Oy-i-va. So we get this email today which is Linden Lab’s attempt to stem the tide of people that are looking to leave Second Life for other virtual world environments. I have no other way to put this other than someone just doesn’t understand the principles of economics when it comes to why Education and Non-Profit organizations are up in arms over a 100% increase to their budgets. So let’s start with the gist of the letter

An educational or not-for-profit institution that is currently under contract with us will be able to renew early (or purchase additional regions) and continue to receive the current 50% discount on land maintenance provided that the renewal takes place prior to the December 31, 2010. You will be able to select contract renewal options of 6, 12, 18 or 24 months under these terms. If your organization renews and enters into a contract no later than December 31, 2010, it can lock in the current discounted rate for up to 24 additional months

To put this into perspective, Edu/NPs always had the option to switch between 6 month and 12 month terms. So that really isn’t an offer to try to meet Edu/NPs in the middle of their concerns. The second piece to this totally misses the point of why Edu/NPs are mad about the price increase in the first place.

Two Words: CASH FLOW

Offering an 18 month or 24 month locked in term is certainly a nice perk. Don’t get me wrong on that account. But some of the essential issues that Edu/NPs are complaining about is that they don’t have the budget TODAY to handle this type of a price increase. Not only is the offer ingenuous in terms of trying to work with Edu/NPs but it belies the fact that Linden Lab is absolutely on a cash hunt for some reason only known to themselves and their investment backers. If the lab was genuine about this offer it would have extended it to people’s renewal dates rather than December 31. Instead what we have is a transparent attempt to generate substantial amounts of cash in the shortest time frame possible.

If Education and Non-Profit organizations don’t have the cash they don’t have the cash. Multi-year budgets don’t suddenly come up with extra funds just because you are giving someone a good deal today on moneys that will not be able until 2012. Any real solution by the Lab has to recognize that the financial issues being complained about are all related to cash flow. Offering a solution that both doesn’t address that issue AND forces an accelerated timetable from their original proposed pricing policy is no solution at all.

The only benefit this proposed counter-offer provides to Education and Non-Profits is that it gives them an opportunity to reset their anniversary date to December under the assumption that the funds for paying for the extention are still available in this year’s budget. Something that for schools and universities typically are based on the school year calendar not the fiscal calendar that most for-profit organizations run on.

If there was ever any doubt that Linden Lab doesn’t understand their customer base – that doubt has certainly been put to rest with the latest attempt by the Lab to smooth things over. The only thing that is going to make this situation better is to re-instate the Educational / Non-Profit discount in such a way as to acknowledge the fact that you just can’t raise prices 100% to this market segment and expect it to shallow that type of cash flow hit.

More so than this – this letter is making the Lab look desperate for cash which is not a good thing to be promoting out in the market place. It would be nice if the Lab finally came clean as to why they need so much cash all of a sudden as the Second Life user community would probably rally behind the company in ways that they can’t even imagine. Again it comes down to an issue of trust.

Our Community helps its own – Linden Lab is a part of that. But whoever is running Linden Lab doesn’t seem to want to see it that way which is unfortunate because they are missing obvious strategic opportunities to strengthen the brand and drive more lucrative profitability avenues down the road. One can only hope that whatever is driving this insanity comes to an end shortly before they have no customers left to alienate.

— Kevin Feenan