Second Life Grandfathers

Linden Labs won't slap current landowners with a new fee.
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Linden Labs blinked this week, rolling back an unpopular Second Life fee hike -- at least for current virtual landowners.

Second Life is a massive multiplayer online world, akin to

Electronic Arts'

(ERTS)

The Sims

. Players explore an endless, sprawling 3-D virtual reality where their Internet avatars interact, buy land, set up shop and even (possibly) make money.

Property is one of few resources controlled by Linden Labs, the creator of Second Life. While businesses are earning revenue by selling fabricated goods or advertising in the virtual world, Linden's main source of income in Second Life comes from the sale of space on their computer servers. The company raised eyebrows last week by proposing to

ratchet up the price of this so-called land in Second Life.

Linden said late last month it would raise the annual cost of owning a private island by some 45% for those residents making new land purchases. The one-time purchase cost rose to $1,675 from $1,250, and the monthly maintenance fee soared to $295 from $195. At the time of the original announcement, Linden didn't make it clear whether current land owners would suffer the same fate.

But following a barrage of negative responses to the proposed private island price increase, Linden Lab CEO Philip Rosedale convened a town hall meeting Thursday night within Second Life. He indicated that the company plans to grandfather in current landowners, saying they won't pay the new rates till 2008.

"We will not raise the $195 if you continue to own your server throughout 2007 for all private island regions currently owned and bought now," said Chief Financial Officer John Zdanowski. "If you keep

ownership of your island, we won't raise your price."

Because land sales, transfers and auctions account for a majority of money exchanged between residents, Zdanowski said that if land is transferred between now and Feb. 1, the new owner will pay the grandfathered rate. If land is transferred after Feb. 1, Linden Lab may decide to raise the price.

Rosedale defended the price increases for new land owners, saying that "the present rates we are charging for simulators are less that the rates you would pay if you just got a blank machine from a hosting company. You could argue that Second Life is pretty cheap in that sense."

Rosedale acknowledged that "without any direct competitors it is hard to see what the right market price will be, but I'd just like to suggest that we have kept things pretty fairly priced."

When Second Life was introduced in 2003, the company established a tier pricing system based on the size of land purchases. Of course, there was little commercial activity at the time and Linden Lab did not have to worry about how Second Life prices would affect businesses.

"We need to take a look at those prices now with the goal of making them neutral to businesses," Rosedale said. "By that I mean Second Life businesses, not real life businesses."

However, as Second Life's population has exploded from 100,000 users in January to more than 1.3 million now, businesses have been snatching up private islands at a quick rate. But Linden Lab says the idea of charging corporations -- such as

Reebok

,

Toyota

and

Starwood Hotels

-- more money than is charged to individual users is out of the question.

"The idea of pricing differently for 'corporate' users doesn't make sense for several reasons," Rosedale said. "First, it is discrimination, which we don't think makes sense -- everyone should pay the same for things regardless of who they are."

Linden Lab also apologized for the confusion tied to the original announcement.

"I'd like to reinforce that we made a mistake by not giving enough notice," Rosedale said. "We were worried about the logistics of getting too many orders at the old prices. We have talked internally, and will commit to a 60-day notice on any change in your recurring fees."

Robert Holden is staff reporter Robert Holmes. He reports often from Second Life.