Will the Confusion Never End?

by Alphaville Herald on 25/03/09 at 10:28 am

SL Fanboiz confooz cashing out with earnings!

by Urizenus Sklar, just off the the phone with Tim Geithner, and TARP money or not, Herald staffers are not giving up their phat bonuses!

In a recent post on New World Notes, Hamlet Au attempts to recharge the Second Life hype cycle by headlining the news that some Second Life businesses are estimated to cash out as much as 1.7 million dollars a year. And that means they are making millions, right? Well, no, but Hammie seems to think so:

"Robin Harper offered some extraordinary financial numbers from Second Life's internal economy: based on a quarterly annualization the company conducted, they discovered that several Resident business owners were cashing out Linden Dollars in excess of a million US dollars a year, with the top earner grossing an estimated $1.7 million."[emphasis mine]

But of course this has nothing to do with earnings. As Robin points out on her own blog, by 'cashing out' she meant just that… cashing out:"

By cashing out I mean literally exchanging L$ for US$. There is nothing implied in these numbers about whether or not any actual profit was made."

We can illustrate in the following way.  Some land owners are known to hold as many as 700 sims.  Suppose they bought them back in the day and the tier is grandfathered in at $190/month.  Let's make that $200/month to make the math easy.  700 simulators X 12 months X $200 = $1,680,000/year that they have to pay the Lindens just for tier.    If they are cashing out to pay them in US dollars, then they are cashing out just enough to pay tier.  This has nothing to do with earnings.  For all we know the business in question is losing money.

Meanwhile, to add confusion to the confusion, Hamlet remarks that this number is more significant than Anshe Chung's 2006 claim to have a million dollars in assets, because that equity was "mostly through her land holdings, which she would have to sell, to truly have a million in US dollars."  Apparently, Hamlet thinks that real millionaires don't keep their money in real estate, but stuff their mattresses with dollar bills. 

Now *of course* if one cashed out a million dollars worth of sims all at once you would flood the market, but this is true of any relatively illiquid asset.  We don't evaluate stocks at the price they would get if every share were sold all at once. We evaluate them according to the current market. Note too, that someone could have 700 sims, but have no equity if they borrowed all the money to pay for them.  Anshe's claim was significant because her assets were unleveraged.  That is, she had no debt.  Assets – Liabilities = Owners Equity.  It's the fundamental accounting equation.  Or at least it was in 1975 when I took accounting.

23 Responses to “Will the Confusion Never End?”

  1. Prokofy Neva

    Mar 25th, 2009

    As usual, you’re out of touch, Uri, because you don’t really watch Second Life. The tier BTW is $195 on mainland and $295 on islands; people buying 700 sims would be buying islands and paying $295 tier.

    I asked that very same question of course: what do you mean “cashing out”? Cashing out to pay their tier? Or? How are they working it?

    The way most people work it is to accumulate Linden dollars from rentals and content sales, then sell those Lindens on the LindEx to get dollars. So that dollar amount then sits in your account and is used to pay your tier – it debits automatically every month off that total. That’s not “cashing out” in the usual parlance in SL; “cashing out” is when you can *take home to PayPal* whatever is left over *after* tier payments.

    Some people might cash out all their LindEx proceeds to a PayPal account, then use that PayPal account to pay tier separately, especially if there are different dates, lots of transactions, and also direct PayPal fees coming in from some tenants or customers who skip the LindEx and just pay you directly through PayPal.

    I find it hard to believe anyone cashes out a million *after* tier, but it actually isn’t that fantastic when you take a look at the rental empires, many of which are rather quiet, even while numbering hundreds of islands. There’s a lot of sims out there — 32,000 at least. Only 4,000 are on the mainland. There are lots of people making money from flipping sims — many of them outside of the United States. So you don’t seem them. If you have a richly developed theme or RP sim, even with $295 tier, if you are renting the 15 parcels you cut out of that sim for $50 US a piece each month, that’s $455 take-home and easily $50,000 take home a year. Even if you only charge $25 a parcel and run 10 sims, that’s $9600 a year.

    There are also many thousands of content creators now who make a lot of money in SL. Designers make $50,000 a year takehome, after tier. They may not bill their hours and may get free or slave staff to help make these content empires so lucrative, but they really do cash out the money. It’s routine for people selling things especially in the adult or vehicle or prefab industry to make loads of money. Prefabs cost $100 US now, Uri. Go and look at XStreetSL and see what people charge — and get — to kit out a sim with a house, car, boat, furniture, etc. I might routinely spend US $50 to $100 month just on maintaining prefabs and furniture in my rentals, and I’m a very small business by contrast.

    The story about rentals is never told, though. The brutal reality is that if you have only 80 percent occupancy, your income plunges to 50 percent of what it was when you had 100 percent occupancy, due to the fixed cost of tier and other fixed costs like staff. So this is a very brutal and risky setting that I think really isn’t so viable if you aren’t already in SL for some other reason like socializing or blogging or whatever. So your fabulous $50,000 a year business on paper rapidly becomes a sinkhole for which you pay out of your own pocket to keep the dream alive. Not everyone manages to get that $50 a parcel at 100 percent to collect the $455 every month after tier, but many try, and the result is that Robin can make the claim she did.

  2. Neo Citizen

    Mar 25th, 2009

    That was some fascinating insight, Prok – I knew the margins on estate ownership were tight, but I didn’t realize how tight it was. It’s almost like participating in a franchise – you’re on the hook for purchasing whatever the franchise tells you you have to have to do business, and it’s up to you to figure out how to make money over and above what those needful items cost.

    It’s also easy to see why so many estates are hemorrhaging cash – even being completely serious about the goal isn’t enough to keep one out of trouble, and I could name a few estate owners who run theirs just to aggrandize themselves or impress gaggles of twenty-something emo kids.

  3. urizenus sklar

    Mar 25th, 2009

    Prok, I *own* an island and I pay $195/month. I assume that most landlords are grandfathered in at that rate as well.

    On the possibility of cashing out a million after tier is paid, well, let’s say you have 700 sims. Basically to clear a million (not counting employee expenses etc) you have to make $120/month per sim *over* your tier. That would be tough but not impossible assuming full occupancy. Last I heard landlords looked for a 30% markup over their tier. But if occupancy is only 80%, as you say, then that cuts the 30% margin down to 4%!!! At that rate you would have to cash out 25 million a year just to get your million in income (before employee expenses etc).

    About some content creators clearing 50-100K before employee expenses, no doubt about it.

  4. Neo Citizen

    Mar 25th, 2009

    Taking your statement and Prok’s together, it sounds like unless you can go really REALLY big, making money as an estate owner is a pretty tough thing to pull off. And Prok, is it safe to say that margins for content creators in general are better than they are for landowners?

  5. chris

    Mar 25th, 2009

    I call BULLZHIT on alot of this.

    100k selling what?….
    1. lets eliminate porn,
    2. lets eliminate IP being used illegally for sale.
    3. and lets elimate the server rental flippers.

    My best guess is that under 50 people globally are making 50-100k a year on virtual items they own legally to sell in SL.

    The SLX has forums that dont seem to uphold all these 100k rs. And most report 2/3 drops in sales since the opensims debacle.

    Not including any “realife work”, but just Linden Dollar value sales.

    100k? maybe 2 dozen folk is my best guess. And that number probably was larger 2 years ago.

  6. Neo Citizen

    Mar 25th, 2009

    There’s room in this for everyone who’s posted so far to be right – though to be fair, Chris, Prok wasn’t dismissing the porn or other industries from the equation, just pointing out that the raw numbers seem to make sense. You can arbitrarily dismiss any market segment you care to, but it doesn’t stop them from participating in the total sum. Let’s not confuse “moral or just” with mathematics.

    I read the same forums you do, getting to that point – and if it were me, all I’d say about the forums is that if there are a pile of people making fifty grand a year in there, they’re not talking about how much they make in the forums. But I’m not sure you can assume from that that those people aren’t there, just that they’re not talking about it. I know people who make their livings from SL, but have never posted – not many, granted, but I do know some, so I think the exception disproves the rule.

  7. Ann Otoole

    Mar 25th, 2009

    @chris – The people making a lot of money are not in the forums wasting time with me and all the po folk of SL. When is the last time you saw a post from June Dion, Callie Cline, Stiletto Moody, Stroker, Anshe, etc.?

    Nope. If you are making money it is because you are making product and wheeling and dealing. And since they are going to nerf the forums on both sides by merging two schools that literally appear to hate one another you can expect to see a number of us drop forum participation from out list of idle time activities.

    Oh you do see stuff from Callie. On her blog. Also when she goes to her seven ultra club to self promote, etc. Her formula seems to work well for her. Nothing wrong with that at all.

    Nope. Becoming visible in forums is most likely to attract griefers and death threats in real life anyway. No wonder the serious money makers are not in the forums.

  8. Prokofy Neva

    Mar 25th, 2009

    Urizenus, the *grandfathered* islands are a minority of islands — I have one too, but the new ones are $295. The huge explosion in the number of islands happened after the grandfathering in 2006. People paid the $295 happily if they didn’t follow the drama because they got class 5 sims, not class 4 (the old grandfathered sims were slowly upgraded to class 5 over the following years).

    Yes, in theory, people go for that $120 over tier. But the fact is, there is no such thing as 100 percent occupancy. There isn’t even anything such as 90 percent occupancy. Fly around and see all the vacancies. There are 80,000 people tops in the concurrent log on. That’s 4 people per sim — there just aren’t enough people to fill the sims, and many left rentals when the prices on the openspace sims went up. I can keep my own rentals filled only by providing cheap discounts and doing constant customer service, because I think trying for higher occupancy and keeping customers long-term pays off more than trying to get $50 a parcel out of people who refund half way through the month.

    Of course margins are better for content creators. They have no costs but their own labour. They often don’t even have tier any more as they can sell on Xstreet especially now that the Lindens bought it and flogged it. But there, the long tail is very long. There are just way more designers than the eyeballs of SL in their 80,0000 concurrent can possibly physically see. Advertising is very much bottlenecked in the viewer and inworld and hugely costly. That’s why search plus places plus traffic sort is so hugely important, but a determined minority of geeks who make widgets and earn by word of mouth, not search, plus a very grim lobby of bot arms racers wanting to get rid of bots by deleting traffic, are fighting it hammer and tong. It’s really the war of the internet for attention and ads, in miniature in SL. I’ve proposed punishing traffic manipulation by removal from search, as I see no reason why traffic that is merited cannot remain as a public information system that tells us where there is real “likes”. The few gamed parcels at the top of the search are easily sped past in browsing. Punish bot-farming with removal from search, the problem will dry up in a few weeks.

    Sorry, but I don’t think you get to “remove porn” as somehow something advisable in an economy. Something sells, it sells, it pays a living, it pays a living. Money doesn’t stink. If it was earned by devising a poseball and putting it in designed beds, so what? It’s still labour, it’s still money, it’s still an economy. You don’t get to delete economic units out of an economy for ideological or religious reasons.

    While there are ripoffs in SL and resales of ripoffs, this isn’t as widespread as you would think from the hyysteria on the forums because the business-in-a-box people face the same bottleneck in advertising as anyone else, and the same cost of tier to pay for display even of their ripped content as anyone else.

    Server rental flippers may be distasteful to the ideological who hate “arbitrage” like Philip Linden for cultural reasons, but again, you don’t get to say “oh, that can’t be part of the economy”.

    In fact, that’s what the puritanical geeks do at the Lab — they leave out any land sale businesses from their calculation of “Positive Linden Flow Business” — of which there are about 3000 or so making more than $2000. Look on the statistics page. Even allowing for tier, there are definitely more than 50.

    Rentals that were made up of openspaces that appeared exclusively to flip the openspace sims definitely lost out, but they aren’t all rentals. Most of those bigger companies are recovering because they merely took the OS sims and bundled them back into full-prim sims and re-rented them out at high prices again.

  9. chris

    Mar 25th, 2009

    How many make 50-100k profit?

    no land, no porn, no “borrowed” IP.

    How many make 50-100k profit in IMVU?

    How many make 50-100k profit via YOUTUBE?

    How many make 50-100k profit via any user generated, but non porn , non real estate, uploader IP owned only , playbux virtual goods platforms?

    Maybe the real numbers should be known before we all sign over our lives to Google:)

    just thinking here, that’s all. i like porn, but cant make a living off of it, not with my own IP.

  10. Hamlet Au

    Mar 25th, 2009

    Uri baby, I did say “grossing”, because I don’t know how much of that cash out translates as profit. However, someone converting L$ to $1.7 mill is still SL’s top earner, whatever profit they ultimately walk away with.

    Also, you’re missing that Robin said two of the top ten are not land barons; one sells virtual furnishings, the other runs events. Their land tier expenses are almost certainly far smaller than the barons’.

  11. Prokofy Neva

    Mar 25th, 2009

    Neo Citizen, please stop pretending you are the voice of reason and balance here, especially when you are merely a sock puppet for another account.

    chris made a shrill, extreme, judgemental — and stupid — post basically saying that adult and land businesses “don’t count”. That’s just plain ridiculous. Of course they count. His removal of them isn’t “room to be right” — it’s wrong.

    Hamlet once again muddies the waters by using the term “cash out” for turning Linden dollars to real dollars. If you owe tier, that will debit out first.

    Furniture stores mean a lot of prims and the creators need a lot of space to hold all those prims and display them. It’s not uncommon for them to have a whole island which means $295 a month tier.

  12. Neo Citizen

    Mar 25th, 2009


    The headline for this article should be “SHOCK! Intelligent, Thoughtful Posts Appear on the Herald!”

  13. urizenus sklar

    Mar 25th, 2009

    Fair enough, Hammie. If we strike the word ‘earners’ from your post and then distinguish gross revenues from gross earnings then we might make the case that these numbers reflect gross revenues. But there are problems with this conclusion too. One problem is that like Anshe they may be doing some currency exchange business, in which case a big chunk of what they are cashing out could be coming in from people buying Lindens (in the six different currencies that Anshe sells them in). That assumes that more of Anshe’s customers buy Lindens than sell them, but I imagine that is probably true. I don’t know if the other real estate barons run a currency business.

    Like you I found the most interesting part being about the event planner and the clothing etc. content creator, but I would be surprised if they were at the top of this list. I believe Stroker is making six figures after expenses if that is an indicator of what is possible. That suggests he is cashing out a fair amount of Lindens. I could imagine a big time content creator having 200K in gross revenues.

  14. lol

    Mar 25th, 2009


    You’d be amazed at what types of things you can capitalize on. I know that I am consistently amazed. In the past 365 days, I have capitalized on my reputation as a griefer and earned more than $100,000 outside of Second Life and virtual worlds. I never intended it to be this way, it just sort of happened. BTW that figure includes profits not only from newspaper articles that I wrote, but other projects that I have been involved in that actually have nothing to do with Second Life at all.

    In fact, in September of 2008 I was even offered work as a civilian consultant with the FBI when I was to meet with agents in Atlanta in the company of one of the nation’s leading cyber-security experts whom I was interviewing for an unrelated news article involving a political scandal here in Georgia. Because of my notoriety, I was able to capture the interest of individuals who otherwise would not have given me the time of day before then. And I did all of this with a GED that I got in the 9th grade.

    Now people actually pay me to write. I think I just got lucky but the simple fact is that my car is paid off and my bills are taken care of and I don’t have to work if I don’t want to because I have a steady stream of royalties…all of this because I dropped some self-replicating dicks on some virtual land. Sweetness.

    Don’t discount the possibilities.

  15. cashout

    Mar 26th, 2009

    I wonder… when it comes time for LL to shut SL down in the not too distant future, will they let people Cash Out first? Or will the SL world just shut down and all the spacebux just evaporate?

  16. Jahar Aabye

    Mar 26th, 2009

    I thought it was pretty clear that the term “grossing” in Hamlet’s quote meant, well, gross revenues. As in, revenues before deducting expenses. That’s a fairly widely accepted definition of what one means when saying “xxxx grossed $1.7M.”

    Good thing the Herald doesn’t have a business section. You might actually manage to make CNBC look like they know what they’re talking about in comparison.

  17. Ted Drew

    Mar 26th, 2009

    “I wonder… when it comes time for LL to shut SL down in the not too distant future, will they let people Cash Out first? Or will the SL world just shut down and all the spacebux just evaporate?”

    Good question Cashout. I’ve heard a few people say that this has been discussed. Shutting down SL and LL working on the corporate direction future tense. Not sure if it’s accurate, but it’s been said a few times here lately.

    As far as “alot” of people making a living in SL, it’s just not happening. Sure, there are some, but let’s not get overly optimistic about paychecks of 50-100K. Let alone a million cashout. I had two sims in SL, a furniture store, and sold content. I hardly made a living at it. And between rentals and selling goods, you were doing good to pay tier.

    I sold my half of the two sims, got out of doing any selling in SL. There are a few making okay money in SL, but you are talking a handful. Not many. And those making money are spending shit loads including the advertisement. Most in SL that I’ve talked to over 3 years told me that they are completely satisfied if they can just make the tier on the sims and have one paid for for themselves with the proceeds of the others.

  18. urizenus sklar

    Mar 26th, 2009

    Jahar says: “I thought it was pretty clear that the term “grossing” in Hamlet’s quote meant, well, gross revenues.”

    Not to rain on your fluffer day parade, Jahar, but here, again, is what Hamlet said:

    “with the top earner grossing an estimated $1.7 million”

    As in …



    Earner as in one who earns. Money, I presume.

    As in confusion of earnings with revenues.

    But please do keep spinning. Maybe you can drill your way to the center of the earth.

  19. Anya Ristow

    Mar 26th, 2009

    Regarding the forums not being full of success stories…

    I’m guessing the most successful people are busy doing more profitable things than reading blog comments and hanging out in forums :) Seriously, who’s your favorite designer? How often do you see them post?

    Now if you’ll excuse me, I have a product to release today… :)

  20. chris

    Mar 26th, 2009

    My posts were not stupid. The second one is specific and important.

    1.NO problems with Porn, But is the virtual user gen economy going to be only 16 year olds flashing on cams, and a few giant sex toy makers, who like stroker will get knocked off via IP messes like the ones in SL, over and over again. Good to be a RL lawyer,aka Benjie, but even the Porno biz gets tight when every corner has 20 hookers.

    2. No Problems with speculators trading in servers as faux land. but thats a Miami Future, not a future for a global metaverse.

    3. No problems with RL pundits and experts of the week conning as much money and PR as they can from those hungry to be “cool” in corporate waiste world.

    4. No problems with hacker experts getting the same folks to make them the latest “boyz bands”

    But, real money, over real time, to put real people in housing, food, and the family raising business. SL hasnt done this, and won’t. The ones who run the lab, like to talk “better worlds” and “tangerine dreams”.

    Im an old flash dude, I bought it and make money using it. Simple. An no one will make me move/delete/ or TOS change my or my clients work with a blog post of “changes” every 3 months.

    Alot make a living using Adobe or old Macromedia products we bought. I like many of you want a growing 3d metaverse like internet with all sorts of stuff being made and sold. I just don’t believe that SL can be it, and that anyone telling you it is, isn’t being very truthful. The same goes to any of the hyped “virtual worlds” with those ever changing TOS’s.

    Show me the future where 50% of us can make a “middle class” living just in systems that run like Second Life? If you can I’ve got some swamp land for you on the mainland.

  21. lol

    Mar 26th, 2009


    I don’t feel that your posts were stupid at all. I agree that it actually is difficult to make money in Second Life, or at least when I was in SL it was. I just don’t think it’s impossible.

  22. Neo Citizen

    Mar 27th, 2009

    Framed like that, Chris, what you say makes more sense. It’s possible to make a living in SL, but you have to have something really strong in your kit of tools and special abilities to make it possible at all. Most people try to apply real world sensibilities and legal constructs and expect them to apply and work the same way they do in real life.

    Huge mistake.

    Business in the metaverse is a swiss-cheese simulcrum of what doing business in the real world would be like, and you have to know where those holes are so you don’t expend vital energy on activity that simply has no relevance to the SL environment. Every business owner I’ve met who fails to take this fact into account is losing his shirt.

    Sometimes they’re just in business for the wrong reason, and that’s just as lethal in on the metaverse as it is anywhere else. If you’re not in the business as a lifestyle choice because you get paid to do what you love (and you’re at least breaking even), or you’re not doing it to fill a need of some kind or adding something vital to the community, then you’re just burning your own capital needlessly. Is it really worth spending all that money every month just so you can prance around in a suit or have a coterie of sycophants?

    If you think this comment is about you, then you need to sit down and rethink things. It might be.

  23. Some Something

    Jun 16th, 2009

    700 sim * 295$ tier * 12 months = 2.478 mio US$ in annual tier payments

    Guess who must be that 1.7 mio “top earner”? And the 1.7 mio won’t even cover the bill alone. There have to be payments received through other channels such as Paypal if there is supposed to be a profit at all.

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