Inworld transactions in Sansar will carry a sales tax

Ebbe Altberg, CEO of Linden Lab, revealed to Spanish newspaper EL PAIS that he plans to add a sales tax to in-world transactions in Project Sansar (Linden Lab’s next generation platform) – and that it will be 5%.* (See the bottom of the article for an update on the specificity of this number from Peter Gray).

Altberg said (and I paraphrase / translate from the spanish original) that Second Life has suffered from its own real estate bubble, where residents can rent a 256×256 metre plot of virtual land for $295/month, and that this business model was not intended for the average consumer. Renting virtual land is an expensive hobby or for those who want to run a virtual business.

Sansar, he said, will offer land for less, and Linden Lab will take a commission on any purchase or sale that occurs. “But only 5%”, he added, “which is extremely low compared to the usual 30% for this type of thing.”

It is unclear from his most recent remarks made to EL PAIS, if Linden Lab intends to impose a sales tax of 5% on all transactions between residents of Sansar – or only between buyers and sellers exchanging virtual goods, or just land sales between residents.

Mr Altberg’s stated intentions for approaching the emerging virtual world market with a very different revenue model to the one most Second Life residents are familiar with is consistent with his statements made at the VWBPE Conference in 2014:

“And then monetisation – the way we [Linden Lab] monetise. I’d say our business model is a little bit strange in Second Life today. We charge you a lot for land, and then we charge you almost nothing for all of the transactions that happen in-world. So, I’ve said this before, but generally we think about how do we lower our property taxes by a lot and at the same time, we’ll have to raise sales taxes to make some of the difference.”

Economic theory suggests general sales taxes on prices creates a lowered equilibrium of supply and demand; however the macro-economic implications are further complicated by Linden Lab’s intentions to offer virtual land in Sansar that will be “a lot” less than we’re accustomed to in Second Life.

This revelation is also consistent with Mr Altberg’s comments at the Silicon Valley Virtual Reality (SVVR) Conference earlier in May, where he said that one of the key things the Lab was thinking about differently was a more scalable business model:

“Second Life has settled on a business model that has been quite good for us – we’re over 200 people and we’re profitable, so Linden Lab is doing quite well, but it’s not a business model that is likely to scale into the tens of millions or hundreds of millions of users. So we have to think differently about how we monetize the experience.”

Clearly, despite the decreases in running costs the Lab likely enjoys as the cost of technology inexorably lowers, it’s more resource intensive to perpetuate a business model that relies on centralised hardware than it is to monetise every transaction between residents, as Linden Lab now does on virtual goods sold on the Second Life Marketplace.

While it may take years for Sansar to reach the annual GDP levels we now see in Second Life (estimated at $500,000,000), if Linden Lab taxed the monetary value of all the goods and services produced within Second Life at 5%, it would equal a revenue of $25,000,000 – at no incremental cost to Linden Lab.

Given that Linden Lab’s targets for Sansar users (tens or hundreds of millions) far exceed the number of Second Life users today (estimated at 900,000), projected sales tax revenues would far exceed what Linden Lab now receives in tier fees from Second Life.

It is clear at least – with Project Sansar – that Linden Lab is thinking very big indeed.

With thanks to Auryn Beorn for verification of the Spanish translation from the article in EL PAIS.

Update June 18, 3:45 PM SLT: Peter Gray (aka Peter Linden),Senior Director, Global Communications at Linden Lab kindly contacted me today to clarify Ebbe’s comments I paraphrased from El Pais, which I will quote below:

“I think that unfortunately the El Pais journalist didn’t quite get Ebbe’s comments in that section. In the interview, Ebbe was explaining that currently, we take 5% on transactions on the Second Life Marketplace. 
 
He also explained, as we’ve spoken about elsewhere (like his comments at VWBPE, which [you] nicely quote), that with Project Sansar we want to monetize less on “land” and more on transactions – in general, we want to lower the barrier to entry for creators, while sharing in their successes. What the numbers and percentages will be is still TBD.”

21 thoughts on “Inworld transactions in Sansar will carry a sales tax

  1. It would appear he is speaking specifically of land transactions , and the sale of land between residents as well. A Commission

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    1. Possibly. It’s hard to know for sure in context of this: “We charge you a lot for land, and then we charge you almost nothing for all of the transactions that happen in-world.” Note the use of the word “all”.

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    1. Personally, I agree. I think it would be an excellent move on their part for many reasons. Still, I want to stress again that it is unclear from the statements in the article that the tax will apply to all transactions. 🙂

      Liked by 1 person

    1. Indeed. I know that many people instantly recoil in response to the word “tax”, but this move would broaden the revenue base so that LL wouldn’t get into a position of depending on a relative few for its primary income. We’d hardly notice it (as we don’t on the MP) and if it could offset tier (which many have been crying for ages is too high), it would not only stimulate land investment, but also increase land owner retention and probably give people more reason to buy things to fill up that land.

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  2. If land was brought down to a reasonable level (cost) more people would plant roots. The more land owners the greater the need for items to make the living space comfortable.

    It’s a win win situation. I’d pay a tax..

    Trial your model now in SL.

    Dee

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    1. Assuming they applied a GST in SL, they could reasonably discount tier by what some would consider enough to make the land commitment – and potentially come out even. The million dollar question is how much of a reduction would be enough to stimulate enough demand to come out even. Assuming they did come out even, they’d still be 25M up on the board.

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      1. It would probably require a test model and even then adjustments to reach pare could happen. We travelled this route before in 2010 or 2009 when I believe it was the CEO Jack that introduced the Homestead concept as a money grab.. Lots of people folded and left then.

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  3. And i found sad that LL is ending the Linden Dollar Authorized Reseller Program, are not doing any but offer dinosaurs and mess up with inworld groups, are quiting linux support and sill think that all that use SL users are rich and can afford to by land at a price before the 2008 crisis.

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  4. I can’t help but think if this is a tax to the benefit of the king or a tax to the benefit of the people. Can it be both? It’s spun that way and that makes me nervous.

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    1. I think it’s possible to be both. Making land affordable allows more people to create spaces for everyone to visit. It should also help landowners maintain those spaces open for longer. While it’s true that every consumer would bear a slightly higher price on every purchase they make, I think it would be a small price to pay for what might be of benefit to the whole virtual world. Let’s also not forget, that profit-making King is more equipped to improve the realm and keep it safe.

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  5. The update is very useful; when I make a sale on the Marketplace, I see a small percentage disappear off to Linden and I figured it was something in the region of 5%.

    If it meant a lowering of the cost of virtual land, I would support a much higher percentage than this. It makes complete sense to me that SL (and Sansar) build a model based on transactions rather than on land. When I sell a Kindle book on Amazon, something like 70% of that sale goes directly to Amazon and then I still pay actual tax on what’s left. That seems way too much for a product that Amazon puts no actual work into making and very little work into hosting – but I still accept it.

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