March 16, 2006
Case Study

Give Away Free Basic Memberships, Send Paid Subscriptions Skyrocketing: How It Worked for Linden Lab

SUMMARY: Are you considering giving away some content to try to increase the number of people paying for your site's premier content? Read on for a look at how Linden Lab tested and implemented this tactic to radically improve its paid membership rates.
By mid-2005, Linden Lab had attracted an active group of about 50,000 paying members to its virtual 3D world, Second Life.

In Second Life, consumers interact with each other using 3D avatars, as representations of themselves, to socialize, network and do business. To be clear, this is *not* a game. Premium members pay to buy virtual land and storefronts, where they sell each other everything from virtual outfits for the avatars to art for their real-life homes, generating $23 million in transactions between members in 2005.

Linden Lab faced a common problem with paid memberships. After maxing out the initial universe of super-eager early adopters, the service's registrations hit a plateau. Too many potential registrants were dropping out of the online registration process when a $9.95 lifetime fee for basic membership was requested. (Premium membership starts at $10 per month, depending on the amount of land desired.)

The marketing team needed to get more of these slightly-interested prospects over the hump to complete registration and join, without simply flooding its membership ranks with people who were unlikely to move up to premier membership or who were unlikely to spend money later.

VP Marketing David Fleck and his team conducted three rounds of testing to figure out the answer to this problem.

Step One: Test making basic membership free

Would eliminating the nominal $9.95 lifetime basic membership fee make completed registrations spike? The company launched a seven-day test in July 2005: It did not change the look or feel of the registration's creative material, just eliminated the request for the $9.95 payment during the registration process. Anyone who happened by to register that week became part of the test.

But the company did require registrants to enter a credit card number or PayPal account, with the understanding that the account info would be used for later purchases.

Step Two: Cut the number of registration pages

The second lesson Linden Lab learned quickly: People will not stay with you for multiple registration pages, even if you're offering some content free. Linden Lab's registration process for basic members previously involved users clicking through four screens' worth of material.

To coincide with the September 2005 rollout, the company cut that down to two required screens. "You have to convince people it's going to be an easy process," Fleck says.

Step Three: Test eliminating the credit card request

Could the company increase its paid member ranks by eliminating the request for credit card info during registration? The company did a second test in January 2006 for 48 hours, modifying the registration process to eliminate the credit card requirement. Then it watched whether that group of registrants would choose to later pay for premier membership.
The free basic membership approach has paid big time dividends for Linden Lab. "We saw a 350% increase in completed registrations immediately," Fleck says. As of September 2005 the company formally announced all basic memberships would be free.

Between September 2005 and January 2006, Second Life boosted basic memberships rose from 42,000 to 129,000 while its premium members rose from 39,500 to 68,000. The average monthly growth rate for premium memberships spiked from 6%-10% in the four months following September 2005.

However, the third test -- eliminating the credit card request during free sign-up -- bombed.

"Those people were in the system but they weren't contributing to the economy," Fleck says. "There is a pain point with you pulling out the credit card and entering it," he explains. "We found when people do take the time to enter the info, they are more likely to buy in our world later on." The simple act of requiring a credit card, PayPal account or cell phone that's linked to a payment system has helped Linden Lab weed out the unlikely to spend from the likely to spend.

This factor is key to Linden Lab's bottom line because the service also makes money when money trades hands between its premium members. Linden takes a small percentage of Second Life's virtual currency trades, which consumers purchase with US dollars. And the new post-September 2005 members proved they wanted to do much more than just look around. Before September 2005, the average amount of in-world economic activity per month (transactions between members) was $1.63 million; after September 2005 it was $3.65 million.

The month-over-month growth rate for in-world economic activity is 16%, as of January 31, 2006. That means for 2006, the company looks well on its way to significantly improving on its 2005 total for in-world economic activity of $23 million.

Fleck continues to test registration procedures to further improve them. "We're constantly tweaking the registration pipeline, trying different registration paths on a randomized basis," Fleck says. These tests usually last 24 to 72 hours. Users arriving to subscribe during that time are sent down a control registration path or to the test registration procedure, Fleck says.

That doesn't mean the company constantly dickers with its registration screens. "A lot of the time this tells us what not to do," Fleck says.

Looking ahead, the company's next challenge will be to implement payment systems that allow potential customers in Europe and Asia to use forms of payment that are more popular than credit cards in a particular location, say wire transfers, Fleck says.

One caveat regarding Second Life's approach: Unlike some other content providers, Second Life does not face a glut of cookie-cutter competitors delivering similar free content.

"Our number one direct competitor is real life," Fleck says. "There are other online games, but we're not a game. There are companies doing pieces of what we're doing, like avatar chat."

Biggest lessons learned: Keep free registration short and sweet. Don't mess with a registration's look and feel once it's working. Don't underestimate your audience if you're serving an enthusiastic bunch in a unique niche. In this case, consumers inclined to do more than just look around were happy to provide payment info like a credit card account, for future use.

Useful links related to this article

Linden Lab free membership registration page:

Linden Lab:

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