Extropia in the Time of Saturation

If you're at all interested in Second Life as a place, a community, a culture, go right now and read Gwyneth Llewellyn's new post, The Hard Facts About the Second Life© Economy. Yes, it's nine pages, I know. Go read it anyway. Come back tomorrow when you're done :P

Gwyn summarizes her argument in a comment reply (that in itself is longer than my tl;dr posts, but worth the time):

Don’t expect the market to grow elastically. Assume it’s saturated, and that the number of people willing to spend money on your services/products is limited and fixed. Assume that all your competition is starting to become more aggressive as they understand that paying customers are a limited resource in SL and all want a share of that. Assume that more aggressivity is needed to push your services — don’t assume that the market will become “exponential” again, because it didn’t in the past 18 months (or more) and it’s highly unlikely it will grow exponentially again. Start using aggressive promotion and sales techniques to put out our products and shut down your competition, by throwing them out of business. The days of easy sales are over; welcome to a small market that grows very very slowly over the years — but is nevertheless an interesting market to explore! — but which has far too much supply than demand.

I think Gwyn hugely has the right of it in concluding that the SL economy is saturated, that there are too many producers chasing too few consumers, and that the situation's unlikely to change. Gwyn synthesizes a number of observations similar to those we've made in Extropia over the past year, that have led to huge changes in our plans and our expenditures of time and effort.

One key is that, as I've observed here before, SL is a third world economy. The vast mass of people here are economically irrelevant: they produce and consume nothing. About 100,000 people (within an order of magnitude - I'd actually peg the number at about half that) are not only almost all the consumers of goods and services, they're also the creators. The SL economy is 100,000 of us all selling stuff to each other and commenting on each other's blogs. And *tell* me if that doesn't feel like the absolute truth!

Gwyn starts with two economic scenarios, "Fashion Princess" and "Community Baroness," and I could be the poster child for the second one, save that Extropia is experiencing very slow steady growth, rather than decline. Otherwise, the evolution of our business model has completely tracked Gwyn's observations - as has my own frustration level!

When we launched a year ago (we planned and pre-sold our first sim in late October 2007, and launched that November 11), our business model was based roughly on Caledon's, and we fully expected to grow to 15+ sims within our first year.

We thought we had a good market niche in a positive sci-fi themed alternative to historical and post-apocalyptic aesthetics, a good community nucleus from the Saturday Salons, and with our Directors a well-rounded core team of builders, event runners and managers (though, as it turned out, nobody wanted to do hard-sell real estate sales - and it became clear that that, and that alone, would enable further growth).

We grew very quickly, but problematically: we started a reservation list for a second sim, but by the time we got the money together to buy, we were into the seasonal January economic decline, plus a good number of the people who wanted to buy land from us in November had settled elsewhere by the time we got the sim up and running in mid-January. Then, we had an opportunity to buy a 4-pack of OpenSpace sims with an anchor tenant, but struggled to get other renters of small islands offshore of our main lands.

Looking at our resident base, we saw exactly the phenomenon Gwyn described. Our model was based on offering open land to people wanting to do their own building to a sci-fi theme.

While our heavy events schedule drew a lot of newbies, almost none of them had building skills, and few were interested in spending money, either on our land or with our resident retailers. Instead, we were poaching from older communities: we were drawing established content creators who began to divide their time between their old communities and us.
And there just weren't that many of them.

As the summer started, I burned out. Of the 15 or so hours a week I had for SL (including the SL social-mediaverse), I was spending 30-40, almost exclusively on events promotion and running. I'd seen that our event ROI was seriously negative: we were spending more than we'd ever recoup from turning event attendees into landowners. The Saturday Salons were taking about 10 hours a week to publicize and run, and we had pretty much zero monetization of their audiences.

My hobbyist ROI had gone negative too: I had no time for family, friends, shopping, and where events work had been a delight, it had become exasperating. Many of our attendees were people who never had and never would give us a cent (or support our resident businesses and guest DJs), but felt free to demand ever more, ever more impressive, entertainment.

So I stopped cold. And, over the summer, in the absense of any events, any marketing work, Extropia grew. Our OpenSim anchor tenant, Second Skies, became the basis of an active group, the Extropia Defense Force, which drew a solid cadre of the Hundred Thousand, who liked what they saw, and bought land. We've been steadily, quietly, filling in our big empty public squares.

Earlier this year, we had firm plans for our next round of expansion sims, and notably, they were to be built around a welcome center, as part of an expansion of our marketing outside of SL and into other sci-fi related forums and media. We'd seen the failure of the Caldeon "build it yourself" model for us, and planned fully-designed, fully-built thematic sims. We had an offer of financing from an internet entertainment company.

We shelved those plans: we weren't turning our attendee numbers into paying customers at a rate that suggested that expansion of our efforts would make sense. The Board's time was finite and decreasing, as our atomic affiliates got busier, and it was clear (as Gwyn concludes) that financing expansion would take a huge commitment to aggressive marketing and full pre-building.

We're a family business, and drawing on investment capital to hire content creators and community managers would just increase the scale of the problem: they'd have to put in insane hours to cover their own salaries on top of our operations costs - at which point Extropia would be a corporate business, not a community of our friends, and we'd be passive capitalist investors rather than mom & pop (or mom & mom & mom & mom :P ) owner-operators. We weren't interested, and started to regret ever abandoning the "one sim for our good friends" model to pursue entrepreneurial ambitions.

But we'd managed to hit that sweet spot of sustainability despite my absence: enough of the Hundred Thousand are emotionally invested in Extropia to keep us at break-even, despite the absence of the Directors much of the time. We'll throw our monthly parties to keep the community going and do the occasional event when and because I enjoy doing them, rather than as the essential funnel of bodies into the land-sales process, a model that just doesn't work for us.

I'm sure that if we'd launched in early 2005 instead of late 2007, Extropia would be a huge baronial institution, rather than a boutique. But that's fine, if not in fact a lot better. We're really working as a boutique: we've got happy residents, a good core of attendees, an outstanding reputation, and a largely self-sustaining community. And we don't have the least interest in running a cash-cow real estate operation - we really are Gwyn's "community baronesses."

There's one real downside, though. We've got gigs of sim designs that may never get built, and that's a terrible loss. Vidal and Galatea have the most gorgeous plans, for sims that would amaze people, that would draw people in. It'd be so much fun - if the joy of creation weren't inextricably joined with the sort of cutthroat real estate sales Gwyn rightly says the times demand. That price is just too high for us to do more building, most likely.

We may do a bit of expansion, but it'll be based on a firm understanding of conditions of economic saturation:

• Offering free content to draw large numbers of people in hopes of retaining them as eventual landholders is a financial, time, and energy loser.
  
• A future Extropian is one of the Hundred Thousand, not the rest.
  
• Anything we offer, in terms of events or residences, has to be better than most everything else out there, to draw the Hundred Thousand away from the content and residences they have now.
  
• The Directors don't want to substitute money for time: if we have to choose between actively using our skills and having an income stream, we vote for skills.
  
• That means we'll be unlikely to grow beyond one more round of 2-4 sims, if at all.

That said, we can work to be the best six-sim boutique around: grow intensively, upgrade our public infrastructure, keep drawing more of the Hundred Thousand than we lose, do fewer events but really good ones. It's a good-enough model, and a balance between our ache to create and the (for us) unpleasant business work necessary to finance it.

Extropia's coming up on its first anniversary in the Time of Saturation, but not, I'm confident, its last.