The Economics of Second Life Clubs, Part 3

Sunday, April 27, 2008 Sunday, April 27, 2008

In part 1 of this series, we described a hypothetical club’s monthly expenses, as envisioned by a typical over-eager owner. Our formula estimated an island-filling club would require approximately USD$1,000 to break even each month. Part 2 showed that generating revenue at that scale is extraordinarily difficult.

What can our hypothetical resident/club-owner do to make a go of this? Increasing revenue is very difficult, simply because it’s not directly in their control. The patrons that come by and buy or rent something will do so based on your club's features and attractiveness. You just have to provide a great product.

However, expenses are definitely in control.

Part 1 showed a basic expense model like this:

  • Tier for Class 5 Island (USD$295): 80,000L
  • Advertising (assume several techniques used): 20,000L
  • Staff (5 staff/performers @ 1000L/day): 150,000L
  • Contingency (for anything else going on): 25,000L
  • Total Expenses each month: 275,000L = USD$1,000

Since it’s pretty clear a club could not easily generate the amount of cash required to cover the expenses, our hypothetical club owner should reduce those expenses:

  • Tier: Reduce it substantially. Perhaps 1/8 a mainland parcel would be appropriate, and it costs only USD$40 per month, an enormous USD$255 less than a full island. The 8192sqm parcel would offer more than sufficient space for a club, but possibly suffer from nasty neighbors in the sim. It's more likely the club itself would be the bad neighbor, but that’s another story. 80,000L could be reduced to 10,000L
  • Advertising: The club must advertise, but perhaps should pay less and use more elbow grease. In other words, our club owner should do viral marketing, in-person visits, contests, group titles, etc., which cost nothing other than time and an active imagination. 20,000L is reduced to 5,000L
  • Staff: Clubs do need performers and our club owner can’t do it all on their own. However, instead of 5 staff, we’ll have the owner do more work themselves and save money for performers. 150,000L could be reduced to 100,000L
  • Contingency: Disasters and unpredictable events still happen, and they are not controllable. Let's keep say, 10,000L for emergencies

Total expenses are now reduced to 125,000L, or less than USD$480 per month. This is much better, and perhaps even achievable. The club needs only to generate 4,200L per day, or 28 sales of 150L items (or a mere 14 sales of 300L items). Rent revenue from other retailers or residents on site is probably difficult due to the dramatically smaller space, but you might be able to cobble together some revenue from vending machines onsite in addition to selling your own items.

Once again, good quality events will attract many visitors. And if you have many visitors, you have the opportunity to sell them products during their visit - but only if they are of good quality. You can increase the probability sales by selling items somehow related to your event's theme. And did I mention that they should be high quality?

This will work ONLY if the club owner sticks to the budget. This may be one of the most difficult aspects to achieve, given all the items one can buy. Stick to the plan! If the plan doesn't work, change the plan. 

If a club in this configuration is highly successful (and ONLY IF), our hypothetical club owner could consider expansion to larger areas. But remember, Revenue Must Exceed Expenses. Or else! Start small and build up only when you can afford it.

Thinking of Gina

Thursday, April 24, 2008 Thursday, April 24, 2008

My friend Peter Stindberg, translator extraordinary, contacted me last week with an unusual situation. He had been affected by the all-too-often transitory nature of relationships in Second Life; his friend Gina Glimmer was no longer able to continue in our virtual world

This happens from time to time, sometimes when the avatar's owner passes on in real life. Often memorials are built, sometimes small and personal, at other times large and public, especially for those who were well known.

Peter has taken a different approach. There's no memorial. Instead he has made all of Gina's artwork (her former SL business) available to everyone at no charge in an effort to remember her. Peter hopes that people "maybe think of her when watching them". The artwork is available in her OnRez gallery or in-world at

I never had the opportunity of meeting Gina, but after reading Peter's posts and looking at her artwork, I wish I had met her. 

Peter, it's working.

Blogger's Party, April 2008!

Sunday, April 20, 2008 Sunday, April 20, 2008

The blogging community in Second Life is massive, and we get together once a month or so for chats, dancing and occasional rude behavior. The conversations are witty, the costumes outrageous and puns continuous. I took far too many photos, and many of them were victims of sluggish texture loading - hence the gray people below. Nevertheless, here's my photo tour of today's spectacular event, hosted by Tymmerie Thorne and Jerremy Darwin:

The event was held at Tymmerie's Girl Wonderful Land Estate, set up in an outdoorsy manner, complete with beach. I'd say around 50 avatars attended, although not all at the same time. Like many events in SL, it's hard to get everyone in one place due to time zones, other commitments, and of course something called "Real Life".

The most noticable costume was Jerremy Darwin's bear. Yes, he growled. Frequently.

Yes, there were Greenies present! Two, in fact. Later, an unnamed blogger admitted to never having seen the Greenies sim! Shame!
As promised the chocolate-wrestling grudge match took place between host Tymmerie Thorne and Willow Caldera. The winner on this day... Willow!

Soon after, the crowd insisted on an epic challenge: Vint Falken vs. Crap Mariner in the chocolate wrestling tub! After some quick training (TheDiva: "Just hit the UP arrow a lot") the competitors were ready (apologies for the gray pics, guys!) There was no doubt who won this match: Vint was able to pin Crap in short order.

As the partygoers began to disperse, the stragglers descended on the beach campfire area.

A cozy area it was, and the conversation got less silly and more serious, with the bloggers discussing important issues of the day. Here we see TheDiva, GoSpeed Racer, Crap Mariner, myself and others.

Crap was mostly silent, but occasionally flew upside down. I think my outfit adhered a little bit more closely with the "camping" theme of the event.

What's with this picture? I am not sure, but for some reason I like it a lot!

The stay-waaay-past-the-end stragglers are pictured here, Vint, Crap and myself. Even Tymmerie, our host for the event had left at this point. What a way to end the day: getting your weenie roasted by Vint!

The Strike is Ovah

Saturday, April 19, 2008 Saturday, April 19, 2008

Readers may be wondering about the sudden lack of posts in the past few days from not only this blog, but many other Second Life blogs as well. They and I have been on strike between the 15th and the 18th of this month in an attempt to provoke Linden Lab to provide more appropriate and useful guidance regarding their recent branding guidelines.

It all started days ago when new branding guidelines were introduced. These are really of no great consequence to most residents, and of some interest to business owners. However, while the intentions are good and logical, a read through the regs stunned the blogging community. I can’t repeat all the details, as they span multiple long web pages, but many bloggers feared effects such as:

  • Having to change the name of their in-world business if it contained some reference to the trademarked names
  • Having to change their website domain name (and risk losing their audience), again if it contained some reference to trademarked names
  • Having to change product names
  • Having to change website templates to include appropriate ™ and ® symbols
  • Having to edit hundreds or thousands of earlier blog posts that might violate use of trademarked names
  • Having to refrain from “disparaging comments” regarding the trademarked entities, for fear of being banned in-world (the new terms of service hold you responsible not only for your actions in-world, but now also out-of-world!)

Bloggers aren’t lawyers and the regulations mystified and confused many. It was felt that a much better form of communication should have been used, as well as practical guidelines specifically for bloggers (of which there are hundreds). No clarity emerged, and thus a strike was proposed by Gwyneth Llelewyn that was carried out by many bloggers.

Toward the end of the strike period, some clarifications emerged and some of the major issues were clarified. But many concerns remain, some of which are quite serious.

Why is all this happening? How can a company that has been quite friendly and supportive suddenly turn to the dark side? It’s those lawyers again, in my opinion.

They want to make sure that there is a clear distinction from their operations and those run by residents. In other words, if a resident is doing bad things, providing poor service or otherwise causing distress, Linden Lab wants to make sure you know it is the resident, not them causing the problem.

Another major issue is the terminology. We’ve been used to using the term “Second Life” in a casual way - but that is precisely the problem. If vast numbers of people use the term as if it is just another common word or phrase, then Linden Lab effectively loses control of the term.

This is going to be much more important in the future when alternative virtual worlds emerge and Linden Lab will want to differentiate their world from other worlds. They can’t do that if everyone uses the trademarked names to casually refer to any old virtual world. So, they have to position for the future today.

But they’re just not being very gentle or helpful. Throwing pages of quasi-legal web page regulations at the blogging community literally overnight feels a lot like getting a legal document in the mail. NOT FUN.

As for me, I am going to have to evaluate what changes I have to make to my blog, business and marketing approach. Of course, I’m going to determine the simplest approach and just do that. Stay tuned for changes!

Charity Dungeon

Monday, April 14, 2008 Monday, April 14, 2008

Most people in 2L are aware of the Relay for Life, and many of us participate in different ways. Residents are marvelously ingenious in how they generate funds for the Relay. The other night I stumbled into a dungeon, and no, this dungeon wasn't for the usual 2L usage - it's for charity!

Shawna Montgomery and Anhayla Lycia have designed a special dungeon, located deep in the bowels of Avalon Keep where visitors are asked to ransom a SLelebrity to freedom from a suspended cage. No, it's not going to be me (even though I am pictured above, testing the evil cage with master builder Anhayla Lycia).

Who is the captive SLelebrity? Read on:

Second Life's Wonderful Songstress Kim Siefert! Kim will be locked up in the dungeon at Avalon Keep on Saturday April 19 from 10 AM to 2 PM.

Queen Shawna Montgomery, of the Tiny Empires Kingdom of Avalon, has also been scheduled for jail time. She will be arrested at 10 AM and will sit in the dungeon until her bail of 40,000L is reached. Don't know what Tiny Empires is? Come on down and check us out.

Share Your Lindens, It's All For A Good Cause!

So if you feel the urge for some dungeon action, you can check out the dungeon at the Avalon Dungeon Jail / Bail Event, Chatrez (93, 38, 21). Bring Lindens!

March of the Mob - in April

Friday, April 11, 2008 Friday, April 11, 2008

As most readers will recall, I try to run a particle effects shop. Normally it does very well, but the last few weeks have been bad. While the Grid has been nominally "up" for most of the time, various database flakiness has wreaked havoc on business owners.

Sure, no one can buy when the grid is down. But it's much worse than that. People don't buy even on good days. What's happening?

This seems to be the sequence of events: Residents receive a warning, either via the Official Linden Blog, in-world bulletins, or even from friends that they should not attempt transactions (like purchases) due to various technical issues. In some cases shop owners even put up signs asking visitors not to buy during grid storms.

And people get it! They stop buying. The problem is that they don't know when to start buying. So for some days after a grid storm sales are way down. Perhaps this is because people read the news infrequently and see yesterday's warning and follow it today!

Linden Lab's warnings are a good thing. But it crushes sales for days thereafter. What's the answer? I am not sure, but it would sure help if the grid's functions were a lot more reliable. And then suddenly this afternoon I unexpectedly received this notecard from friend Celina Lathrop (pictured above):

My Fellow Secondlife residents, lend me your ear.....
Most of us i know here have a house, land, a business, a shop or a social gathering spot. Since the outage of last saturday, we have seen a drastic drop in sales, visitors etc. This is the time to take action and show our discontent. After all dont we pay the tiers? Dont we pay for lost inventory? Dont we pay for Linden Dollars? Dont we pay for land on which we conduct our business? Well its about time we started to get together and protest, as we would in RL when our livelyhood is in jeopardy. Are you tired of "Unable to connect to Secondlife. Despite our best efforts, something unexpected has gone wrong.", "Failed to rez object", "Asset server did not respond in time, object has been returned to the sim" etc etc. Lets unite citizens of SL and show our discontent to the Lindens. Join our group and IM Celina Lathrop or Mannix Mensing for info. Our first action will be a peaceful march in the Linden Village on wednesday April 16th at 5 PM SLT. Send this notecard to as many people as you want, details on the group are below..... As they say in my country, L'union fait la force, unity makes strength.

Here are the details:

First March of the "mob" April 16th 2008 with the motto: "either stop charging us, or fix it!" at the Linden Village and Office, Kirkby (178, 207, 44).

What group to join: Screwed by Lindenlabs Inc

Some basic group rules: no spam, no other business, no nothing except discussion about the topic at hand. Please keep this is in mind, the group is open enrollment, but we will not tolerate misuse

PS: Dont blame the Havoc 4 team please, these guys did an excellent job, and the problems we are facing cant even be remotely connected to them /me thumbs up

Someone's taking action on this long-term issue! Organized by Mannix Mensing based on Celina's idea, the march intends on raising the priority of this issue with the authorities.

The reliability issues, while inconvenient to most avatars, are really hurting business owners. And I'm not the only one noticing this.

While everyone complains about these problems, a quick look at JIRA's "Popular SVC Issues" shows that none of the top ten have anything much to do with this:

  1. Stopping texture theft and stop spreading of stolen items
  2. New Permission Request "Resize only"
  3. Region crossings are occasionally slow
  4. Friends list inworld intermittently doesn't show online friends/Not Updating
  5. Notices failing for larger groups
  6. Prims set for sale - prices are incorrectly set when multiple prims taken to inventory and rezzed
  7. Eliminate all parcels under 128m from all land search functions
  8. New Feature Request - llTeleportAgent
  9. Viewer is logged out during failed teleport
  10. numerous reports of objects, notecards, scripts, gestures "missing from database"

Well, maybe that last one is kinda related.

See you on the 16th!

They Walk Results

Wednesday, April 9, 2008 Wednesday, April 09, 2008

Previously I had written a piece describing my thoughts on encountering disabled people in the the Second Life Virtual World™, and it gained so much attention that I posted a reader survey to find out how many of you are actually disabled in Real Life.

It turns out that our survey showed a perhaps not-so-surprising result: 19% of respondents say they are disabled in Real Life.

Why is this result not surprising?

Because according to this statistic, approximately 18% of the US population is considered disabled, corresponding exactly to our simple survey results. In other words, the virtual people you encounter are more or less representative of the general population. I'm assuming a similar ratio exists for non-US countries as well.

But it keeps bugging me: why do I feel like I meet an awful lot of disabled people in the Second Life Virtual World™? I don't believe 18% of the folks I associate with in Real Life are disabled - what gives? A better question might be, "why do I meet so many MORE disabled people in the Second Life Virtual World™ than I do in Real Life?"

The obvious answer, I am afraid is: I don't normally associate with very many disabled people in Real Life. I speculate that the disabled are (by definition) less mobile and therefore the odds are less favorable for me to encounter them in Real Life.

Meanwhile in the Second Life Virtual World™, there are few barriers for disabled, and therefore you should expect to see just as many disabled people as occur in the general population. And we do.

The Economics of Second Life Clubs, Part 2

Wednesday, April 2, 2008 Wednesday, April 02, 2008

In the previous post of this series, we described a hypothetical club’s monthly expenses, as envisioned by a typical over-eager owner. Our formula estimated an island-filling club would require around USD$1,000 to break even each month.

Part 1 generated some discussion, including this thread, where experienced club operators and musicians correctly point out that I don't know much about clubs. Yes, I certainly don't know much about clubs. But I do know about running a business, and remember I'm describing what I frequently observe: over-eager, non-business-savvy avatars attempting to build a club. Successful clubs would definitely not make these same mistakes. 

With the demise of gambling, there are fewer ways to generate huge revenue. Here’s some basic approaches, although I am sure there are a few more.

  • Sell items in the club, especially things relevant to the club’s theme
  • Operate a store near the club to take advantage of the hypothetically massive traffic arriving at the club
  • Rent mall space near the club for others to take advantage of the hypothetically massive traffic at the club
  • Rent residential space near the club, leveraging the theme of the club in residential design
  • Charge permission to “sales people” to inhabit your club and sell items or “services” to the patrons. Hmmm...
  • Finally, Tip Jars. Nothing more need be said about them

Once you have some ideas for making revenue, we need to do a sensitivity analysis. In other words, exactly how much of each would we need to break even?

  • Selling items at the club and in a store: Let’s assume a typical sale is 150L. Thus we’d need to sell 1,833 items per month or an average of 62 every single day. Or one sale every 23 minutes all day every day of the year. How likely is that?
  • Renting shops/residences at 300L per week: 230 shops must pay the 300L each and every week. Hmm, how many prims can we offer them? If we give them 50 prims, that means there are only 3500 left for the club! Also, where exactly do you put 230 shops?
  • Renting shops/residences at 600L per week: 115 shops may be easier to fit, but it would be much more difficult to find 115 viable businesses that could afford 600L per week, especially when there are many places charging less. Again, how likely is this to occur?

All of the above mistakenly assume you’ve got 100% participation. In reality, our hypothetical club owner will find they must grow sales/rentals over time from a zero start. Also, due to regular turnover of residents, grid issues or other mayhem, they may find only a fraction of the potential income is actually there on any given day.

Clearly, the club owner must use a combination of approaches to even hope to achieve profitability, and do each competently and efficiently. Here is a possible target state:

  • Sell 40 items per day at 150L each: 180,000L
  • Rent 50 shops/residences at 600L per week: 120,000L

That gets us close to the break-even point. But even so, both of those numbers could be very hard to achieve. A business plan this thin would be laughable, if it wasn’t in Second Life.

Worse, if our resident had a store that generated 180,000L per month, why not just run the store and throw everything else away? You gotta love the music to persist.

You can see why clubs vaporize often. In part three of this series, we’ll examine some techniques for making the business equation work.

Related Posts with Thumbnails