Impact of Virtual Worlds

The online destination

for the next generation?�

Dr. Pete Markiewicz

Indiespace/Lifecourse Associates

pindiespace@gmail.com

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Sept 2008

Topics

• What are virtual worlds?
• How do vworlds differ from MMOGs?
• Why are vworlds important?
• Numbers and growth
• What vworlds will need in 2019
• Follow the money…
• Barriers to growth
• Unique features of US market
• US teens – where will they go?

What are virtual worlds?

• Extend “sense of place” characteristic of cyberspace (Web, chat, MMOGs)
• Games may be present, but not a game
• Virtual “land” or “rooms”
• Social interaction like Web 2.0 (chat, friends lists, exchange of virtual objects)
• Customized avatars, for real-time interaction
• Support for real work, education
• Economic models for payment, barter, sales

Two kinds of vworlds

Tween and kid vworlds

Adult vworlds

• ~25% of US teens
• Web-based (2.5D)
• Prebuilt
• Social networking
• PG-13

• ~3% of US adults
• Custom browser (3D)
• User-generated
• Social networking
• Commerce, Education

Cyworld

Second Life

Virtual world examples (teen/adult)

Virtual World Examples (kids)

Virtual world environments

There

Empire of Sports

Club Penguin

Habbo

Sports-based vworlds

• Multiple sports-based worlds in development
• Empire of Sports (teen/adult) multiple sports
• Football Superstars (teen adult) virtual football challenges
• TechDeck Live (kids/teen) virtual skate park

Vworlds and RL “exergaming”

• Irwin Toys strap-on Me2 Hardware measures how hard kids exercise
• Plugs into computer for gameplay in the Me2 virtual world
• Kids expend as much energy in “active” games as in regular sports

SOURCE: http://www.nzherald.co.nz/health/news/article.cfm?c_id=204&objectid=10493847�http://www.360kid.com/blog/?p=43

Virtual Worlds and Politics

Watching Obama in Second Life Jul 11, 2009�http://foo.secondlifeherald.com/slh/2009/07/watching-obama-in-ghana-from-metaplacesecond-life.html

Virtual products

• Offered for sale or free
• Used in-world
• Fashion
• Buildings, furniture
• Connect to outer word
• E-commerce
• Teaching tools
• Virtual phones
• Prototype real-world
• CAD/CAM “prints” to vworlds

Vodaphone virtual cellphone HUD

Vworld creation

• Development cycle similar to games
• Must create/maintain associated website
• 3-5 years needed to develop*
• $30-60 million required for launch of full 3D*
• ~$5-10 million required for 2.5D/Flash launch
• >200 competitors

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*Mike Hirshland, Polaris Venture Partners

Google Lively

Vworlds are NOT MMOGs

• Members play “the game of life”
• Members are themselves
• Members define goals, scores, rank
• Members reflect general population
• Members may sell virtual products, own IP
• Virtual economy tied to the real economy
• Members can do “real” work (education, business)

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Stardoll

Vworlds are not empty…

• Compared to MySpace
• 300 million pageviews/day �~1 minute per page per day
• 1/3600 pages being viewed at any time
• If MySpace pages are laid out as “real estate” in a 60x60 grid, occupancy resembles the Second Life grid
• RPGs in Second Life look 10x-100x better than the average MySpace “real estate”

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MYSPACE

HONG KONG ISLAND

MIDIAN CITY RPG

EVERWIND RPG

Take-home: Vworlds aren’t empty…�they just look that way!

Vworlds are NOT MMOGs

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“…The game industry may have created the idea of online entertainment, but the days of orcs and elves ruling the online space is drawing to a close" �

- Christopher Sherman, Executive director of the upcoming Virtual Worlds Fall 2008 Conference

Vworlds versus MMOGs

Goals, scores community created by members

Pre-defined goals, scores

User-created

Prebuilt

Virtual Worlds

Online Games

Vworlds versus MMOGs

Goals, scores, community created by members

Pre-defined goals, scores

User-created

Prebuilt

Second Life RPGs

Entropia

Kid & tween vworlds

(Club Penguin, Habbo, There

Gaia Online, Cyworld, Stardoll)

WoW and

Similar 3D RPGs

Kaneva

Second Life

Web 2.0

MoiPal

IMVU

vSide

Kid/tween gaming�(Neopets, Nicktropolis, KartRider)

Why are vworlds important?

• 2009
• 15% of Internet users MMOG or vworld members (Mark Kern, team lead, WoW)
• Growth Q1 => Q2 2009: 39%
• Average user age: 14 year old (Kzero)
• MMOGs and S/N web make the most money
• Vworlds populated by older early-adopters
• Vworlds offer limited value compared to Web 2.0�
• 2019
• 80% of Internet users in virtual worlds by 2011 (Gartner)
• Average user age: >20
• Vworlds make the most money
• Vworlds replace the web for the new (“Millennial”) generation
• Vworlds become Web 3.0

Vworld accounts in Q4 2008

Virtual world simultaneous users

• Second Life (3D)
• 150 users/island
• ~70,000 simultaneous during Q3 2008 (up from about 2,000 in early 2006)
• Gaia Online (2.5D)
• 100,000 simultaneous (2007)

‘Kid worlds’ have high traffic

SOURCE: Patrick Collins of Brand Architect

http://www.collings.co.za/2007/11/the-march-of-th.html

Vworld members skew younger

SOURCE: Kzero Blog - http://www.kzero.co.uk/blog/?p=2793

Predicted growth of “kid” vworlds

_{Percentage of US child/tweens (3-17)}

_{Expected to visit a virtual world at least once a month}

_{SOURCE: http://www.emarketer.com/Article.aspx?id=1006166}

Time spent in vworlds

_{SOURCE: http://www.emarketer.com/Article.aspx?id=1006166}

_{Provided to eMarketer by Linden Labs}

_{Total time spent logged-in by Second Life Users,}

_{March 2007-March 2008 (millions of hours)}

_{Growth was unaffected by}

_{negative media stories in}

_{Fall 2007, and economic �slowdown in “real” economy}

Vworld members are engaged

• Wow (Aug 2007)
• ~80-100 hours/month(!)
• Second Life (Aug 2007)
• 24 hours/month (counting actual monthly logins)
• 3.7 hours/month (counting unique accounts)
• MySpace (Aug 2007)
• ~ 30-90 minutes/month per page (depending on how you count)
• Habbo (Sept 2008)
• 40 minutes/month

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Take-home

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Vworld audiences are small, but their members are MUCH more engaged than Web 2.0 users

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Second Life classroom

Monetization

• 2008 Dollar revenue, monthly users per month
• Second Life: $9.30/mthly user/month�(higher due to virtual land sales)
• Club Penguin: $1.62/mthly user/moth
• Habbo: $1.30/mthly user/month
• Runescape: $0.84/mthly user/month
• Puzzle Pirates: $1.50/mthly user/month
• Average $1.40/mthly user/month*.
• Excluding Second Life, $1.25/mthly user/month

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SOURCE: Lightspeed Partners Blog�http://lsvp.wordpress.com/2008/06/09/successful-mmogs-can-see-1-2-in-monthly-arpu/

Monetization sources

• Free Sites, optional subscription (“freemium”)
• Virtual products – up to 85%
• Subscription – 10%
• Advertising – 5%
• Paid Sites
• Subscription – 75%
• Virtual products – 25%
• Coupled Sites (need real-world product to join)
• Subscription – 50%
• Real-world product – 50%

Virtual products are the key

• Emulate a real-world thing
• Seeds
• clothing
• Housing
• Pets
• Reproduced electronically
• Near-zero costs
• Sold for real money
• “Game money” bought with real currency
• Direct credit card purchases
• Secondary barter economy
• Users swap vproducts
• Users design and sell custom vproducts

Virtual Products overview

• In July 2009, analyst firm Frank N. Magid that found that 12% of Americans had purchased a virtual gift within the past 12 months�
• Most sales (around 80%) of sales occur within online games

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• Over half of players in online games purchase virtual products�
• Thirtysomethings purchase the most by revenue, while teens and twentysomethings purchase the most per user

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• Players in online games typically purchase $60-75 dollars in virtual products each year�.
• Virtual good buyers are often sellers – Playspan estimated that 31% of its buyers also sold virtual products�
• Asia leads the virtual goods market, with the largest share coming from China

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SOURCES: Frank M. Magrid 2009 Media Futures Study

Lightspeed Partners blog, Virtual Goods News

Growth of virtual product sales

SOURCES: Frank M. Magrid 2009 Media Futures Study

Lightspeed Partners blog, Virtual Goods News

vProduct case studies

• Zanga (October 2009
• FarmVille Players bought $500,000 virtual seeds, 50% of revenues were used to buy real seeds for nonprofits in Hati
• Ning (October 2009)
• A new Virtual Gifts Incentive program will allow anyone creating a Ning site to sell virtual products, with a common currency between all Ning networks
• Facebook (June 2009)
• $75 million/year from sales of ~100 million digital gifts, or about 10% of total sales

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• Stardoll (September 2008)
• 1.8 million virtual products were purchased from the Kohl's “back to school” store within its first 16 days
• Zwinky (August 2008)
• Sears sold more than 850,000 vproducts in Zwintopia during the first 16 days after launch
• Habbo (Sept 2008)
• 2.5 million US users spend $18/month
• 85% of revenue from sale of virtual products, only 15% from advertising
• Nexon (creators of KartRider) June 2007
• Worldwide revenues of $230 million in 2007,
• 85% of it from sale of virtual items
• IMVU (Sept 2008)
• $4 million/month revenue
• 90% comes from a “cut” from sales of virtual products between members

SOURCES: Lightspeed Partners blog, Business Week, Virtual Goods News

What teens buy in virtual worlds

SOURCE: WeeWorld Member Survey�http://www.virtualworldsnews.com/2009/07/weeworld-survey-teens-still-spend-girls-are-major-influencers-.html#more

For teens, branding in virtual worlds is effective

_{SOURCE: http://www.emarketer.com/Article.aspx?id=1006166}

_{Deloitte Development and Harrison Group, “The State of the Media Democracy Second Edition”}

Link to K-Zero’s age breakdown:�http://www.kzero.co.uk/blog/wp-content/uploads/2008/04/kids-world-ages001.png

Take-home

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By 2019, vWorlds will become the place the next generation lives and works…

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…Web 2.0 and classic MMOGs will decline in importance

There.com

What will virtual worlds need to succeed in 2019?

• Fit the audience
• My generation, age group, gender, lifestyle, politics
• I’m special here
• My friends are all here
• It’s a regular, normal part of my life�
• Give the audience what it wants
• I have control
• I can find out what I need to know
• I can buy anything I can find on the web
• I can do my work here

Follow the money…

• Near-term
• Virtual products NOW!!!
• Flat-fee subscriptions
• Advertising
• Market research

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• Long-term
• Real product prototyping
• MMOGs inside larger vworlds
• Virtual education
• Government/military use
• Business work environments

Vproduct Store in Second Life

Barriers to growth

SOURCE: Thinkbalm - http://www.thinkbalm.com

Barriers to growth

• User interface is hard to learn (key commands and complex HUDs)�
• If users are impeded from creating their own content, they don’t (Philip Rosendale)�
• Flat fee structure assumed�
• Massive infrastructure needed

Avatar configuration HUD,

Entropia Universe

Barriers to growth - US market

• Most users log in from home (less sense of community)
• Backlash from Second Life hype
• Limited mobile power precludes use of mobile vworlds
• Internet connections in US are slow

Where will US teens go?

Gaming ->Themed Shopping -> Social Networking

Dressup -> Vproducts ->User-created

Second Life (Social)

Kaneva

Most tween &

teen 2.5 vworlds,

e.g.Stardoll, Habbo,�Whyville, Club Penguin,

Virtual pet sites

Entropia

WoW

IMVU

MySpace

There

Moove

User-Created <- Vproducts <-Dressup

Second Life (RPGs)

Second Life (shopping)

Sources for Virtual Worlds

• Virtual Worlds News – general newsfeed�http://www.virtualgoodsnews.com/
• Virtual Goods News – virtual products�http://www.virtualgoodsnews.com/
• Virtual Economy Research Network�http://virtual-economy.org/
• Pearl Research – China & Asian market�http://www.pearlresearch.com
• Kzero - #1 virtual vorlds consultancy�http://www.kzero.co.uk
• Thinkbalm – “The Immersive Web”�http://thinkbalm.com/

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References

• Virtual Economy Research Network�http://virtual-economy.org/
• LightSpeed Partners Blogs
• http://lsvp.wordpress.com/?s=RPG+Second+Life&searchbutton=go!
• http://lsvp.wordpress.com/2008/09/02/facebook-selling-digital-gifts-at-a-35m-run-rate/
• Business Week� http://www.businessweek.com/magazine/content/07_13/b4027047.htm?campaign_id=rss_daily
• Virtual Goods News�http://www.charleshudson.net/?p=512 �http://www.virtualgoodsnews.com/2009/11/asia-driving-the-virtual-goods-marketplace-.html#more �http://www.virtualgoodsnews.com/2009/09/over-half-of-gamers-purchasing-in-freemium-games.html �http://www.virtualgoodsnews.com/2009/10/ning-launches-virtual-gifts.html#more
• Online traffice at compete.com�http://siteanalytics.compete.com
• Cnet - Neilsen 2008 results for social networking sites�http://news.cnet.com/8301-13577_3-9948219-36.html
• Why virtual worlds are overtaking the game industry�http://www.virtualworldsnews.com/2007/10/why-virtual-wor.html
• New World Notes - New World Notes' True Community Search: Top Twenty Popular Second Life Sites, September 20�http://nwn.blogs.com/nwn/2007/09/new-world-notes.html
• “Total minutes” netratings for web 2.0 sites�http://www.netratings.com/pr/pr_070710.pdf
• MySpace real pageviews�http://www.mikeindustries.com/blog/archive/2006/04/myspace-click-factory
• Fun with numbers: Do New Ratings Mean New Valuations?�http://voices.allthingsd.com/20070712/robert-seidman/
• Second Life statistics�http://secondlife.com/whatis/economy-graphs.php
• Second Life engagement “Second Grade Math”(Oct. 5^th 2007)�http://blog.secondlife.com/category/economy/
• Kid’s worlds poised for growth spurt�http://www.emarketer.com/Article.aspx?id=1005410&src=article_head_sitesearch
• Harvard Business School Conference, Nov 2007�http://www.gamasutra.com/php-bin/news_index.php?story=16326
• There.com demographics (2004)�http://findarticles.com/p/articles/mi_m0PJQ/is_6_2/ai_114573226
• Daedalus Project - The Psychology of MMORGs�http://www.nickyee.com/daedalus/archives/001369.php �http://www.nickyee.com/daedalus/archives/pdf/3-4.pdf
• Comparing virtual worlds�http://www.kzero.co.uk/blog/?p=978
• Virtual World Growth Projections�http://www.slideshare.net/nicmitham/virtual-world-growth-projections/
• Round-up of 50 virtual worlds�http://fabricoffolly.blogspot.com/2007/10/second-life-in-perspective-round-up-of.html
• eMarketer report on virtual worlds�http://www.emarketer.com/Article.aspx?id=1005410&src=article_head_sitesearch

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