The End of Freebies?

L$0 is forbidden!What is the value of content in Second Lifeยฎ? This might be the most stupid question to ask, but… did you ever ask yourself why things cost what they do?

We have to turn back the clock a few years, to the time Linden Lab introduced the stipends. Every Basic Account used to get L$50 every week they’ve logged in; Premium Accounts got L$500 every week, no matter if they logged in or not.

This set the reference for the price of things in Second Life: content creators targeting newbies (who would start as Basic Accounts) would know that if they priced it from L$0-50, they would get newbies to buy their content. If they wished to go upscale and sell to Premium Accounts, up to L$500 would mean that they’d get a sale per week. That’s why the first generation of outfits (usually just two pieces!) would cost up to L$500, since you expected residents to buy one per week (hopefully!). Skins, or other items that wouldn’t be bought every other week, like vehicles or animation overriders, would cost around L$2000, since you wouldn’t expect them to buy a new one very often. So that’s why things cost what they do ๐Ÿ™‚

When GOM first introduced their currency exchange for Second Life, a similar question was asked: what would be the “fair” price to charge, in US$, for a handful of L$? Again, we needed a reference. Since the easiest way to get L$ in-world was by being a Premium Account, and that costed US$9.99/month (less if you paid annually!), and this got you L$2000/month, it meant that LL “valued” (indirectly) L$200 to be worth 1 US dollar. Well, almost: since the cheapest way to get L$ was to pay an annual fee โ€” for US$72 โ€” this meant that you could get L$333 for 1 US$. There’s your range โ€” from L$200 to 333. Average it, and you get L$266/US$. Now you know why the L$/US$ ratio has been floating around that “magic” value for so long ๐Ÿ™‚

Finally, land is also valued used similar baselines, although here the concepts of “speculation” and “location” play a huger role! Still, like in real life, you can see that the cost of land can be compared to the “base welfare stipend” (the original L$2000/month) which included 512 m2 of tier on the mainland. The value of land overall is tied to this and is not totally arbitrary.

So knowing the base metrics that define why things cost what they do in Second Life, we can ask ourselves next: what will be considered a good, successful SL-based business? And what will distort the market? And this will finally let us ask us the last question: should Linden lab attempt to “regulate” the market (in the good, European sense of the word) or just let it do whatever it pleases and whatever the results are (in the American sense of the word)?

How to make money out of digital content sales

3D content creators that are used to sell content on Renderosity are close to a “pure” market. Buyers and sellers sort of agree to what is “reasonable” to pay for a meshed object that buyers can then use as often as they like (there are no technical restrictions, just merely licensing agreements that most poor digital content creators are rarely able to enforce). It’s an “opportunity” market; since 3D object meshes are available completely for free on popular sites like the Google 3D Warehouse, it’s hard to tag a huge price on a model, since the higher it will be, the more likely someone simply uploads it to one of those “free 3D models” sites and just lets it stay there for anyone to copy. Sure, you can DMCA them out of those sites, but there are simply too many to track, and no overall organisation to remove stolen content.

3D modellers are thus familiar with this business model, which, in a sense, is not unlike indie music creators who sell online. The “impulse buyer” will be willing to spend a few US$ on digital content, if they need it for a project that requires proof of purchase; if the model is too expensive, and not worth the trouble (say, for making a quick movie or even a still image to illustrate something) they will just look elsewhere for a free model instead. I have recently been at a conference where academic researchers, encouraging the audience to participate in virtual worlds, explained that 3D virtual worlds are actually very easy and insanely cheap to create in a learning environment “because of all the free content that is available”. They definitely undervalued the role of the content creator by saying that 3D meshes, being so widespreadly copied and archived with relatively good search engines, are basically ubiquitous โ€” hiring a 3D modeller is only wise when you need very specific content targeted to a special environment (say, recreating an exact replica of an existing building that nobody has created yet).

So, 3D modellers mostly work with content-as-a-service. They get hired to do specific models, but generic ones are not “sellable”. They might be posted on Renderosity and similar sites to give them some exposure and give potential buyers of 3D content a taste of the kind of 3D models they’re able to create. In a sense, this is not unlike semi-professional photographers that post their pictures on Flickr or Stock Exchange but might sell them (very cheaply) on Fotolia. It’s a way to build up a portfolio, get some exposure, but the real money will come from getting a contract to take some special pictures of an event or a person. Granted, the long tail will help to make a small income out of selling a few pictures from those very-low-cost sites.

In a sense, the overall trend is that anything digital is next-to-free on the Internet โ€” music, videos (think YouTube!), pictures, and 3D meshes โ€” since it’s impossible to prevent copy, and amateurs flood the market with free content for anyone to download. Very cheap and free content allow digital creators to get some exposure to (hopefully!) attract the attention of someone who might be willing to hire them to provide services. That’s how it works.

No wonder, then, that the amount of money made directly from selling digital content on the Internet is not a huge market, even though the few sites selling cheap digital content still make enough to cover the costs of archival and storage โ€” typical examples are Magnatune (or even Apple Store!) or Getty Images. But there is not much room at the top of the pyramid.