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: