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Virtual Worlds

Stephen Hawking and the power of simplicity

By | Virtual Worlds | One Comment

I love it when complicated things are made simple and this Guardian animation does exactly that for Stephen Hawking’s theory of black holes. In 163 seconds we learn that the force of gravity in black holes sucks in everything, including light, that there is infinite gravity at the centre of black holes, that black-holes reduce in mass over time, eventually exploding with immense power, and that our universe was created in such an explosion. The video even dabbles in quantum physics.

Simplicity is hard to find, hence the old adage ‘if I had more time I would write you a shorter letter’, but, as this video shows, simplicity is also immensely powerful. There’s a lesson here for companies as well as scientists.

 

China bans virtual world gold farming

By | Virtual Worlds | 4 Comments

Up until now wealthy players of virtual worlds and MMOGs like World of Warcraft have been able to expedite their progress through the game by spending real money to acquire levelled up players and other in-game virtual goods in a grey market largely supplied by Chinese labour.  According to Information Week China has now banned the trade of virtual goods and services for real money, so this practice will largely come to an end – or maybe move to Africa….

This little talked about aspect of the MMOG ecosystem is actually quite important because it makes the games much more attractive to time poor but cash rich players, which are exactly the type of punter that everyone wants in their worlds.

I have been writing much less about this sector recently because it has become clear that virtual worlds are very difficult businesses to make a success of, much more difficult than I had thought.  On top of the difficulty and expense of building a good virtual world it has transpired that cost effective customer acquisition has been beyond most startups in this category – largely because of poor conversion from visitor to active player and monetisation.  This development will make monetisation more difficult still.

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Experience in Asia suggests virtual goods is the biz model for social media

By | Business models, Casual Games, Facebook, MySpace, Virtual Worlds | 7 Comments

This post by Bill Gurley of Benchmark in the US gives a great comparative analyis of how social media sites are monetising in Asia and the US.

The headline is that the leading western socnets Myspace and Facebook are generating reasonable revenues (Bill estimates current run rate is $650m and $450m respectively), but that if their Asian equivalents are anything to go by they could be generating much more by bringing virtual goods and casual games more firmly into the mix.

TenCent is the leading example – it is a Chinese IM business that has 355m users, $1.2bn in annual revenues and a market cap of $11.2bn.  When adjusted for the cost of living in China TenCent makes as much per user in advertising as Facebook and Myspace AND then makes a further 8x that from other revenue streams, primarily virtual goods and casual games.

There are similar stories at DENA and GREE in Japan, although these companies are smaller.

Read Bill’s post for the full analysis.

Bill thinks that western socnets haven’t capitalised on the virtual goods opportunity as much as they should have in large part because the execs over here don’t really believe deep down in virtual goods and the value they have for consumers.

This last point certainly rings true with me.  Discussions of virtual goods business models are all too often met with a rolling of the eyes over here, and pointers to the success of Asian virtual goods businesses are met with looks of incomprehension and questions about whether things are simply different ‘over there’.

As Bill points out the fact that here in the west we are happy to embrace real world brands to establish our identity, often at vast expense, suggests that we ought to be able to translate that to the virtual world.

However, as Bill points out, there is a right way and a wrong way to do virtual goods, and simply launching them as an offering is unlikely to succeed.  As with everything else bringing in execs who have relevant experience will help and constant iteration and evolution of the product will probably be required before you hit upon the magic formula.

M&A inside Second Life

By | Second Life, Virtual Worlds | 5 Comments

Linden Labs, the company behind Second Life yesterday announced the acquisition of two inworld businesses – reported here in the LA Times.

These businesses broker the sales of virtual goods – kind of like Amazon market place, but restricted to virtual goods for use inside Second Life.  It seems Linden has a strategy to become a sprawling corporation, as used to be the fashion for real world companies in the 1960s.  For a long time they have made money by selling land and letting everyone else innovate around that.  Now they want to grow revenues and profits by controlling more of the commerce themselves.

One of the products you can buy from these companies is an Obama avatar:

To my mind this makes sense in a short term view, but is likely to stifle innovation over the longer term.  Kind of like if Twitter acquired one of the leading Twitter clients.

Moreover Linden Labs strategy up to now has endorsed this point of view.

So I wonder if this move signals a recognition by them that the economy inside Second Life is not going to be so huge that they can afford to cede large areas of it to other companies and still have enough left for themselves.

That said the economy inside Second Life is still growing well, although not staggeringly fast.  Goods traded (equivalent to GDP) in Q4 2008 totalled $101m, up 54% on the year ago period.

Some thinking on virtual goods

By | Business models, Virtual Worlds | 3 Comments

Susan Wu gave a talk on virtual goods at Leweb last week.  I have been meaning to post the following excerpts from her talk since then.

Regular readers will know how much I like frameworks.  Thanks to Susan, we now have one for virtual goods.  For her there are three types:

  • Decorative – e.g. avatar dressing
  • Functional – e.g. buying user names
  • Behavioural – e.g. gifts for flirting

‘Virtual goods’ is a sufficiently general term that it is confusing for many people, and I like this framework for the way it demystifies by making it obvious which type is going to be applicable for which site and/or which part of which site.  For example options to buy gifts for flirting are going to perform best when profile surfing or messaging, whereas buying stuff for your avatar will work best in game oriented scenarios.

Secondly she listed three benefits that people derive from virtual goods:

  • The receiver has the emotional benefits of receiving a gift – not dis-similar in Susan’s eyes to receiving a real gift.  I would agree with that
  • The receiver also gets a ‘trophy’ that sits on their profile
  • The sender has the pleasure of making the gift

The third thing she said that I wanted to reproduce was a piece of advice:

Find ways to capture the passion of verbs that people are already doing on your site [apologies if I got the precise wording wrong]

One of the most successful virtual goods companies in Europe is Flirtomatic and they do this brilliantly.  People are on the site to (you guessed it) – flirt.  And they sell virtual goods that enhance that activity.  Flirting has more meaning if you give someone a virtual heart as well as (or instead of) sending a message.

We have recently launched virtual goods on WAYN which will be aligned around one of the core use cases on the site – meeting new people.  You can find more details towards the end of this post on the WAYN site which details the release which went live the weekend before last.

investment keeps flowing into virtual worlds

By | Casual Games, Virtual Worlds | No Comments

Copied from a VWM press release (from Blackberry so no link or formatting);

London, England – October 15, 2008 – Virtual Worlds Management, the leading virtual worlds trade media company, has announced findings from a comprehensive study of accountable transactions showing that venture capital and media firms have invested more than $148.5 million dollars in 12 virtual worlds-related companies during the third quarter of 2008 with participation from many more VC firms and angel investors. The total investment in the virtual worlds space for 2008 is now over $493 million. The news was announced just prior to the upcoming Virtual Worlds London conference which takes place October 20-21, 2008. Individual investment details including companies and investors can be found at http://www.virtualworldsmanagement.com/2008/q3.html

The bulk of the investment is in the entertainment space, with all but $22.4 million going to developers of worlds with strong gameplay elements, ties to media brands, or the youth sector. As we’ve previously reported, youth worlds are constantly on the rise, and investors remain interested in backing them as long as they can find unique propositions.

“Many smaller investments were made across a spectrum of youth-oriented virtual worlds,” explained Joey Seiler, Editor of VirtualWorldsNews.com. ” $35.64 million was invested in seven virtual worlds aimed at kids through teens. That’s up significantly from Q1’s $16.03 million in eight youth virtual worlds and Q2, which saw no investment targeted at youth worlds.”

The numbers overall are down from earlier quarters this year, but that’s true of the larger venture capital space as well. Investors, while still remaining active, are warning portfolio companies that future rounds may be even tougher to pull in. Socializing, entertainment, and games remain strong among consumers, though, as well as investors.

Thanks to Nick Parker for the tip off.

Massive investment into social games and virtual worlds

By | Casual Games, Virtual Worlds | 8 Comments

Jussi Laakkonen of social gaming stealth startup Everyplay has a great post tracking investment in the social games and virtual worlds space.  The simple message – there is a whole heap of activity, with roughly $2-5m being invested per week, and some large individual deals, including Balderton‘s investment of $87m into Big Fish Games.

Check out the post for the long list of individual deals.

Jussi makes the point that all this investment activity is a sign that the sector will generate massive profits in 4-7 years.  Anyone who reads this blog regularly will know I share that view.  What I am starting to worry about a little though, is that the amount of investment is getting out of kilter with the size of the opportunity, which might lead to what one of my partners has described as venture fratricide.

That said, most of the investment is US based and I think some of these plays will turn out to be geographically/culturally focused – which makes me more optimistic about the prospects for future investment in this space in Europe.

Some virtual worlds data

By | Virtual Worlds | 8 Comments

I’m reading a Gartner report on virtual worlds which has lots of interesting data (a lot of which is sourced from KZero).  Here are some highlights:

  • 300m registered accounts aggregate across all virtual worlds
  • Suggesting 30m active users (based on rule of thumb 1 active for every ten members) – compared with 16m active MMOG users
  • Userbase is largely kids and over 35s – the middle group use socnets and MMOGs
  • Enterprise activity in virtual worlds has shown a marked decline over the last 6-9 months as their earlier efforts inspired by a desire to be part of the new wave foundered due to lack of clear goals and value proposition
  • There is little in-world ecommerce

Google’s long rumoured virtual world play surfaces

By | Google, Virtual Worlds | No Comments

Google has long been rumoured to be working on something in the virtual world space – I think for a year or more now people have been telling me that their friends have been sucked into a top-secret project at the GooglePlex.

Yesterday they announced the release of Lively, reported here Techcrunch.

The video below gives you a pretty good idea of what it is about – customisable personal 3D spaces where avatars can interact. Which is good, but stops short of being a persistent single world for everyone, which I think is what makes SL and the others special.

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