Second Life Residents logged nearly 400 million hours in 2008, growing 61% over 2007

Linden Lab is pleased to announce results for Q4 and 2008.  User hours increased by 61% over 2007, highlighting the tremendous growth rate in user engagement that Second Life maintained throughout 2008.  User hours increased steadily each quarter, culminating in a record-setting 112 million user hours in Q4.  In addition:

• Peak concurrent users were up 31% over 2007
• Land owned by Residents increased 82% over 2007
• Exchange Volume increased 33% over 2007
• User-to-user transactions in Q4 increased 54% over Q4 of 2007.

Financially 2008 was an outstanding year for the company from a profitability and cash flow perspective. We are in a strong position to weather the economic downturn while continuing to invest in the Second Life platform.

Looking at Q4 in more detail:

Q4 user hours grew 47% from the same quarter last year. In Q4, Residents spent 112 million hours in Second Life which was an increase of 9% from Q3. Peak concurrent users of 76,000 grew 6.7% over Q3 and approximately 30% over Q4 of last year.

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Second Life land mass increased 82% over 2007. At the end of 2008, Residents owned 1.76 billion square meters of land. Our revised policy of Openspaces pricing and the introduction of Homesteads, as announced in late October, resulted in a land mass contraction of approximately 10% from Q3, as expected. The rollout of our Homestead product proceeded as we planned. Based on Resident feedback and the resulting purchases, conversions and cancellations, we believe the changes we made to the product line incorporated the concerns of the majority of our Residents and will provide a better experience for all.

Approximately 2,700 Openspace regions were combined to convert into a quarter of the number of full regions. We added 675 full regions and approximately 9,250 Homesteads. Only about 300 or 2% of the original Openspaces remained Openspaces, conforming to the limits that the Openspace product was originally intended to support. Just under 1,200 Openspace regions were returned to Linden Lab. Due to the impact of the conversions (four Openspaces for one full region) and the returns, Openspaces decreased by 3,900 which will reduce the overall landmass in Q1, as anticipated when we made the product change.  Upgrades more than offset the decrease in unit count. (Note that some of the conversions occurred in January and are not fully reflected in the year-end numbers.)

Full regions will provide the best Resident experience, and we think that the expanded product line, which now includes Openspaces, Homesteads and full regions, provides a better product mix and end-user experience for Residents. As we continue to refine our land offerings, we look forward to being able to support a lower priced full region offering along with a premium full region for higher load situations.

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User-to-user transactions increased 54% from Q4 2007. In Q4, Residents again spent more than $100 million USD on virtual goods and services in Second Life. After extraordinary growth in Q3 (transactions increased by more than 21% over Q2), we saw a slight decline (1%) in Q4. Volume on the LindeX, our virtual currency exchange where users can buy and sell our inworld micro-payment currency, grew 22% from the same quarter in 2007 to $27 million USD but is also a slight decline from Q3.  It’s possible that the decline in Q4 was driven by uncertainty in the land market created by the pricing and configuration changes or simply that the economy overheated slightly in September when we saw significant growth in volume.

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Thanks to all of our Residents for another successful year.  Given the state of the real world economy, we are pleased with our results in 2008.  We look forward to continued expansion and development of Second Life in 2009.  I will be available in the forum discussion and answering questions there as I have in the past.  I look forward to discussing the numbers and these changes with you.

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