 375 prims each. Note that these lots have only 375 prims. Why I did this? Ok. If I were to place 4096 sqm lots with the same quantitiy of prims as a regular paid parcel I would be disrupting the land market. Free will decrease the value of the product and quality. Now our regular private land businesses can still compete because they offer a 4096 sqm lot with 937 prims which is more attractive. People want more prims they have to go to a paid parcel. Simple.

  14. Joe Builder says:

    Its not to difficult to figure out, Basically follow SL ways and means and you will do just fine. SL is going nowhere soon they still have the Biggest and most Popular Grid to date. Many Grids run strickly as Large Sandboxs with Personel PC's powering them. These grids have no form of Economy or Currency in world.
    Free is good yes but in moderation, If all is free and the main grids lose there Economy then this Opensim Worlds will be a failure and Just a huge holding area for copy botted items from SL to fill there content. I myself have 3 large personal PC's running and have no intention of running a Grid, Server whatever on them don't need the headache. I'll be happy to pay the $45usd a month or whatever to have someone Get it up to par for me. My 2 cents 🙂