1. Impact of Virtual Worlds The online destination for the next generation? Dr. Pete Markiewicz Indiespace/Lifecourse Associates pindiespace@gmail.com

2. 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?

3. 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

4. Two kinds of vworlds Tween and kid vworldsAdult 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

5. Virtual world examples (teen/adult)

6. Virtual World Examples (kids)

7. Virtual world environments There Empire of Sports Club Penguin Habbo

8. 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

9. 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=43http://www.nzherald.co.nz/health/news/article.cfm?c_id=204&objectid=10493847 http://www.360kid.com/blog/?p=43

10. 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

11. 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

12. 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 *Mike Hirshland, Polaris Venture Partners Google Lively

13. 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) Stardoll

14. 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” MYSPACE HONG KONG ISLAND MIDIAN CITY RPGEVERWIND RPG Take-home: Vworlds aren’t empty… they just look that way!

15. Vworlds are NOT MMOGs “…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

16. Vworlds versus MMOGs Goals, scores community created by members Pre-defined goals, scores User-created Prebuilt Virtual Worlds Online Games

17. Goals, scores, community created by members Pre-defined goals, scores User-created Prebuilt Vworlds versus MMOGs 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)

18. 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

19. Vworld accounts in Q4 2008 Virtual WorldRegistered UsersMonthly loginsTechnologyDemographic Yahoo500 million300 millionWeb S/NGeneral audience Facebook (web)120 million124 millionWeb S/NCollege students MySpace (web)150 million114 millionWeb S/NTeen and adults Neopets60 million12 millionWeb FlashKids and teens Cyworld (Korean)30 million21 millionWeb FlashTeens and adults World of Warcraft12 million??? (high engagement)3D ClientAdult Habbo Hotel100 million10 millionWeb FlashKids and teens Stardoll18 million6 millionWeb FlashKids and teens Gaia Online15 million7 millionWeb FlashKids and teens Webkinz10 million?6 million (high recurring)Web FlashKids Club Penguin (Disney)17 million4.5 millionWeb FlashKids Zwinky16 million4.5 millionWeb FlashKids and teens Barbie Girls (Mattel)13 million2.3 millionWeb FlashKids and teens Home7 million??? (high engagement)3D ClientTeens and adults Nicktropolis6 million1 millionWeb FlashKids TOTAL VIRTUAL WORLD ~300 million (330 million in 2009) ~90 million

20. 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)

21. ‘Kid worlds’ have high traffic SOURCE: Patrick Collins of Brand Architect http://www.collings.co.za/2007/11/the-march-of-th.html

22. Vworld members skew younger SOURCE: Kzero Blog - http://www.kzero.co.uk/blog/?p=2793

23. 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=1006166http://www.emarketer.com/Article.aspx?id=1006166

24. Time spent in vworlds SOURCE: http://www.emarketer.com/Article.aspx?id=1006166http://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

25. 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

26. Take-home Vworld audiences are small, but their members are MUCH more engaged than Web 2.0 users Second Life classroom

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

28. 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%

29. 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

30. 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 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 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 SOURCES: Frank M. Magrid 2009 Media Futures Study Lightspeed Partners blog, Virtual Goods News

31. Growth of virtual product sales SOURCES: Frank M. Magrid 2009 Media Futures Study Lightspeed Partners blog, Virtual Goods News

32. 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 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

33. 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

34. For teens, branding in virtual worlds is effective Media TypeMillennialGenXBoomersMatures Interactive web ads6668 73 Banner Ads52586371 Video preroll ads36302728 Video postroll ads2119 17 Embedded video ads22 129 Ads in virtual worlds2319147 Ad in videogames231688 SOURCE: http://www.emarketer.com/Article.aspx?id=1006166http://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 http://www.kzero.co.uk/blog/wp-content/uploads/2008/04/kids-world-ages001.png

35. By 2019, vWorlds will become the place the next generation lives and works… …Web 2.0 and classic MMOGs will decline in importance Take-home There.com

36. 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

37. Follow the money… Near-term –Focus in kid’s worlds –Virtual products NOW!!! –Flat-fee subscriptions –Advertising –Market research Long-term –Real product prototyping –MMOGs inside larger vworlds –Virtual education –Government/military use –Business work environments Vproduct Store in Second Life

38. Barriers to growth SOURCE: Thinkbalm - http://www.thinkbalm.comhttp://www.thinkbalm.com

39. 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

40. 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

41. 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)

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

43. References Virtual Economy Research Network http://virtual-economy.org/ http://virtual-economy.org/ LightSpeed Partners Blogs http://lsvp.wordpress.com/?s=RPG+Second+Life&searchbutton=go!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_dailyhttp://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 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 http://siteanalytics.compete.com Cnet - Neilsen 2008 results for social networking sites http://news.cnet.com/8301-13577_3-9948219-36.html 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 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 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 http://www.netratings.com/pr/pr_070710.pdf MySpace real pageviews http://www.mikeindustries.com/blog/archive/2006/04/myspace-click-factory 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/ http://voices.allthingsd.com/20070712/robert-seidman/ Second Life statistics http://secondlife.com/whatis/economy-graphs.php http://secondlife.com/whatis/economy-graphs.php Second Life engagement “Second Grade Math”(Oct. 5 th 2007) http://blog.secondlife.com/category/economy/ 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 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 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 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 http://www.kzero.co.uk/blog/?p=978 Virtual World Growth Projections http://www.slideshare.net/nicmitham/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 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 http://www.emarketer.com/Article.aspx?id=1005410&src=article_head_sitesearch