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Town Hall 11/23/04

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Forum Link: Original Post

Town Hall with Philip Linden on 11/23/04
November 23rd, 2004
Topic: Economy
4:30 PM PST

You = Haney Linden


Philip Linden: hey you all!
Philip Linden: can everyone hear me in the back?
Philip Linden: nice to see some familiar faces!
Philip Linden: that is getting harder these days.
Philip Linden: OK great... sounds like the repeaters are working as well.
Philip Linden: OK so thanks for coming...
Philip Linden: tonight we are going to focus on economy and land
Philip Linden: Haney has summarized the questions and issues from the forums,
Philip Linden: so let me start by answering some of the common questions asked
Philip Linden: and then we will take new ones to Haney

Philip Linden: First let me take on the concern about 'inflation' lately
Philip Linden: First off to answer Alby's 'they won't answer this' questions...
Philip Linden: Right now we have just under 17,000 total users.
Philip Linden: The amount paid last week in stipends (base and reputation) was 7.65 million L$
Philip Linden: so those were the first two questions.
Philip Linden: Now let me give some color to that.
Philip Linden: Our economy has sources and sinks...
Philip Linden: inotherwards,
Philip Linden: there are ways that L$ go into it,
Philip Linden: and ways that L$ leave it.
Philip Linden: As has been discussed in the forums,
Philip Linden: it is important that information about all the sources and sinks be as public as possible,
Philip Linden: so that everyone understands and can compute what is going on.
Philip Linden: I am going to work on a new spreadsheet which includes enough data to model the net change in the economy, as requested.
Philip Linden: So look for some upcoming changes to the spreadsheet on that.
Philip Linden: To do this, we have to get comfortable with totally documenting the exact user base size, week to week,
Philip Linden: which is something I've gotta get everyone here's approval on before doing.
Philip Linden: But fundamentally our economy will be transparent,
Philip Linden: so that everyone can see where money is being created.
Philip Linden: On that topic:
Philip Linden: If you look at the overall money supply in Second Life,
Philip Linden: which is the amount everyone has in their accounts,
Philip Linden: you can compute an average balance per person.
Philip Linden: right now that average is about L$ 7850, for example
Philip Linden: that is the mean value. The median is about 1100 right now.
Philip Linden: this means that, all else being equal, one can increase the money supply by that amount ($7500) for each new user.
Philip Linden: But, as everyone knows, new users do not receive ALL of that money...
Philip Linden: some of it is effectively 'reserved' for stuff like the stipends, dwell, and event support
Philip Linden: this means that as long as the user base is growing,
Philip Linden: a rational strategy is to watch the average balance,
Philip Linden: and give the difference between the average and the new user allocation to the overall user base
Philip Linden: as incentives.
Philip Linden: In a way, this is rewarding everyone for growth, which seems rational.
Philip Linden: Nations work this way as well, when growth in their GDP gives better international buying power to all their citizens.
Philip Linden: (unless of course you are this bush administration, in which case you do the opposite)
Philip Linden: but, I digress.

Philip Linden: So basically,
Philip Linden: the way we think the economy should probably work is...
Philip Linden: we keep the average balance roughly stable,
Philip Linden: and we figure out a fair way to put the extra from the new users into the various incentive programs.
Philip Linden: Right now the three programs that soak up most of the money are the weekly stipends.
Philip Linden: the dwell awards,
Philip Linden: and support for events.
Philip Linden: Off the top of my head I don't know the % to each,
Philip Linden: but I think that the stipend payments are by far the largest.
Philip Linden: So this is something to give feedback on...
Philip Linden: how should we apportion those programs?
Philip Linden: I would like to see some sort of user-committee driving this long-term, not us.

Philip Linden: So getting back to the issue of inflation.
Philip Linden: There has been a concern that because of the stipends.
Philip Linden: that the L$ supply is increasing relative to the population,
Philip Linden: and driving the exchange price at GOM down.
Philip Linden: This is not happening - let me give some data.
Philip Linden: the peak of the GOM prices was about two months ago, and it has fallen about 25% of so since then.
Philip Linden: If you look at the average balance per user two months ago,
Philip Linden: it was about 6% lower - about 7340
Philip Linden: so this is a much smaller difference than the change in the GOM
Philip Linden: Moreover, the median balance over that period has remained about unchanged.
Philip Linden: Actually I think it's dropped a bit.
Philip Linden: So basically what we are seeing in the changes on GOM is simply the movement of a market.
Philip Linden: I agree (as has been discussed on the forums)
Philip Linden: that probably demand for L$ to buy in-world land drives a lot of this movement...
Philip Linden: if you look at the currency market versus auction prices,
Philip Linden: they seem pretty correlated.
Philip Linden: So probably the market moves around in price as there is more demand for excess L$ to buy things, mostly land.
Philip Linden: That is what I believe is the major factor.
Philip Linden: But, as I said, I'll work on some complete documentation for that.

Philip Linden: So to directly address the questions on inflation:
Philip Linden: the L$ are created in excess of sinks in the economy, but in the manner I explained relative to new users.
Philip Linden: The stipend bonuses (for reputation) are based on the number of users,
Philip Linden: so that pool moves around correctly - scaled by population.
Philip Linden: The same is true of the event and dwell pools.

Philip Linden: OK I am going to move next to land prices and land reselling
Philip Linden: Overall the model that we see for land in SL today goes something like this:
Philip Linden: Most of the land sales (>90%) are in-world between residents.
Philip Linden: Land sold by LL at auction is typically purchased by a few dozen people per month.
Philip Linden: who frequently resell it to others.
Philip Linden: The price paid in-world and the price paid at auction are pretty comparable.
Philip Linden: Auction prices can move around a lot...
Philip Linden: they make for a pretty poor consumer market (as has been discussed)

Philip Linden: relative to the questions:
Philip Linden: I think that long term we are going to need to sell more and more land per unit time.
Philip Linden: We don't have employees enough to continue to parcel that land to small pieces.
Philip Linden: So we have two ways to go... hire more people (which means ultimately we have to pass the cost to you somehow for the salaries),
Philip Linden: or sell larger chunks, whole sims, etc.
Philip Linden: I think the latter is the way to go...
Philip Linden: LL should sell really large pieces,
Philip Linden: and use the fairest system to decide who can buy them.
Kyle Gilman: If you are going to sell whole sims that makes it harder for those of us who dont have the massive land allocation
Philip Linden: There were suggestions of using a fixed price reservation system of some kind, and selling bigger pieces
Philip Linden: I would be very interested in feedback on that... would folks like to see land sold at a fixed price?
Jarhyn Wilde: only linden land
Baby Thorn: yes instead of the same person buyin all the land in auction then listin it for a huge price in world

Philip Linden: It seems like land prices (at wholesale) should be as stable as possible,
Philip Linden: with a fair distribution mechanism - that is what we would like to see.
Clio Anansi: But nothing prevents land barons from buying up the fixed-price land
Philip Linden: So we are open to new thoughts there.
Lisse Livingston: So mainland sims sold for fixed price like private sims, hm.
Jarhyn Wilde: well, one idea might be a fixed markup limit
Huns Valen: why don't you guys start a thread instead of talking over the conference
Philip Linden: I think that such a system might work well.
Rosalita Martinez: I'd like to see a regulation on land sales. Or a user committee that can help put a leash on their markup-ed prices.
Nexus Nash: when philip said feedback... feedback LATER philip@lindenlab.com!

Philip Linden: As I said before, I think there IS a correlation between land sales and L$ currency market prices.
Philip Linden: Right on the feedback...
Philip Linden: either send Q's IM to haney,
Philip Linden: or of you like you can email me longer thoughts...
Philip Linden: philip@lindenlab.com

Philip Linden: OK let me move on to dwell
Philip Linden: and other developer incentives
Philip Linden: The topic of how best to create incentives to growth is an interesting one...
Philip Linden: we have the dwell system, which gives money to those who draw crowds of users,
Philip Linden: and we have experimented with other systems with less regularity.
Philip Linden: my gut is that the rapidly growing financial opportunities for content creators just making and selling goods and services
Philip Linden: will be the primary drivers,
Philip Linden: I suspect that our incentives will be remembered as just a tiny bit of starter fluid for the economy
Philip Linden: Having said that, we are aware that big projects often have huge payoff
Philip Linden: in terms of exploring what can be done in SL,
Philip Linden: what we need to work on next in the platform, etc.
Philip Linden: So I think that programs that help big projects emerge are great.
Philip Linden: But it is incredibly important that such programs be as uniform and objective as possible,
Philip Linden: and this is something that is hard to match up.
Philip Linden: So, we'd love more feedback on whether we should simply not have such incentives,
Philip Linden: or alternatively what sort of methods to fund big projects are maximally fair.
Philip Linden: Still an open topic for us.

Philip Linden: There was a question around Duping currency...
Philip Linden: Second Life is far more secure to duplicating currency,
Philip Linden: because unlike online games,
Philip Linden: there is no automatic mechanism for 'creating' money.
Philip Linden: So in SL there are no monsters that drop money or loot when killed,
Philip Linden: so this means that we can check when a transaction occurs and verify that the account it is coming from has money in it.
Philip Linden: So certainly there will be bugs we need to fix,
Philip Linden: but SL is very very secure in that sense - every transaction is recorded, and tied to a resident account.

Philip Linden: There was a question on whether we'd like to set up an advisory board to discuss stipends...
Philip Linden: the answer is YES... we will work on that, as I said.
Philip Linden: Seems like the only way to go.
Philip Linden: Let the community decide where the incentive money is to go.

Philip Linden: There were some question about legal structures...
Philip Linden: about SL supporting contracts, corporations, etc.
Philip Linden: I think the most important issue here is recourse...
Philip Linden: what happens if you break the contract?
Philip Linden: I suspect that the long-term answer to this is there is some sort of judiciary,
Philip Linden: that decides what happens to you in cases where law is broken.
Philip Linden: I don't think that LL needs to build much structure to support this stuff...
Philip Linden: I don't think a specific idea of 'corporation' would be useful...
Philip Linden: better to create some very very basic system for agreements,
Philip Linden: and let everything get built on that by you guys.
Philip Linden: So I think that the question for community discussion is...
Philip Linden: if there are contracts, and you break one, what happens to you?
Philip Linden: This is the key question to resolve.

Philip Linden: On the subject of my economic spreadsheet:
Philip Linden: I will add a money supply and median balance column as requested
Philip Linden: the "payments" category captures payments in either direction between people and objects,
Philip Linden: and the "gifts" column captures person to person payments

Philip Linden: If you pay big amount of money back and forth between objects,
Philip Linden: yes that gets counted.
Philip Linden: The amount of the L$ economy on in-world land transactions is about
Philip Linden: L$25M per month,
Philip Linden: or about 12% or so of the economy.

Philip Linden: OK lets turn it over to some questions...
Philip Linden: I hope this was helpful

You: Trimming Hedges: It seems like the free market advocates are only in favor of the free market when they're making money. Isn't trying to prop up the linden just rewarding speculators? Wouldn't cheaper lindens make land more affordable for more people, making the game better for everyone?

Philip Linden: I think the market (when it is large enough) is indifferent, which is good - it values everyone equally.
Philip Linden: And does so more objectively than people.

You: Punklord Drago:
Are we talking about abolishing stipends?

Philip Linden: Over time, the amount of incentives will need to drop as the % of new users is lower relative to the overall population....
Philip Linden: so I think the question is best how to allocate incentives?
Philip Linden: I suppose eliminating ratings stipends could be a piece people might like... but we are open to a community process.

You: Baby Thorn: I think it would be nice to see some sort of system implemented that puts a limit to how much land a person can buy in a certain week so that we can put a limit to some people buying all the auction land then selling it in world for high prices, i can't buy more land in my own sim because of that.

Philip Linden: I am skeptical that such fixed rules would be useful... similar to the problems with regulating many industries.

You: Gene Poole: surely this has been suggested, but just in case not: a lottery system would allow "fair" distribution of a resource (in that it's equally "unfair" to everyone :-)

Philip Linden: yes a lottery system is something we are open to for land...
Philip Linden: that could work.

You: Rizpah Galatea: I would respectfully ask SL to define **exactly* how dwell, weekly stipends, hi scores, etc. are calculated now. This should be a written formula available for all to see.

Philip Linden: Yes it should, I will work on publishing it ASAP. Agree.
You: Cristiano Midnight: I have a question - why does LL seem to promote GOM over IGE

Philip Linden: I don't think it is intentional... they serve different purposes.

Philip Linden: I think GOM is important because it is an open market that sets a price between residents
Philip Linden: IGE on the other hand sells with just a credit card, which is great.
Philip Linden: both seem important.

You: Toran Cruyff: Queston for Philip...at the last meeting you said you were going to hire alot more people with the new support of Ebay and VC which gave you $8M...wont these new empoloyees be about to handle the distribution of the land and other issues that seem to be coming up?

Philip Linden: Yes... some are dedicated to community support... stuff like land.

You: LordJason Kiesler: Would a judiciary system ran by LL be any better than the already in place abuse reporting, as in, will things be randomly be taken care of, and the rest just get auto formatted replies that solve nothing?

Philip Linden: There are more people available in SL than at LL, and people who are closer to the issues,
Philip Linden: so I can't see how LL's system could beat a good resident system,
Philip Linden: HOWEVER,
Philip Linden: a main value of SL is freedom and inclusiveness,
Philip Linden: and any proposal would have to support that.
Philip Linden: We will not allow the world to become overly restrictive.
Philip Linden: that is the challenge I see.

You: Jamie Otis: question for Philip: any date on when paypal will be an accepted form of payment for subscriptions / land use fees?

Philip Linden: We are working on it right now and hope to have it available very soon.
Philip Linden: Paypal is cool.

You: Kyle Gilman: Will LL ever be updating the L$ for monthly payment to be more current with the way Sl is trading on web sites like GOM and IGE. I wouldn't mind using this service but it is definitely out of date with the value of the L$

Philip Linden: We're thinking about that...
Philip Linden: we would have to create a way for us to make money from L$ fees... right now we don't sell L$ on the markets.
Philip Linden: Somethin to think about.

You: Baal Seraph: Has Linden Labs considered adding a sales transaction tax, which could then reduce land use fees, or increasing the costs of commercial use of land and lowering it for personal property?

Philip Linden: Again, this is something best user-driven I think.
Philip Linden: At least for lots of feedback.
Philip Linden: We think LL should charge fair fees for service... whether sales tax is such an example I don't know.
Philip Linden: Land fees seemed like a good way to start.


You: MagicJustSue Kojima: Okay question, what about all the social people in here who don't have the skills to build or to design, the stipends help us so much

Philip Linden: Yes that is true...
Philip Linden: but there is also concern that the bonus on stipends isn't well enough correlated to value created,
Philip Linden: and subject to gaming. But that is a good point.

You: Mr Fairplay: Question from the SL Herald: Since, the markets seem to be stable enough as it is. Why is there needs to make any changes? Is it really necessary to change the way auctions work?

Philip Linden: Not necessarily... but we are always open to the idea that things aren't yet perfect.
Philip Linden: I doubt we will get everything right the first time.

You: Surreal Farber: to expand on a previous question: how can a user based arbitration system be fair & transparent considering we have no knowledge of RL identities & alts
Philip Linden: I don't think RL identities need to factor into it.
Philip Linden: As to ALTS, that is a good question.... I don't have a quick answer.

You: Jamie Otis: question for philip: any thoughts on increasing the default land allowance from 512m to 1024m for premium subscribers?

Philip Linden: Would we change the price as well? Something to consider I guess... but more frequently I hear requests for more granularity...
Philip Linden: finer price points.

You: Sensual Casanova: Is it a possibility to make land auctions only through $L?

Philip Linden: If we sold land auction all for L$, we wouldn't make any money.... so that is possible but we'd have to charge for something else.

You: Elle Pollack: Question: Let's say you actually have someone in the game outside LL develop a contract and arbitration system (not theoretical, I'm actually trying to do it.) How could the repercussions of players breaking a contract be enforced by such a person?

Philip Linden: Well on that subject...
Philip Linden: if people are willing to share identities and sue each other in real life,
Philip Linden: then we don't need to provide anything.
Philip Linden: You can always work on a project in SL with a written contract between yourselves outside the system
Philip Linden: But that is a pretty high level of resolution... it involved both people being so upset that they are willing to give up RL identities to each other
Philip Linden: I suppose the in-world case that is important is that we could impose lesser penalties.

You: Jimmy Thomson:. How long it will take to have a SL able to give a respectful income to our dedicated developers?
Philip Linden: There are a number of people in SL who I believe are making good incomes today.
Philip Linden: So I think it is already happening,
Philip Linden: and of course we are growing fast.
Philip Linden: I think even today 5-10X those levels are possible, by creating even greater content.

You: Munchkin Therian: Question: Do you think a SL-wide referendum on questions of land auctions and stipends would be useful or simply inconvenient?
Philip Linden: I think it would be useful, but would need to be structured in some way to filter the feedback.
Philip Linden: One more question after this one... I've gotta run.

You: Cristiano Midnight: are there any planned changes to tier fees, now that we have grown substantially?

Philip Linden: The marginal profits we get from tier fees seems fair at this scale... until we are quite a bit bigger.
Philip Linden: But perhaps we need better granularity, which I know has been asked for... more tiers or someting like that.
Philip Linden: Last question...

You: Kage Seraph: Philip, who would win in an economic wrestling match: Second Life or a small, eastern European bloc country?

Philip Linden: Oh hah! That is great.
Philip Linden: Well I think it would start like Rocky v Apollo...
Philip Linden: we get the crap beaten out of us...
Rylei Madison: ~hums eye of the tiger~
Philip Linden: but we are this unstoppable underdog...
Philip Linden: and because our economy grows 20% a month while they take a decade...
Philip Linden: if we can hold out for 7 rounds or so,
Philip Linden: we get so big we pound them.
Philip Linden: how's that for a final answer?

Philip Linden: I'm sorry I've gotta run...
Nexus Nash: lol that's awsome
Danny DeGroot: Thanks for the time, Philip! *claps*
Logan Bauer chuckles.
Philip Linden: will try and login later...
Jarhyn Wilde claps
Nexus Nash: later Philip!
katykiwi Moonflower: thank you philip
lilone Sandgrain: thx philip
Darko Cellardoor: right on Phillip...this buds for you dude!
Philip Linden: gotta jump on motorcyle right now and drive.
michael Brodsky: lol
Kyle Gilman: Nice lol
lilone Sandgrain: be safe
TinaStar Dawn: Have a safe ride Philip, thanks for your time.
Kyle Gilman: Be carefull what would we do without you
Torley Torgeson: Thank you graciously Philip.
Philip Linden: Also please send me mail.... philip@lindenlab.com, with other feedback.
kayla Khan: thank you for coming and sharing the information
Philip Linden: CYA

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