Second Life Original Article

Second Life economy totals $567 million US dollars in 2009 - 65% growth over 2008

Gross Resident Earnings are $55 million US Dollars in 2009 - 11% growth over 2008

In 2009, the rest of the world caught up with what Second Life Residents have known for a long time - that virtual goods can be a very good business.  Headlines about a billion-dollar plus trade in virtual items appeared in the mainstream press, but in many cases the articles focused on the platforms that create and provide virtual goods to their users, not on the users themselves.

And this is what sets Second Life apart: our users create, merchandise, and sell virtual goods as part of the largest user-generated 3D virtual goods economy in the world. By any measure - number of items, transactions, dollar value, revenues earned - Second Life is the leader. In 2009, Second Life Residents earned more than twice that amount -  US$55 million - while the total size of the Second Life economy grew 65% to US$567 million.

And all of that is due to the creativity and innovation of the Second Life Residents.

By way of comparison, real-world global output is forecast to have declined 1.1% in 2009 (see the IMF World Economic Outlook report, October 2009). The Bureau of Economic Analysis will post figures for the US economy for Q4 and 2009 on January 29th, but their most recent forecast was for the US economy to have shrunk by 2.7% in 2009.  Despite a challenging macro environment, the Second Life economy did quite well to grow in 2009.

Before we dive into the numbers for 2009, we want to acknowledge that last year was an economically challenging one for many people in the real world and many Second Life Residents.  Some Second Life Resident businesses faced hard times while others flourished.  Our focus is to work hard in 2010 (and beyond) to increase the number of Second Life Residents, so that the Second Life economy will continue to grow, giving all Residents the opportunity to benefit.

Here are the highlights for the Second Life Economy as a whole in 2009:

Financial

•      User-to-User transactions in 2009 totaled US$567 million in 2009, growth of 65% over 2008.
•      The total amount of virtual currency in circulation reached L$6.95 billion, growth of 23% over December 2008
•      The US Dollar value of L$ in circulation totaled US$26.5 million in December 2009
•      Sales of User Generated virtual items on Xstreet SL, reached L$1.6 billion or US$6.1 million, growth of 74% over 2008   

•      The total US dollar value of all Linden dollars traded on the LindeX™ currency exchange in 2009 reached US$115 million in value,  7% growth over 2008

•       The total US dollar value of all Linden dollars traded on the Xstreet SL™ currency exchange in 2009 reached US$1.5 million in value, 169% growth over 2008

Usage

•      Residents spent 481 million hours in Second Life in 2009, 21% growth over 2008 
•      User hours lost to downtime as a portion of total user hours were down 66%, to a best-ever low of 0.19% for the whole year 
•      Monthly Repeat Logins reached an all-time high of 769,000 in December 2009, 15% growth over December 2008

Land

•     Resident-owned regions reached 23,900 in December 2009, up 6% over December 2008
•    Total Resident-owned land (including Mainland) reached 1.85 billion square meters in December 2009, up 7% over December 2008 

While the overall Second Life economy grew in 2009, it's clear that some Resident businesses had strong sales, while other Resident businesses struggled.  In 2009, success in Second Life, as in the real world, was not evenly distributed. As in the real world, economic survival is far from guaranteed. However, in 2009, many Residents had significant gross earnings.

Here's a look at 2009 - through the lens of the US dollar value of gross earnings made by Second Life Residents during the year.

In 2009, Second Life Residents in the aggregate earned approximately US$55 million in real money, growth of 11% over 2008. This represents the sum of all US dollars transferred "out" of the Second Life economy by Second Life Residents, and into PayPal accounts, and then to bank accounts and wallets. We call this figure "Gross Resident Earnings" and it represents the sum total of processed credits for Second Life Residents.

This works as follows: when a Resident business accumulates a Linden dollar (L$) balance through the sale of virtual items or other economic activity, they can sell their Linden dollars to other Residents on the LindeX or the Xstreet SL Exchange, creating a US dollar credit on their account.  Note that we are not including activity from third party exchanges as LindeX and XStreet SL exchange comprise greater than 90% of credits processed.

When a Resident with a US dollar balance on their account moves that balance to PayPal, we record and track that amount as a "processed credit." Taken as a whole, "processed credits" are a reasonable proxy for Gross Resident Earnings, as they represent surplus Linden dollars gathered by a Resident business and turned into US dollars.

In 2009, US$45 million of "processed credits" came from Second Life accounts and US$10 million came via Xstreet SL accounts. Note that many Xstreet SL merchants also have significant inworld businesses, and use Xstreet SL to collect earnings from their inworld businesses as well as their Xstreet SL businesses, accounting for the fact that processed credits on Xstreet SL are greater than the volume of the Xstreet SL Marketplace and Xstreet SL Exchange.

In 2009, the bulk of the US$55 million (95%) were "net proceeds." Net proceeds represent the total processed credits for a given account less the US dollar value of Linden dollars purchased by that account. The L$ purchased by that account could represent a first investment, reinvestment of profits, a trading balance for a currency trader, or personal spending in Second Life. The implication is that Gross Resident Earnings are USD revenues above and beyond L$ expenses.

Note that Resident businesses have real-world expenses (like salaries or rent or food) that they might pay using US dollars - so this figure is not a measure of the profits from Second Life businesses - only a measure of Gross Resident Earnings. Gross Resident Earnings also does not capture the value of assets that remain in Second Life, such as Linden dollar balances, land holdings, items for sale, etc.

Let's take a look at the Gross Resident Earnings figures for 2009:

•      Gross Resident Earnings (processed credits - as described above) totaled US$55 million
•      Gross Resident Earnings grew 11% over 2008 
•      US$45 million of Gross Resident Earnings came via the LindeX 
•      US$10 million of Gross Resident Earnings came via Xstreet SL
•      The Small Business segment* represented 47% of the total dollar value of earnings 
•      The Small Businesses segment was the single largest portion of Gross Resident Earnings 
•      More than 50 accounts earned more than US$100,000 each
•      The top 25 accounts, as a group, earned about US$12 million  

*The small business segment is defined as a Resident business owning between 0 and 2 regions or less than 1 mainland region.

Roughly 98% of the Gross Resident Earnings (US$55 million) in 2009 are from accounts with recent activity, where activity is defined by one hour spent in Second Life during December, current land ownership or current premium status. This suggests that the majority of Gross Resident Earnings in 2009 are from active, current Residents, not from the liquidation of in world assets.

Out of respect for our Residents, we will only publish this information in the aggregate and only on an annual basis.

Let's take a look at the annual trends for the overall Second Life economy.
Looking at 2009 overall, we can see that the year showed growth in the key metrics of the Second Life economy.

User-to-User transactions reached US$567 million in 2009, up 65% from 2008 - The total of all transactions in Second Life reached a new high in 2009. The sum of all of the transactions in the Second Life economy equaled a total value of US$567 million in 2009. Year over year, 2009 shows good growth relative to 2008. See the Q4 drill down below for a quarter-by-quarter trended view.

 

User-to-User tranasactions on Xstreet SL totaled L$1.6 billion in 2009, up 74% from 2008 - In its first year under the Linden Lab banner, XStreet SL, the web marketplace for Second Life virtual goods, had gross sales of L$1.609 billion, or approximately US$6.1 million. This is the sum total of all User-to-User transactions on the Xstreet SL Marketplace.

This represents 74% growth over the previous year. XStreet SL remains small by comparison with Second Life's inworld marketplace overall, at approximately 1% of the US$567 million Second Life economy in 2009.

 
  
Trading activity on the LindeX reached US$115 million - The volume of exchange on the LindeX, the marketplace for Linden dollars (L$), the Second Life virtual currency, reached US$115 million in 2009. This is 7% growth compared to the previous year.
  

 
User hours reached 481 million in 2009 - Second Life Residents spent 481 million hours in Second Life in 2009. This represents 21% growth over 2008. 
  

 
  
Monthly Unique Residents with repeat logins peaked at 769,000 in December 2009 - In December 2009, Monthly repeat logins peaked at 769,468. Year-to-year, December 2009 repeat logins grew 15% from December 2008 repeat logins. This is a monthly figure for December, and is an all-time high for Second Life.
  

 
  
Resident-owned land expanded to reach 1.85 billion square meters in December 2009 - In 2009, Resident-owned land peaked in December 2009 at 1.848 billion square meters.  This is a 7% increase over December 2008. If Second Life were a physical country, it would be larger than Hong Kong, Singapore, and many Caribbean islands.
  

 

Q4 2009 in Detail
Turning to Q4 2009, the Second Life economy performed well, despite the ongoing impact of the Bot policy on total user hours and concurrency.

Highlights of Q4 2009 included:

•      US$153 million in User-to-User Transactions, 53% growth over the same quarter last year 
•      A new all-time high and continuing rapid growth for the Xstreet SL online marketplace 
•      A new all-time high in Monthly Repeat Logins, at 769,000 in December 2009
•      3.1 billion Voice minutes, up 15% from the same quarter last year   
•      Resident-Owned Land reached an all time high of 1.848 billion meters 

Total user hours continued to trend downward in Q4 while peak concurrency remained flat.  This decline stems from a decrease in user hours contributed by heavy usage accounts (300+ hours per month per account), primarily from a continued decline in Bots. See below for detail and read about the policies here.

Let's look at the numbers for Q4 in detail:
 

User-to-User Transactions peak at US$153 million, up 53% from Q3 2008 - The total of all transactions in Second Life reached a new high in the quarter.  The sum of all of the transactions in the Second Life economy equaled a total of US$153 million in Q4 2009. This is 2% growth over the previous quarter and 50% over the same quarter one year ago.

 
  

Total Xstreet SL sales reach a new all time high in Q4 2009 - In its fourth quarter under the Linden Lab banner, Xstreet SL, the web marketplace for Second Life virtual goods, had gross sales of L$485 million, or approximately US$1.9 million.

This represents 15% growth over the previous quarter and 81% growth over the same quarter one year ago. Xstreet SL remains small by comparison with Second Life overall, at approximately 1.2% of the US$153 million Second Life economy in Q4 2009.

 

Trading Activity on the LindeX - The volume of exchange on the LindeX, the marketplace for Linden dollars (L$), the Second Life virtual currency, reached US$29 million in Q4 2009, representing 1% growth compared to the previous quarter and 10% growth over the same quarter a year ago. A portion of the trade in Linden dollars has migrated to the Xstreet SL exchange as well as third-party exchanges, which we believe is a contributor to the flat trend in LindeX volume.

  
  

Monthly Unique Residents with repeat logins reached 769,000 in December - In December 2009, Monthly repeat logins peaked at 769,468. Year to year, December 2009 repeat logins grew 15% from December 2008 repeat logins and were up 2% over September 2009.

While the number of total unique logins (including users who log in to Second Life for the first time in a given month) is higher, we use repeat logins (which captures all unique returning users who have logged in during a prior month) as a metric to track the number of users who are engaged with Second Life.

 
  

User hours reached 113 million in Q4 2009 - User hours declined in Q4 when compared to Q3 2009. This decline is attributed overwhelmingly to a decline in user hours from accounts that spent more than 300 hours logged in to Second Life each month. See the chart below (User Hours by Usage Band) and the SPOTLIGHT of the Q2 2009 Economy Blog post for an explanation of this dynamic.

The Q4 figures show a 5% decline when compared to Q2 2009, and a 1% increase when compared to Q3 2008.

   
The Impact of Scripted Agents, a.k.a. Bots

Scripted Agents, commonly known as Bots, can be helpful tools in Second Life. When used appropriately, they can improve the Second Life experience. However, some Bot usage is in violation of our Terms of Service.  In 2009, we started taking action to mitigate the usage of Scripted Agents that are in violation of our policies, in particular Bots used for the purpose of improving the results generated by the Second Life search algorithms. Since September 2009, we've been gradually increasing enforcement of our policies, and as a result, have been seeing declines in total user hours.

In October 2009, We asked Residents to register their Bots, and we can now report that these Self Identified Scripted Agents (SISAs) account for about 1900 logins/day.  Each SISA accounts for about 420 user hours/month. Per quarter, SISAs taken together account for  about 2.4 million user hours. The implication is that a small change in the number of Scripted Agents has a big impact on total user hours. While some might express concern over the overall decline in user hours, we think the outcome is a good thing.  If you haven't already, please register your bots.

   
User Hours by Usage Band -  This chart illustrates the impact of Bots on user hours. The chart shows user hours contributed by accounts grouped by the number of hours of monthly usage. That is, the data shows the trends for the total aggregate user hours in a given month for all accounts that spent more than 300 hours, 201 - 300 hours, 51 - 200 hours, 4 - 50 hours, and 0 - 3 hours inworld in that month.
    
The declines in user hours are a function of the downward trend in user hours contributed by accounts with 300+ hours spent in Second Life each month. For accounts with 300+ hours/month, the average hours/account/month is about 420 hours per month. That amounts to 14 hours per day, every day of the month - a usage pattern which is more suggestive of a computer than a person.
    
In terms of unique accounts in each grouping, the number of accounts in December 2009 increased across all segments (when compared to December 2008). There was only one exception: accounts with 300+ hours/month of usage shrank by about 20%. Despite the decline in unique accounts with 300+ hours/month, there are still thousands of accounts in this segment, which accounts for the phenomenon that many Second Life Residents experience - which is that the Bots are still a significant presence in Second Life.

     

        

Second Life Residents use 3.1 billion voice minutes in Q4 2009 - Total Voice Minutes grew 15% compared to Q4 2008 and declined 1% compared to Q3 2009 . This metric measures all VoIP minutes across all types of voice sessions - Resident-to-Resident calls, group voice chats, and local voice. This metric measures the total minutes that the "talk" button is depressed or locked "down" for Second Life Residents, signifying a user choice to enable voice to talk to another Resident.  On average, all of the Residents who connect to voice connect to a new channel each 15 minutes, accounting for roughly 100,000 individual audio spaces in Second Life.

It's clear that voice has become a mainstream capability in Second Life - as more than 60% of Second Life Residents are using voice at any given time, and Residents marking on average 25 hours of voice usage per month.

   
   

Resident-owned land expands to reach 1.85 billion square meters in December 2009 - In Q4 2009 Resident-owned land increased to reach a total of 1.848 billion square meters.  This is 2% growth over Q1 2009 and 7% increase over the same month one year ago.

         
Homesteads advance in Q4, Full regions maintain, and Open Spaces decline. - Total Private Regions  owned by Residents reached 23,965 by the end of Q4 2009. This represents an increase of 2% over the previous quarter end in June of 2009. In Q4 2009, the number of Homesteads grew 5%, the number of Full regions were flat, while the number of Open Spaces declined 4%.

     

 

A solid Q4 and 2009 for Residents,  and for Linden Lab - Though enforcement of Bots continues to affect the trajectory of user hours and concurrency, the resilience and commitment of Second Life Residents and their businesses are evident in the growth in logins, User-to-User transactions, voice minutes, and private regions.

On another note, with the arrival of Linden Lab's new Chief Financial Officer Bob Komin, we will be evolving the way we report on the Second Life economy in 2010 and how we publish information out to the marketplace. These changes will come into effect when we report on Q1 2010.

Thank you -  We owe a thank you to all Second Life Residents - the merchants, creators, builders, shoppers, educators, enterprises, businesses, estate owners, and many others.  Without you, Second Life would not be the rich and wonderful place that it is.