Business and Technology in Second Life

The freebie flood

We don’t have real figures on how many freebies are sold on XStreetSL compared to non-freebie items. I can only offer my own experience. I have about 30 or so items listed there; most of them are of the lowest kind of content you can get in SL, and so they’re appropriately priced very low A few are not too bad, and I get a handful of sales that way. But three are by far the bestsellers: although they are rather awful and badly done, they’re priced at L$0 (a notecard dispensor, made in 2004) and L$1 (two different styles of pants, made in 2005). Of 99 sales made over a month, 79 have come from these three products! (My most expensive item, which is listed for L$250 — a dance bracelet — only made 2 sales in a month.)

Now, I have no clue if I’m “representative” or not, and anedoctal evidence is not a scientific method, but you can see that freebies (and “dollarbies”, e.g. items being sold for L$1) could be the most “sold” items on XstreetSL. What this means for Linden Lab is that possibly 80% of all content posted on XStreetSL is, well, not paying anything from being listed there (LL doesn’t get a commission on freebies or very low-priced items). But for all other content creators actually selling good, high-quality content, it means that each very-low-quality pair of pants that I sell for L$1 will take away a customer that might have been pushed to buy a L$100 pair of pants if I didn’t exist. It’s obviously not so linear — customers might be unwilling to pay L$100 for a pair of pants but gladly give L$1 — but there is certainly a point here: too cheap (or free) items will simply corner the market.

Is it really so dramatic? I hope not. Prokofy Neva speculates that the actual number of freebies on XStreetSL might just be 1-3% of the total (and that might be true), but the question remains: what is then the percentage of actual transactions of freebies compared to market-price items?

Of course, anyone bothering to check what I offer for L$1 will see how terrible my own attempts at designing clothes are (I certainly show all Iris Ophelia’s 5 Signs of Low-Quality Second Life Fashion). They might just discard such an inferior product and be willing to pay a bit more to get something from one of the 100,000 talented and creative designers instead. But now imagine that I would actually be able to do some seriously good-looking clothes, but still sell them for L$1. If the customer’s perception of quality is the same, why shouldn’t they go for a much lower priced (or free) product instead? In a sense, the market is pretty elastic: the more you drop the price, the more you sell, and this is particularly true if all you “sell” are freebies.

Now this hurts the professional SL fashion designers. They charge L$100 for a pair of pants because it’s a fair and reasonable price, and one that allows them, with enough sales, to compensate for the work invested in designing the pair of pants. If they have no sales due to too many underpriced competitors, they will drop their line of clothing, and do something else instead of wasting time in SL.

If you think that fashion designers in SL are only “greedy” and thinking about money all the time, instead of freely sharing their designs as they should, think again. Prokofy Neva is fond of saying that “there ain’t such a thing as a free lunch”. Put into other words… if I create content to give it away for free or for L$1, it’s because I do it as a hobby. My work pays me a salary (well, most of the time ) that allows me, in my very scarce spare time, to play a bit with Photoshop and have some fun, as a hobby, to create a few items of clothing, which I put up for sale. But I know they’re not good, so I price them very low.

Others are way more talented, but they still see SL’s content creation as a very enjoyable hobby. This means that if they weren’t designing clothes for SL, they would be doing it anyway, for any other virtual world or even just to dress up their characters on The Sims®. It’s just fun! So, since the real job will pay them enough and give them some free time to pursue a hobby, they can afford to do pretty good content and just give it away for free — and as more residents join SL, the number of “hobbyists” increase, but also the amount of residents with reasonable skills does increase as well, to the point that the “hobbyists” come pretty close in quality to the professionals, and this allows them to give away just slightly lower quality items (the difference is so small that it might not be perceptible for the majority of residents).

Professional content designers naturally worry. By “professional” I just mean someone that earns enough from their content sales to compensate the time they work on the creative aspect; they might not work full time in SL, and they might have a totally different background. Just imagine that you get paid, say, US$15/hour for your work (it’s just a random figure as an example). You have a job paying you that, but you can have an option: work 7 hours a day on your job, or just 6 hours, but dedicate one hour per day in designing content for Second Life. If you can make enough sales to pay those hours you’ve “lost” (in the sense that you will work less on your primary job), you’re a professional. You can see it’s not much; sticking to the example, let’s assume you work 140 hours per month for US$2100, but decide that you’d be happy with working only 120 hours per month, and spend the remaining 20 hours designing content for SL. Now these 20 hours will have to earn you US$300/monthly (or roughly L$80k) to compensate for the time you’ve “lost” at your primary job. Let’s assume that a piece of clothing takes 5 hours of your work; you could do one per week, and your “production cost” would be US$75 (or around L$20k). So if you make, say, 100 sales per item, you could price it for L$200 — very much in line with the kind of prices that most fashion content creators will charge for shoes, (simple) outfits, or hair. 100 sales per item is not dramatically much, and remember that the long tail will help you out rounding up those numbers (as I’ve shown, I still get almost hundred sales per month from content developed years ago!).

That’s why content sales in SL, even at such low prices (less than a US dollar per item!), actually are quite profitable! Sure, this doesn’t stretch indefinitely (i.e. very few among the content designers are actually able to go full-time on this), and there are a lot of hidden costs — unless you exclusively sell on XStreetSL, you will have to buy/rent land in SL, create a shop, promote it, advertise it, hire performers to bring traffic to your shop, and spend some time probably on a blog, give interviews, get a few minutes of fame on Fabulous Fashion on Treet.TV or be reviewed by Ana Lutetia or Second Style or AVENUE… now all this costs money (which has to come from your sales) or takes time (which means less time to create content), but you might need to be able to do it in order to keep those 100-sales-per-item transactions trickling in.

Freebie creators have no such problems. Since it’s just a hobby for them, and not a living, but just an entertaining and creative way to spend their time, they don’t need to worry with any of the above issues. All their time is spent in being creative, they don’t need to worry if they “give away” 1 or 1,000 freebies per month — or per day. They might just list their items on XStreetSL but never even check on how many sales they’re getting, or if the buyers are yelling at them on the forums. They do it because they can. And, as said, they’re designing better and better content all the time.

Now, if only 1% of all content in SL are freebies, that wouldn’t hurt the professional content designers in the least. After all, in real life, a lot of things are for free, too. Charities giving away second-hand clothes don’t hurt Dolce & Gabanna or Armani If 10% of all content is free, this might worry a few of the lesser fortunate professional content designers — specially if they’re barely struggling to survive. In their case, getting some “erosion” from freebies might push them to work harder for less results; or drop their prices, and create incentives for people to shop at their places instead of ordering half a thousand freebies from XStreetSL; or set up groups with novelties to be given away for free too, to get people used to your brand and style, instead of picking up “no-name brands” freebies elsewhere.

But if my own simplistic statistics are any indication, possibly it’s not 1% nor 10%, but the vast majority of content being transacted in Second Life is for free (or severely underpriced). I would be shocked if the real number is close to 80%, so I hope I’m seriously one of the exceptions at the extreme end of the curve! In any case, it’s clear that there is quite a lot of free content in SL, or at least being offered through XStreetSL. And so Linden Lab started to have a problem.