They make money from subscribers. So they want more subscribers. If people build places in the game where people congregate, have a good time, and tell other people that they have to play SL so they can go to this “place” — then more people will sign up for an account.

So it would seem to me, that a good bussiness model would be to set aside a percentage of the monthly subscription fees to encourage people to build “destination” locations in the game. Real world cities do something similiar by providing city funding, or low interest loans to bussinesses that help increase tourest spending.

So if they set aside %2 of the monthly subscription fees (say $10,000 USD for arguments sake.) And you’ve got 140K users, that each spend a 50hrs online (on average) in a month, for 7,000,000 user hours. A way of reasonably rewarding people that build destination properties, would be if your property had 10,000 user hours this month you would get .14% of the $10,000 dwell budget (or $14USD / L$4,000)

Now I’m just guessing a lot of numbers there, but both the concept and the potential reward for both Linden and Users is straight forward.

Good Destination == More Subscribers
Good Destination == $USD for users creating those locations

The economics forum at Second Life sounds interesting enough that I may have to break down and harrass them for my last name.

Hard to judge what’s got the most effect on the Linden. The whole concept of ‘dwell’ sounds a little iffy to me.

But yeah, if I were making a living off of Second Life, maintaining the value of the currency would be my top priority.

Since that basic referral change was initiated a week ago, it will be interesting to see if that value goes back the other way. I think if you add that plus the developer incentives going away, you’ll end up with a positive impact on the $Linden.

Here is the relevant text of their message quote from Jeska Linden: “Effective today [1/27/2006 12:21 PST], we will be eliminating the $L1000 bonus for Basic Referrals.

The reasoning behind this move is twofold:

1. With the move to a Free model and the elimination of the credit card requirement, it has become increasingly difficult to justify economically

2. There has been a profusion of Referral-farming in recent weeks and we wish to eliminate the negative effect this may have on the L$ market value.”;

There is an entire forum area (powered by vBulletin) which deals with economics. Some pretty wild postings happen there. Some SL Residents are very passionate about maintaining the integrity of the $L.

So now the only referral fees you get paid on are new *paid* members, which is probably how it should have been to begin with anyway. Too easy to game the system with extra free avatar accounts.

Also they axed the Developer Incentives program effective in March and a rumor is brewing that dwell might someday (soon?) be impacted.

So Linden Labs are definitely taking steps to maintain or increase the value of $Linden and making it harder for $L farming to occur.

Since many of our group are interested in running crossover businesses we are of course very curious in how the economics of SL work.

I am curious about the exchange rate increase since in theory giving away money for free weekly should be dropping, not increasing the rates. Could be another factor countering this that I don’t know about. Or maybe just an effect caused by a large transaction in a not yet completely liquid market? (Actual investigation will have to wait until after work.)