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9 Reasons Why it Might Be Time For Marketers to Value Virtual Goods

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I'll just go ahead and admit it... I am curious about Second Life. Once the darling of big brands wanting to 'go social' it may have had a fall from grace but all the evidence points to a resurgence in virtual worlds. Here are some thoughts why.

1. Social Gaming Is Big Right Now

The social gaming economy, in 2010, is already worth $10 billion.

2. The Market for Branded Virtual Goods is Growing

'Branded virtual goods' market in the U.S. was estimated at $1 billion in 2009 and estimated to hit $2.1 billion in 2011. The global branded virtual goods market is estimated to be worth $150M By 2013, and the kicker, is that is estimated to only be 5% of the 'general virtual goods' market.

3. Convergence of Web, Mobile and TV

In this article on VentureBeat, Justin Smith, head of Inside Network and creator of the Inside Virtual Goods report is quoted as saying:

"If 2010 was the year that virtual goods made a splash in western markets, 2011 will be the year that these markets begin to mature as the collective opportunity across social games, online games, virtual worlds, consoles, and mobile games reaches the $2 billion dollar mark."

4. Rapid Development of Second Life Platform, Despite Slow Growth in Users

Second life contributes $0.6 billion to the general virtual goods economy. In 2006, the Second Life economy was such that Anshe Chung became a real estate millionaire. Second Life, whilst often perceived to be a place for the weird rather than edgy, has a huge in-world gaming economy and at the end of 2009 SL residents traded $100.8 million in virtual goods.

Furthermore, cash-rich creators of the virtual world, Linden Lab have been on an acquisition streak earlier this year, acquiring Avatars United (a social network for massive multiplayer gamers) and virtual goods brokers, Xstreet and OnRez. Murmurings on the SL grid, via SEW's own virtual world correspondent Avril Korman, is that Linden Lab are making some significant strategic changes in how the Second Life platform operates and integrates with 3rd parties.

5. Location Services Present a New Opportunity

Facebook and location based social networks such as Foursquare are seen to be the biggest drivers of the social gaming economy and the virtual branded goods market in the west. Facebook recently limited the way that games on their platform were able to go viral through the community and this caused slowdown in the market in 2010. This underscores how important social networks are to the rise of this market.

6. Big Media Acquisitions

Nonetheless, huge media companies such as Disney and big gaming companies Electronic Arts are still getting on the act with their respective acquisitions of Playdom for $763 million in July of this year and Playfish at the end of 2009. More tellingly perhaps is that Microsoft has been on a secret acquisition spree for Vivaty, a competitor to Linden Lab. Conversely, Google have also been on a very public acquisition spree, buying up social gaming companies LabPixies, Slide.com, SocialDeck and also Jambool a social payment platform. What are Microsoft and Google upto? Perhaps both are acquiring talent rather than new products but both are poised to compete for living room attention by the end of the year, via the Xbox console and Google TV.

7. Recession

Kart Rider, one of the most successful 'vehicles' for branded virtual goods has 230M users (nearly half as many as Facebook) and over 30% of the Korean population have played it.

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During my own visit to Korea in late 2008 I learned that the virtual goods market first took off in Asia due to two critical factors:

  • Low unemployment rates during the Asian financial crisis of 1998
  • Massive government investment in internet infrastructure to reboot the economy

The net effect of the financial crisis and subsequent government investment is that massive multiplayer gaming took off in Asia as the younger workforce was unable to find jobs. Due to the low spending ability of their audiences, gaming companies opted for business models based on micropayments. Unlike U.S. consumers who are willing to spend upto $60 for a computer game, companies in Japan, China and Korea (particularly the latter) charged low subscription fees for massive multiplayer games and allowed users to buy 'in-game world' enhancements. The model proved so successful that advertisers were quick to seize the opportunity and team up with gaming companies to deliver branded game enhancements, such as a branded Mini or BMW for go-kart for the massive multiplayer mario-kart clone Kart Rider.

Whilst it's still unclear whether we are out of the global recession, one thing is for sure. The recent recession has triggered a strategic change in how marketers are spending money and marketing budgets have moved from traditional spending channels to online ones, through search, social networks and mobile channels. If you needed further evidence that the realtionship between big media and online marketing might be flipping on it's head, hark back to this summer when Foursquare took over Times Square.

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8. Scalable Vector Graphics, The Cloud, Rich-data Formats and Virtual World/Network as Platform

The technological push that foreshadows the trend in convergence is that it is becoming easier to deliver rich services to smaller devices and to maintain a users identity through any access point. Scalable Vector Graphics (SVG) will allow web developers to create online destinations that render beautifully and seamlessly across any device. Cloud Computing, via server side processing, is allowing companies to deliver rich personalized experiences to low powered devices. Rich-data, in turn, is going to enable web services to maintain user identities across platforms, but more importantly across social networks and services, meaning users will be able to take their personal data and connect with their real life friend network no matter what social network they are on.

Yet, the technological trend is not without it's human inspiration. In Korea, I met Nurien Software who have been developing their own Second Life clone. Their reasons? Combining social networking with massive multiplayer gaming opened up a new dimension of communication and social interaction. The limits of text based chat (conveying tone) and web video chat (direct 1 to 1 communication), has the potential to be transformed in a virtual environment. Put simply, indirect communication can take place in virtual world. Groups can share space and mingle together or people can participate in a group activity such as watching a film, virtually together. Perhaps more importantly, direct communication can be augmented with body language and gesture. Put another way - an avatar could kiss another. Focussing on graphics and articulating the body, avatars in Nurien's world are incredibly lifelike, expressive and interactive.

Nurien Software's approach to building their world was also singularly built with integration and widget and app-like components in mind. The TV set in a users virtual living room could contain their Youtube playlists and the photoframes, their Flickr pictures. Perhaps more successfully than Second Life, Nurien Software have been able to create and market more minigames based on their 3D virtual world platform, which have enabled them to generate revenue from casual users who do not necessarily want to get fully immersed in a virtual environment. For a sense of the potential appeal such a strategy could have, check out the articulation of the dancer in the dancemat enabled mini-game below, powered by Nurien's 3D virtual world engine.

9. Virtual Worlds & Goods Generate Value for Everyday Consumers

As our Second Life columnist, Avril Korman, eloquently wrote in her series of articles which presented an outsiders guide to Second Life, virtual worlds and goods generate real world emotional value.

On Architecture in Second Life she discusses how the lack of gravity enabled users to design their dream homes and how she has been able to build a virtuatecture business upon this, where users are able to invest in their fantasy for a minimal physical cost and, more importantly, a minimal financial cost.

On Fashion in Second Life she discusses the average person's ability to sate the urge for a shopping spree via a virtual world, all without having to haul a dozen bags home on the subway. Micro payments for beautifully designed works of virtua-couture are proving to be rewarding experience for many denizens of virtual worlds.

On Sex, Money, Fame & Glamour in Second Life she discusses how making real money from creating and selling her own virtual goods and converting the income from Linden dollars into U.S. dollars. The low overheads of running a business in a virtual world have enabled many other people to also generate an income in a completely new and unique way. Such an opportunity is something not afforded on any other social network at the moment.

Her articles were so popular that Avril's SL identity, Axi Kurmin, was invited as a guest to a virtual talk show to discusses some of the themes raised in her column (embedded below).

To Conclude:

The three-fold trend to follow is:

  • A growing market for virtual goods in the U.S. and across the world
  • Virtual currencies already reaching mainstream audiences via Xbox Live, Facebook credits and eventually Google's Jambool acquisition
  • Concomitant convergence of web, mobile and TV

Due to the fact value and 'emotional connection' is being generated for consumers of virtual services across multiple platforms, we may eventually see the emergence of virtual currency trading system between all the different networks. If that happens, more users can buy and sell more virtual products and thus virtual content producers can make more real money out of virtual goods via a variety of channels.

Editor's note: After a summer break in transmission, we're bringing back our off-beat Saturday column, permanently. Every saturday we'll explore ideas, trends and tactics on topics that are indirectly related to search and social media. Next week, we'll be joined by Avril to discuss the recent changes in Second Life's platform with more social gaming content to follow during the year.


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