Last Wednesday, the following notice was posted to the official Sansar blog:
From our earliest days, we at Sansar have worked hard to build a virtual world that feels free and accessible to all – one where our amazing creators don’t have to worry about the constraints other platforms impose: a paid subscription just to cash out, for example, or fees for individual in-world transactions. We want to put you and your incredible work first, which is why we limit the kinds of fees we gather from our community.
When we made the decision last year to change how we process credit, we understood it would be an adjustment. But we know that it is a necessary change to make in the long run: one that would help scale and grow our incredible virtual universe, and ensure our community remained strong, vibrant, and self-sufficient.
Through this change to our fee structure, we can continue to keep Sansar free for all to play, while still covering the costs of day-to-day operations: server maintenance, R&D, all that good stuff. We’re able to maximize the total content available to you without resorting to the fees similar games enforce – in some cases, as much as an 80-20 revenue split.
We know that this may be unexpected for some, especially those that came to us through Second Life, where fees to process credit are lower. We also recognize that SL relies on a variety of fees to cover costs, including land ownership, upload fees, etc. By focusing our revenue model on our marketplace instead, we can limit the other fees we’d require in order to make Sansar a success.
We’re incredibly grateful for all the work you’ve contributed to Sansar so far, and we know the future is bright. In recognition of that, we’ll be extending the legacy exchange rate for early adopters for another year. If you became a creator before January 1, 2019, you’ll get to keep your lower exchange rate until December 31, 2020.
This sparked a lively discussion on the official Sansar Discord channel:
Because economics is not my strong suit, I have asked EvoAv to explain the current situation as concisely as possible. EvoAv has given me some clarification around the numbers, and what it actually means for the Sansar economy:
Linden Lab is increasing the exchange rate from 143 per 1 USD, to 250, for selling, while the price to buy remains at 100 per 1 USD. This setup used to mean a 30% cut of sales going to LL, while now it will be going up to 62%.
Landon said the reason is Sansar does not sustain itself with the previous rate, and they mentioned “similar platforms” charging a similar rate or higher, though I’m not sure which they were referring to. They announced yesterday they will extend the grandfathered rates period for another year, and my sense is they are doing that because its too early for them to lose creators such as Medhue. After the announcement, they setup a mini product meetup with Landon with a 30-minute notice to discuss the news.
For creators like Medhue who are making a decent amount from sales in Sansar, the commission hike would mean an instant 43% cut in their revenue when it happens, easily pushing something profitable into the red. And he argues its impossible to get creators to sell here because 62% is ridiculous compared to other 3D model stores. Though in my opinion he is only partially right.
The commission hike could result in two things, 1) most creators will increase their prices to compensate for the commission, making the Sansar store more expensive to shop in, or 2) Fewer creators will sell in Sansar, leaving more sales to the few that remain selling in Sansar. In both of these cases there is some equilibrium, where there are enough sales to justify selling in Sansar despite the commission percentage. If someone is making 3,000 USD in Sansar a month, after commission, does it really matter how much LL is taking? If you think 62% is too much, then you are just letting someone else enjoy 3,000 in sales, there will be an equilibrium which the higher commission simply pushes the creator/regular user ratio towards less creators in Sansar, but for sure [it’s] not an absolute all leaving scenario.
One thing to keep in mind, is the items on the store have no cost per unit sold, the only cost is the fixed amount of man hours used to create the product. The risk is much lower than RL products, or selling on other model stores, especially because items sold in Sansar are contained to Sansar itself, unlike selling a 3D model on the web which can be used for anything and even resold/stolen and involves some risk.
Medhue is arguing that it is not contained in Sansar entirely because others could sell for Sansar outside of Sansar, such as he is doing, and bypassing the extreme commission rate, resulting in a lower price for users and a higher profit for the sellers. He would also prefer if he could sell everything within Sansar because of the risks i mentioned above, but says the margin difference becomes big enough that it is worth it.
Medhue says (and I do have his permission to quote him here):
The Lab can set the rate at whatever it wants, but that doesn’t somehow mean anyone will use it. If the rate isn’t reasonable, no creator need even use the currency. Therein lies the issue. I have my own website. If LL wants to charge 62%, then I would just sell the same product I would in Sansar on my site, at an even lower price that I would in Sansar, because I’m not paying that 62% tax. I’m’ just using myself as an example. Any creator can do this. I literally pay $30/month for Shopify to handle everything.
It’s great that they [will] keep the rate lower for another year, but the way the system works, it is super risky to sell in Sansar anyways. If you allow others to resell the item, then you could wind up with a situation where the Lab doubles the rate eventually, but you can not double your rate, because anyone can sell it for cheaper than you, your own product, because you didn’t set the resale price high enough initially.
See, the Lab can change their rates at any time, but us, our resale rates are set for LIFE.
Linden Lab CEO Ebbe Altberg got into a discussion with Medhue about this, reiterating his key points: that Second Life is a very different platform from Sansar; that SL has many other ways to collect fees, such a land charges, which Sansar does not have; and that it’s not really fair to compare Second Life and Sansar just using a single number (the commission percentage). Medhue replied:
Sansar though, I think mostly because of the commission, makes LL look kind of anti-creator, and anti-SL. That is how important that commission rate is. If it is too much, people can only assume the Lab is shafting us all…
Just saying there are many reasons why people are so passionate about SL. It was able to enable so many people, including myself. A good portion of that centers around making some money. For many, it was the first time they ever started a business, and SL helped them to learn a lot about business. I was there in the early years. It was all about people starting businesses. SL broke down barriers that kept people from doing these things in real life.
There is also alot of fear in the SL community, especially within the creators. Many look at Sansar as eventually stealing all their customers and income, and many fear they don’t have what it takes to make it in Sansar. It was the same way when Mesh was introduced. Many hated it because they feared they would not be able to learn, and they would loss the business they worked so hard for.
When those same SL creators look at the commission rate here, they are justifiably fearful of their futures. Me, not so much, but I have a good history outside of SL. When I argue about the commission, I’m generally concerned about the economics of it all, and what rate is best for the Lab to make as much as possible.
Sansar is a different beast, for sure, but for us creators, it isn’t entirely different. The part that is really different is the pay structure, which was and still is great for us in SL, but quite dismal here. That is the major difference from a creators view, IMHO. For a technical view, Sansar is way better. Better materials, better frame rates. An all around better experience, or at least some day better than SL for many. Personally, I just wished Sansar felt a little more like the early days of SL. It was like a gold rush. IMHO, that was why so many were pouring in. If we had a really low rate, the same would happen here. And I don’t mind the rate going up over time to cover costs.
Medhue’s underlying fear here is that the 62% commission is going to scare a lot of would-be content creators away, and backfire on Linden Lab. And it’s a valid fear. But the fact remains, how do you organize Sansar the best way, so that Linden Lab makes money off it, and content creators can also make money off it? It’s a thorny question, and it might take some trial and error to find the magic formula for Sansar to prosper, just as it took some time for Second Life to take off.
So, what do you think? Please feel free to leave a comment below or, as always, you are welcome to join the freewheeling conversations, arguments, and debates about social VR and virtual worlds taking place on the RyanSchultz.com Discord server, the first cross-worlds discussion forum! We’d love to see you there.