The Alphaville Herald

Drilling for Dollars: Supply Linden Makes First Million

by prokofy on 03/01/07 at 10:40 am

The ANWR Prim Rig at the heart of the Second Life economy.

By Dow Jonas, Virtual Economy Desk

Argggh my head! I had started in on the Stoli (chased occasionally with the Ararat–hard to get in these parts!) about 10 days ago on Western Christmas, knowing out here, I could party my way from Hanukkah through Western Christmas, past the traditional Soviet New Year, the opening of the Haj, and head on down through Eastern Christmas and Old New Year’s til the 13th and possibly on to Navruz, but my Editrix wouldn’t leave me alone. The piercing tones of the Hymn on my cell were like a sledgehammer on an anvil. “What is it noooowww, Pix,” I wailed.

“I expect a CNET presser any minute now with Supply Linden declaring his first US million,” she barked.

Sitting in an outdoor olive grove not a mile from the Zoroastrian Temple, I had just been about to ink the deal with Dick “Dark Prince of the Caspian” A., a former State Department official, to sell offshore drilling rights through Second Life. Heh, what a place to launder money, and we could call the dummy corporation “ANWR Prim Production” and everyone would think we were this little shi-shi metaversal consulting firm with a sweet pixel building deal for language training. But something was thudding at my brain.

“And hey — what’s this double hotel bill I keep getting every day for like weeks and…” Her voice was like a Volgoburmash diamond-directional drill bit.

“Um, like I told you a hundred times, the whole reason we can do this gig is due to my matching grant from the Edsel Foundation for the dictionary,” I explained through clenched teeth, dragging on my duty-free Pall Malls. Where was the ice? My Azeri-Ossetian reference project was in more than capable hands with my twin researchers — such a find! — and Pixeleen had no business…

“I want it on my desk by morning,” the Editrix growled, and sent me two links, one to Lawrence Linden’s kickass 3-year Linden dollar chart followed by another one to Forseti Svarog’s even more kickass GOM vs. LindEx chart. “I’m tired of TheStreet.com scooping us every time on these obvious, obvious stories,” she whined. I fired up the wireless.

Dick went to the men’s room, and I used the opportunity to rummage dejectedly in my rucksack for my secret, long-kept stash of Aspergum and NoDoze.

“Awwwright,” I sighed. Supply Linden a millionaire already. What, did he have a first-land farming scam going?? If anything, newbies were taking him to the cleaners as he handed them nearly-free 512s which they were now selling for $9995 this month.

Back in November, the industrious Robert Holden had crunched the economic statistics page numbers and concluded that the all-important distinction between sinks and sources was “only” US $153,000, down nearly $300,000 from October.” Like every month in SL, there were aberrations — educational grants were eliminated, dead accounts were weeded out, and then stipends were lowered. It’s always something.

So…how to explain this month’s nearly triple differential of US $882,544, i.e. between L$1,080,696 in sources and L$198,152 in sinks?

More premium accounts — US $35,218 in stipends paid out in December, enough to start hiring more customer service staff. Yet…Land sinks sunk from L$ 4,414,041 to L$ 3,219,926 — that tells us that people didn’t go out and sink those sunk stipends into first-land — erm, there wasn’t any, they didn’t make it — or bits off the auction.

Oops, parcel directory fees were *way* down ( L$ 1,161,330 from November to L$ 660,540 in December) — that was because SEARCH PLACES just didn’t work, the data base was turned off to save the strain on the asset server, and at one point LL simply didn’t bill everybody for a week of search which had been shut off anyway.

I’m starting to get the impression that, unlike Anshe Chung or Adam Zaius, who made *their* first U.S. millions by hard work, application of talent, and hugely long hours inworld, Supply Linden reached *his* first U.S. million through ah….poor performance at the Lab. So many more sign-ups, with lots of them eager to buy at least US $3.70 of Lindens ($1,000) and the dramatic increase in LindEx volume should mean less of that empty-calories dollars-printing, no?

To be sure, the economy was slowing down due to Christmas (people go do real-life stuff, plus they got Wiis and X-Box 360s to tear them away from SL), and there were outages, no search to help sales, and lost inventory. Still, group fee sinks went from $L 1,071,600 to $L 1,144,100 — a sign that either residents formed a lot of protest groups (they did make a few) or, more likely, paid $100 to form a group needed to accept a deeded parcel on a private island rentals. This figure — and increasingly lower island parcel prices even as mainland climbs to an average $9.74/m — is an early indication of a coming island glut — all those islands everybody ordered by November 15 are now coming on line. When LL closed the books on December 2006, they showed more than 8,000 parcels for sale; only a few days later we can find over 9,000 on the land-for-sale list because of the right to include island parcels in the list.

Not to worry if the Lab isn’t quite yet making a profit or has asset server “issues” — the inworld profit-making businesses have doubled in number! Here’s some numbers for Clay Shirky to peer at, as on this chart, the Lindens say in a footnote that they “roll up” all the alts to the “unique customer level,” take out money-changers, don’t factor in land dealers who buy and sell land (because it’s an “investment,” say the notes) and give to us what they now term the number of “Unique Users with Positive Monthly Linden Dollar Flow (PMLF)” (note how they drop their term “residents” when they really need to look at the bottom line): 13,788, with more than 7,000 making only L$10 in profit but 289 making between $500-$1000 USD per month, and just 58 in the $5000 or more club.

Of course, as they explain, this is before they pay their land tier fees to LL… Still, many content creators don’t have much tier to speak of, and if some 1,200 people in SL can log on every week and make $500 US or more, they have significant part-time jobs. And jobs in which they are holding up the entire weight of the 2-million sign-ups and free accounts with their labour — labour that many developers, designers, and landlords feel Supply Linden devalues as he reachs his first million mark.

Leading us to ponder about…the compatibility of Lindenomics with resident economies: US $657,424 income in printed Lindens for sale on the LindEx, as residents pay dear old Supply to buy their game currency, enabling LL to create an additional revenue stream beyond paid subscription accounts. But the other piece of Supply’s printed million is an outflow — $423,271 in payments for land, referral bonuess, stipends, and that mysterious “other” which will then be used and will continue to circulate client-side and eventually be cashed out. Even so, Supply’s printing netted him $234,153 off the SL economy this month.

All I know is that my own sale of the ANWR rig to Dick has supplied enough to keep me and the twins in…oh, never mind, hush.

OK, focus. Why are the lines on these charts seemingly so steady, and then dipping up and down like a wild broncho ride during one of our ah…dictionary translation exercises? (We’re still looking for the translation for the word “privacy,” which I don’t think exists in any language East of the emmmm Herald office in Athabasca!) It’s not the Ararat — Dick and I have moved to the Turkish coffee and cigars by now.

Answer: politics. I mean, for one, it’s a synthetic world and the Lindens run it and control it so it tends to be flat. But for two, they also sell Lindens to even out the rate — OMG yowza look at that! They print Lindens out of thin air (you might say the entire kit and kaboodle is a thin-air production, of course) and went from an already overheated L$77,327,855 in Linden dollar sales in November to L$ 177,682,272 (!) in December. That’s why, when pundits claim that the Copybot debacle caused only a slight blip on the LindEx, they’re not taking into account the activities of Supply Linden — who can slack off for a few days and then suddenly fast and furiously sell hundreds of thousands of Lindens in a few weeks to offset the huge influx caused by people getting SL for Christmas or reading about Joel Stein’s pixel penis in Time magazine.

These charts more than prove my point that the Linden value is hugely sensitive not to volumes of
residents or features in the client but to political decisions made that change the economic face of the world, mainly tied to land. Land and its supply, demand, and valuation directly influence the value of the
Linden more than any other factor in SL, it seems to me.

You can track numbers and try to guess if the volume sold affects the rate, but it’s foolish given that Supply is right there beside you selling more or less in step with volume and things like the entire game not working for a few days or the Wednesday patching process making SL look like the Trishkin caftan.

But what affects the fragile virtual currency more than anything is land dealing. Watch the dates of events on the charts. August-September 2004, for example, was a period when Anshe Chung began to make her first real-life million. Land was at a terrible shortage then, as now, but the currency trading was outside of Second Life on the now-defunct Gaming Open Market. The currency demand and cashing out was in turn affected by that very severe land shortage. In fact, it’s safe to say that whenever the value of the Linden goes up against the dollar, it’s merely due to LL putting out more or less sims on the auction, or making available more or less servers for islands. In 2004, the shortage was in part due to a bubble caused by the first appearance of snow sims which were first over-valued then as soon as Christmas was over, were dumped by the time new sims with appropriate names like “Ohno” came online.

This was the time of what I call the “Buddy Kane” phenomenon, when Philip actively encouraged real-estate dealings, in part to create competition to Anshe Chung but also merely to get as many servers out and sold as possible. The world-creation took a huge surge then, along with population, with the Lindens actually *liking* real estate dealers and their appeal to newbies at that time:

Everyone complains about land speculation, but where are the real-estate agents at the start area? Why, as a new user, aren’t I tempted by a helicopter ride from “Buddy Kane, KING of SL Realty”? Buddy flys me around to all these cool different places in-world and finally puts me into a nice little starter home on 1024 meters on the edge of a lake. OK, so I agree many of our current population would no more buy a developed lot than show up at Burning man in Khakis, but this is going to change over time. I highly suspect many people showing up at the start area today would rather buy from Buddy than a 512m blank plot from the Guv’nah.

The sharp decrease in value in the Linden in October 2005 I’m going to wager was related to the final confirmation in September 2005 that yes, p2p was coming and was coded already. It was implemented by December and telehubs were removed then. I *think* that’s what happened then but perhaps someone else has a better idea. Far from being the big boon that everyone said it would be, p2p in fact caused huge losses not only for telehub mall owners forced to take a huge loss, but for the whole economy. The telehub buyback plan was said to flush a lot of printed money into the economy, but the real story there was the Lindens then sold all the mature telehub sims they had bought back again on the market, putting only 14 into public use again as infohubs.

What else happened around that time? The appearance of the teen grid and soon after, which was very controversial, and soon after, a 24/7 schedule for that grid, and the need to supply lots of subsidized first land — and a lower-priced land market all together (sims were not auctioned on the teen grid but merely turned over to likely shoppers’ lists by the Lindens as they were made, a practice that annoyed those out of the teen FIC loop). But surely there were more momentous events — readers can perhaps jog my memory.

Now on to the other big dip in value starting in May 2006, when Robin Linden announces the end of stipends of $50 for basic accounts, and then the infamous 6/06/06, when unverified accounts could be created without producing a credit card. This began the flooding of the “millions” into the world, and capital flight — or more accurately, what could be called an increase in SL’s “remittance” economy when thousands of people go into SL to make small amounts of money that they send back home on the Internet to their real lives to pay bills.

Next comes those really bad days in October 2006 when SL suffered a frustrating series of grid crashes and ended up banning at least 25 W-Hat members and cleaning up grey good for days. By this time it was clear: the Lindens had taken their thumb off the land-making lever, and there was a real, clear shortage — no more $1000 sims for the mainland, and am end to assurances that anyone could more or less count on waiting for a few weeks at the most to get the $1000 or $1100 mainland sim to enjoy whole or chopped to resale.

The shortage became exacerbated with the insiders’ island deal and the price hikes, a story scooped by the Herald. Robin Linden announced that the land supply would likely increase 50 percent in 6 weeks — with the huge backlog of orders, LL has preferred to sell islands rather than make first land or $1000 sims. And here we all are, with even new snow costing $19/meter and landlocked, flat nothing 512s costing $8700 or $9500.

Not for long. Already on the auction I see 3 sims that have aged a day and are still only at $1000, right behind the sales of the likes of the ill-named sim “Jonestown” to JR Unknown for a whopping US$ 3451 and “Decimo” for an incredible $3651 to Jedediah McDunnough. These nothing-that-special East-coast sims could go for that chart-topping price because these two regular land barons, frequent flyers on the auctions, need to keep market share, visibility to new people in new sims, and each other priced out of the shrinking market involving a lot of barons just flipping to each other.

The bubble will likely break soon — five more of these sims with names like Carlovitz below the uber-valued old core sims, and the college kids who were trying out baby-baroning on winter break will be sweating and trying to pay their tier on land that won’t sell — we’ve seen the cycle time and again.

Pundits trying to dope out the hype cycle and “inflation” and “value” in this world, using traditional meatworld concepts like “starter home sales” or “immigration” or manufactured goods sales” or “pork bellies” are going to go hopelessly astray.

There is only one thing that significantly effects the economy: Linden Lab. Their economic rule is all-encompassing. If they raise an island price, the mainland prices are whipsawed at huge peaks and (we’ll soon see when tier is doubled) valleys. They run out of hardware merely because of lack of space at their colo or technical difficulties — it appears as if “the real estate market” has a bubble. External events outside of their control are what make for those humps and dumps on the graph — like a determined Anshe who corners snow (2004) or atoll land (2005) or the southern waterfront market (2006), or the shocks due to rampant griefing (October 2006), the island scandal and sudden price hike (November 1, 2006), the CopyBot disaster (November 8, 2006) which caused far greater upsets than actually appear are now evened out by tireless Supply Linden keeping pace with roaring growth — 20,000 concommitant sign-ups and $44 million volume in sales of Lindens today — the highest in 3 years.

We’re currently at 267 Linden to $1.00 US dollar — will we finally reach 250 again, and restore the glory days of the GOM? I don’t think so. The forums continue to have their effect on the Lindens, and when too many people start complaining about lack of first land sales, calling for “anti-monopoly laws” against land barons, the Lindens cave. There’s always another guy to buy the island; then he has to cash out his gains and complete with Supply Linden to sell the next batch of Lindens to newbies.