In September 2006, a fairly unremarkable post was made about a new product. Openspaces. But it was a beginning of a Land Odd-essy.

http://blog.secondlife.com/2006/09/21/information-about-openspaces-void-regions/#more-326

For those Island/Estate owners wishing to provide empty areas such as water, hills and forest – we offer Openspaces, light use regions sometimes referred to as voids.

An order for an Openspace consists of 4 low prim regions for the same price as a normal private island – so USD$1250 initial fee followed by USD$195 per month thereafter. You cannot buy 2 or 6. They come in sets of four per order.

You must already own a normal island to be able to order Openspaces because they must be anchored to a normal existing Island that you own or be used in a series to create space between islands you own. In other words, they cannot be used to “float” space on their own.

Each of the four is limited to only 1875 prims.

However, I believe our serious land financial troubles began in 2006, after Zee Linden took the helm of CFO of Linden Lab. Read on after the cut.

http://blog.secondlife.com/2006/10/29/price-for-new-private-islands-to-increase/

Massive blunder 1. Raising the prices of private sims: setup fees from US$1250.00 to US$1675.00 and monthly tier from $195.00 to $295.00 a month, on the eve of US recession.

Massive blunder 2. Leaving the mainland tier at the old rates.

Before, the rates of sims on mainland and private land were equal, as they should be. There’s no qualitative difference between sims, be they private or mainland, on the technical level. Yet, they decided to play the price distortion game through using a subsidy, to preference the mainland. This was the start of our troubles, for the most part, right now.

http://en.wikipedia.org/wiki/Subsidy

In economics, a subsidy (also known as a subvention) is a form of financial assistance paid to a business or economic sector. A subsidy can be used to support businesses that might otherwise fail, or to encourage activities that would otherwise not take place.

What could have been done instead: The mainland should have been “cleaned up” and new sims priced at the same price as private sims with added value – the Shermerville project was a step in the direction. It might have been a little painful, but the mainland was still small enough to make good on a cleanup effort.

Shermerville only failed because it was only offered to random new accounts. If the land had been offered on the open market at auction with somewhat bigger plots, it would have done far better and could have been a better way forward. This is pretty much the method of Nautilus and Bay City these days.

But no, what was inaugurated was the next blunder.

Massive Blunder 3 – the Mainland expanded exponentially in an effort to institute price controls.

The price of mainland started to skyrocket, thanks to a bubble fueled by the artificially low tier. This is a classic example of what price distortions do. (remember the subsidy) What was I’m sure, meant to be a subsidy for mainland homesteader residents, increasingly became a subsidy for land speculators. More and more residents on the mainland found themselves the targets of land extortion – such as ad farms and the like, as LL still didn’t adopt policies that would end harassment on the mainland. This was also augmented by the gambling market. Gambling camp casinos used a disproportionate amount of script and avatar resources on mainland sims, and should have been banned from the mainland on that reason alone. Private sims with gambling would have been fine by me, though probably not by Mastercard and Visa rules. But, no. Gambling was kept till the bitter end on the mainland – as these people were speculating on the auctions and buying mainland.

Yet LL just kept selling more sims to drive down the escalating mainland price, despite the lack of actual demand.

So while the prices on the mainland were bid up exponentially high – even more mainstream residents flocked to the land barons shepherding private sims anyway, paying more money in tier and giving up direct ownership of land from the Lab. LL dramatically expanded the mainland while their mainstream residents were fleeing in droves to the private islands. Speculators started to become far more dominant, selling to each other as they would climb over each other to make a profit. Users were abused even further as landbots became the norm, hammering search and stealing land accidentally put on sale to anyone by unknowing residents unfamiliar with the change in the financial landscape.

This had the wonderful effect of reducing numbers of premium accounts over time.

This had the wonderful effect of glutting the land market even further.

Massive Blunder 4 – The Openspaces are Reduced in Price and Singly Sold.

In March 2008, Openspaces start to crawl upwards in numbers, and the demand for them goes up. Mainland prices start to fall.

http://blog.secondlife.com/2008/03/07/announcing-changes-to-the-openspace-product/

Massive Blunder 5 – The Setup Prices are Reduced on Private Sims, Without a Corresponding Lowering of Tier to Previous Levels.

http://blog.secondlife.com/2008/04/07/quarterly-land-supply-and-island-pricing-update/
http://blog.secondlife.com/2008/04/09/details-on-the-q2-2008-island-price-change/

So, as the glut moves on two years later, and the regular people of SL drive out yet further to island sims to have a *pleasant* Second Life full of entertainment, and free of extortion and coercion by speculators – the land market starts to do something that should have been expected as the real estate bubble in terrafirma USA began to implode.

Fewer paying premium accounts, now aided by a collapsing US economy (remember that the push of residents to private island rentals have already started this collapse – now it gets worse.)

The economy in SL slowed. And yes, so did land prices. But! Instantly all those older sims bought at L$1675 setup fee became deeply reduced in value. Prices are reduced to $1000 dollars setup, even lower than the $1250 setup that existed before the price hike. So older sims in private hands were devalued in preference to grow the bubble of the private estates even further, with no relief in tier fees for those who bought at the higher prices. Despite the fact that there was a trend towards fewer people to actually rent or buy all this land between private and mainland estates.

Repeat after me, kids.

MORAL HAZARD.

is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions. For example, an individual with insurance against automobile theft may be less vigilant about locking his or her car, because the negative consequences of automobile theft are (partially) borne by the insurance company.
Moral hazard is related to information asymmetry, a situation in which one party in a transaction has more information than another. The party that is insulated from risk generally has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.

A special case of moral hazard is called a principal-agent problem, where one party, called an agent, acts on behalf of another party, called the principal. The agent usually has more information about his or her actions or intentions than the principal does, because the principal usually cannot perfectly monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned.

And

Massive Blunder 6 – The Openspaces are Reduced in Setup Cost, and no longer need to be connected to a Full Region.

Oi.

Now starts the devaluation of full prim sims both mainland and private in earnest.

http://blog.secondlife.com/2008/06/17/mainland-supply-on-hold-until-july/

http://blog.secondlife.com/2008/07/17/update-on-mainland-supply/

Mainland full sims stop rolling out on auction in June due to lack of demand. Prices plummet on regular sims, as people flock to the Openspace product. Private land barons are forced to start converting full prim sims to openspaces as most can’t fill the rentals. People are abandoning land left and right. The glut of private full sims now becomes an even bigger glut of openspace private sims.

And now here we go, in November, in full protest of this next blunder.

Massive Blunder 7 – Openspace prices are now hiked over 66 percent.

http://blog.secondlife.com/2008/10/29/update-regarding-the-openspaces-announcement/

http://blog.secondlife.com/2008/10/27/openspace-pricing-and-policy-changes/

So, now that the land market is in serious danger of collapse in a faltering world economy that threatens deflation, we’ve got the brainiacs at LL believing they can still inflate prices when they want to.

And there is shock and surprise at the protest. And some are shocked that the protest isn’t as big.

Well, you know, I had a few fleeting feelings there for a bit, of just cashing all my chips in and calling it a day. I don’t doubt many already have. I have more friends than ever before fleeing to try out OpenSim grid offerings. I’m faced with the prospect that the SL grid may actually totally splinter as people get serious about funding and creating an SL alternative, while new technologies in virtual worlds loom over the horizon for next year.

I cry for my communities, and the people I love, the world that has been my home for two years in Caledon and Winterfell. And to think that it may be ruined by a progressive set of blunders by the Lab, I can’t begin to explain to anyone my level of anger right now. I just can’t. I have been shaking angry for days on days.

I hope Zee Linden gets fired one day. That’s how I really feel right now. But well, I know that won’t happen. But it would be deserved, when he had the gall to post this set of numbers midsummer.

http://blog.secondlife.com/2008/07/08/second-life-virtual-world-expands-35-in-q2/

Land mass grew over 44%. The total number of regions owned by residents increased 44.2% over Q1 to just over 1.5 billion square meters. Our growth was due to the popularity of our newly launched “Openspace” land product along with a change in pricing to make the purchase of land more accessible to first time buyers.

44 percent land growth – malarkey. That wasn’t real growth. I think I have shown very clearly, that what was “growth” was actually just a shift of population from full prim sims to openspace sims, which “looked” like great growth numbers, but was really just flat.