Virtual Worlds: 2009 industry forecast

US-based Virtual Worlds Management have released their Virtual Worlds Management Industry Forecast 2009 . It features commentary from more than 60 executives across the virtual worlds industry, including Australia’s Santosh Kulkarni (NICTA), Danny Stefanic (ExitReality), Bruce Joy (VastPark), and Bob Quodling (Mycosm).

vw-forecast-2009

Condensing a report of this size into a few paragraphs is always fraught with difficulty, but the main messages standing out for me were:

1. There’s not surprisingly very different estimates put forward on the level of growth this year, given the current economic circumstances;

2. There’s significant confidence that advertising models are evolving that make virtual worlds competitive with social networks like Facebook, particularly given the growth in virtual goods on those platforms;

3. Web-driven worlds are seen as having the most momentum for 2009;

4. Enterprise use of virtual worlds remains unclear, with a split between those who believe the economic climate provides opportunities to demonstrate cost savings versus those who believe any IT expenditure will be under significant scrutiny.

From the Aussie contingent, one of the more amusing comments came from VastPark’s Bruce Joy:

3D on the Web will continue to be a bit disappointing, but will become far more commonplace through Unity and Flash based engines like Papervision. This suggests 2010 may be the watershed year where 3D on the Web goes mainstream. That’s when we all become rock stars and live large, right?

Mycosm’s Bob Quodling claims “Wireless mobile will be the biggest play” – is that as opposed to ‘Wired Mobile’?

Danny Stefanic from ExitReality sees much clearer ROI cases coming forward for business, whilst Santosh Kulkarni from NICTA cites the developments in interoperability between worlds a key issue.

If you’re interested in some comprehensive thoughts from the virtual worlds industry itself, then have a read of the full report. We’d love to hear your thoughts – is the report a realistic assessment of 2009 prospects, a group of insular assertions from an industry desperate to gain mainstream relevance, or something else altogether?

Second Life: a monopolistic marketplace?

Today, Linden Lab announced that they’ve acquired two third-party, web-based marketplaces, Xstreet SL and OnRez. On the face of it, such an acquisition is likely to appeal to current Second Life residents and provide a more intuitive virtual goods purchasing option for new users when they register. What caught my eye however, was this statement:

As we go forward towards a single, unified Second Life marketplace, we are excited to build on the work that you, along with Xstreet SL and OnRez teams, have done.

Is a single, unified marketplace a totally desirable thing? It’s not usually and it’s hard to get excited about the prospect of a lack of competition. Other competitors may pop up, but the likely dominance of the now Linden Lab driven marketplace is going to make alternatives difficult.

With the burgeoning interest in virtual goods, Linden Lab’s move makes good business sense. That doesn’t mean it will benefit the wider populace of Second Life beyond simplicity and arguably greater security. It’ll be fascinating to see if this development increases what is already a healthy virtual goods throughput, and if so, whether prices are impacted adversely by the lack of larger, organised competition.

Forterra release paper on enterprise virtual worlds

Virtual world developer for enterprise and government, Forterra, have released a white paper titled Recipe for Success with Enterprise Virtual Worlds.

forterra-whitepaper

Aside from an overview of the potential of virtual worlds in business, the cost comparisons may catch the eye of some enterprises looking at cost-cutting measures.

Additionally, an interesting case study is provided on Accenture and its initial use of Forterra’s OLIVE platform to determine the utility of the approach for its own business. The short story is that Accenture are working on a wider business case for virtual world utilisation as a money-saving proposition – in their case primarily for training and meetings.

If you’ve not heard of Accenture then you won’t be aware of what a behemoth they are in the worldwide business sphere. As a management consulting company they have more than 186 thousand employees with a revenue of over US$23 billion. If widespread adoption were to occur in a business that size, it alone would create some significant momentum in the virtual world sphere. Add to that the impact Accenture have in their consulting role – if they end up advocating enterprise virtual worlds as a legitimate business strategy, then even the more optimistic forecasts to date on adoption of the technology may start to look conservative.

You can download the full paper here – by pitching their product mid-field between teleconferencing and videoconferencing, Forterra has started to make inroads with companies of the scale of Accenture and assisted in the eventual development of a cohesive ROI case. That can only assist the wider virtual world industry in demonstrating its potential. It’s ironic that the ecomonic downturn may be the thing that helps overcome the intrinsic cynicism of business toward virtual worlds as it becomes apparent they may actually assist in business costs.

What’s your view? Is Accenture’s momentum in the area a sign of further significant growth on the horizon or just a behemoth of a company testing the waters to keep abreast of developments?

Communities come before commerce

It’s with great pleasure we feature a guest post from Tateru Nino. We’ve profiled Tateru previously for good reason – there are few people who would understand Second Life more fully.

virtual_commerce

That’s a simple enough fact. Without communities, there can be no commerce. Even the simplest of communities suffices, but in the absence of it, you’re not going to make sales or effectively market your products.

In the offline, atomic world, communities are largely a matter of geography and infrastructure. Communities form because people are, willingly or unwillingly, in proximity. That’s why the corner store does alright. They’re right there, in your community, and they provide the sorts of things you want.

In the online world, however, matters of geography and mobility infrastructure are largely erased. Community becomes entirely a matter of choice. There’s no captive audience online. There are only interested audiences, and if you don’t have their interest, then someone or something else does.

So, we have two rules.

One, you need a community before you can attempt to sell. Two, you need to be providing something that community wants before they will buy.

Both rules are commonly ignored online, and in particular by businesses operating in virtual worlds.

There are basically only two ways to deal with rule one. Either you have to move into an established community, or you have to build one. The latter means you have to get people interested, and keep them interested. Even when they’re not paying you for product. That’s hard, and expensive and pays off big in the long run. It’s not a strategy for those who are into short-term gains or who are undercapitalised or undercommitted.

The alternative, of course, is to cuddle up with an established community. In the offline world, that’s newspaper advertising, billboards, sponsorship and so on. Online this is often done with banner-ads, but banner-advertisers tend to be quite a bit more scattershot. In the offline world, even a poorly-placed advertisement will be seen by many potentially interested people. In the online world, a poorly-placed advertisement may be seen by almost nobody who is interested.

A million impressions in the wrong place may be worth far, far less than a hundred impressions in the right place.

And that brings us to rule two. You’ve got to be selling something that the community wants, otherwise you may as well just be setting fire to your marketing budget. A kiosk promoting mobile phone plans isn’t going to work in a medieval role-playing environment or a historical recreation. It’s so out-of-place that you’ll get negative impressions, regardless of how many eyeballs and apparent engagement you’re deriving.

This is one of the few times that I actually counsel marketers to behave differently online than offline. You need to keep the same offline core fundamentals of marketing: Know your market, do your research, and refine your approach through empirical trials — but out in the virtual environments, you need to stop assuming you have a ready-made community. You’ll have to find an appropriate one, or make one — or go back to print ads and billboards.

Virtual Worlds and the Transformation of Business: Impacts on the U.S. Economy, Jobs and Industrial Competitiveness

athenallianceAnyone who hasn’t yet grasped the momentum building in the virtual worlds sphere, hasn’t seen the ever-growing pile of white papers being released. Another example from the past week or so comes from the US-based non-profit entity, Athena Alliance.

Authored by Robert B. Cohen, Ph.D, the paper has the title of Virtual Worlds and the Transformation of Business: Impacts on the U.S. Economy, Jobs and Industrial Competitiveness. As its title suggests, the focus is the US economy and the opportunities virtual worlds may provide. Cohen has some credibility in the tech field, having advised former New York Governor Mario Cuomo on technology as well as being an economic advisor for President George H.W. Bush’s National Advisory Commission on Semiconductors.

Given his long stint in the field, Cohen is upbeat on the potential of virtual worlds for the US economy. After an initial read-through, I found there were some fascinating concepts in the report, particularly the concept of a ‘guild system’ approach to business and virtual worlds. I caught up with the author to ask him about that and the impact of the imminent change in US government:

Lowell Cremorne: From a US standpoint, do you see the imminent change of government federally causing fundamental changes in approach to virtual worlds in the short term?

Robert Cohen: Yes, I think that the desire to use technology to make government work “smarter” and more efficiently will certainly lead to more use of Virtual World technology in the US government itself. This might mean a lot of support for efforts such as the AirForce’s MyBase, where a wide range of training from basic through fairly complex, will all be done in a Virtual World setting.

It would also help bring Virtual World technology for medical care that is being offered by Forterra to the military will get a lot of support. Secondly, the emphasis on helping other parts of the economy use new technology, including Virtual World technology could mean that there
would be some effort made to help businesses and universities use Virtual Worlds for training and education and to support the creation of new
platforms that support the technology with more open standards. This is similar to what is being pushed by the Virtual World Roadmap effort.

Lowell Cremorne: You mention throughout your report the ‘guild system’ approach to business and virtual worlds. Could you summarise that approach and would you agree that it’s a significant mindset change for business?

Robert Cohen: The approach contrasts two outcomes for firms of the future. In one, the multi-industry conglomerate, firms get bigger because virtual worlds help them expand their control over more widespread and sophisticated operations in diverse but related industries. So, I might see auto and aerospace firms merge and bring suppliers that serve them under their wing.

In the other outcome, I would expect a rise of smaller, more agile and nimble “technology user” firms that build up an impressive array of expertise within their firm. These “modern” guild system firms differ from guilds because they can track and support the development of expertise within their firm and clearly define their capabilities to others. As a result, a group of these firms can partner to attack a specific project, say to design a new cancer drug. But people in the firm might also work closely with other, similar “modern guild system” firms to decode a gene with an entirely different group of partners. This kind of joining on a specific task, completing it, retaining some of the intellectual property from it, and then licensing it or producing it jointly is the way this type of firm would work. It might have a series of relationships that are built, continued, broken and then rebuilt with different partners. It is kind of a footloose consultant writ large. I would agree that it is a significant mindset change for business, but you do see some firms operating with elements of this today.

It’s certainly a compelling vision for businesses to investigate. The need for a business to be agile and innovative and to have a heavy emphasis on intellectual capital isn’t a new concept. What Cohen’s paper does illustrate is the impact of a link between the collaborative power of virtual worlds and the current business environment where nimbleness is key.

You can read the report in full here.

Minding My Own Business

Today, a guest post from an Australian business owner in Second Life, Seshat Czeret. One of her major goals is to run a sustainable business in SL – one which she can continue to run, and which sustains itself financially. Anyone looking to run a small business in SL for pleasure, rather than for mega bucks, should check out what Seshat has to say about building and running a business.

seshat

I’m Seshat Czeret, and I run a business in Second Life. It’s a small business, just me handling it, but it’s bringing in the Lindenbucks.

It started almost by accident. I was in SL to help my friend Tateru Nino with her columns, doing some of the groundwork. I ran into a role-playing environment that I thought I’d enjoy, and made myself a couple of things to help myself with that. Some clothing, and a curtsey animation. Friends suggested I put them up for sale, and Tateru offered me a bit of space at her shop. So I did. And they sold.

Another friend asked if I’d make her an outfit, which I did, which also sold. More friends asked for variations on that outfit, and before I knew it, I had a small – very small – business I was running.

I rented a storefront, and that’s the point where I decided I’d better treat this as a real business. I’m running Ubuntu Linux on a laptop on my computer desk, so I started entering my transactions into GnuCash.

At first, I wasn’t earning enough from sales to pay the rent on the store. I entered NCI’s Show and Tell and Newbie Blitz Builds, and the winnings I made from those covered the shortfall.

As I expanded my range of products, sales improved. Eventually, I covered my rent with sales alone. I expanded into other sims, as recommended to me by my customers. Each such recommendation brought me business – when I’ve let my customers lead me to other customers, it’s always succeeded. Places I tried to find on my own have usually failed.

Another friend gave me space in her store in exchange for a copy of everything I made, which enabled me to have a major storefront. That brought another increase in sales. We recently moved to a larger plot of land: I own the parcel my store is on, though the building extends across four parcels & contains multiple stores. And I pay my own tier, now, as well.

So I now have a major store, and several smaller stores across several different parts of Second Life. The smaller stores are usually in places associated with a roleplay sim, and hold products appropriate for that role-play. It’s convenient for the customers, to have the most appropriate products for them right there.

Despite that, two core products still pay most of my tier – the curtseys, and the courtly bows I created to complement them. Whenever they’re appropriate to a store, I make sure they’re there, and prominently placed.

I started very small, and I’ve grown conservatively. I’m still a very small Second Life business – I haven’t yet earned enough money to be worth changing into atomic-world currency. But by growing the business conservatively, I haven’t acquired obligations I can’t fulfil. I can still run the business by myself, and I can afford my tier.

I’ve learned not to be shy of upload fees. I often see advice for SL businesses saying not to put the price on a product sign, because if you change it you need to upload again. I disagree. Making the price visible lets my customers browse with confidence, knowing they won’t be suffering ‘sticker shock’ when they find the things they actually want to buy. One extra sale covers the upload fees!

I’ve learned to keep close track of the business. Keeping track lets me know when a product line is selling well, and when it might need to be changed in some way. It lets me know which of the smaller stores is doing a good trade in landmarks to the main store, which in sales, and which in both. And it tells me which products my customers like, so I know which ones I should probably do more of.

But for all of that business-y stuff, I do bear in mind that even my most expensive product wouldn’t pay for a cappucino. So most of all, I make products that are fun to make. It’s nice to dream about the possibility of making a living doing this, but the realistic point of view is that it might never do more than pay for itself. So I may as well have fun.

Forester Research: building engagement in virtual worlds

In the past week, Forester Research have released a paper titled ‘Consumer Engagement In Virtual Worlds’. The report was commissioned by a consortium of virtual world companies including Metaplace, Inc., Doppelganger (vSide), Gaia Interactive, Inc. (Gaia Online), IMVU, Inc., Linden Lab (Second Life), Donnerwood Media (Meez), PHD, Sony Computer Entertainment America (Home), Sulake Corporation, Oy. (Habbo Hotel), MTV Networks Inc. (Virtual MTV), Vivaty and WeeWorld.

The 19-page report covers some familiar ground around brand awareness and engaging audiences in virtual worlds and actually provides some guidance along those lines, differentiated by the types of virtual worlds (gaming worlds, structured worlds and unstructured / open worlds). Reported negatives from those initial marketing forays into virtual worlds included low numbers of users and inappropriate brand associations. Positives included the global reach, internal enthusiasm for initiatives and tapping new creative options.

The three conclusions drawn by Forester are that

  • The period of experimentation and ad hoc virtual world marketing is over
  • Engagement, community, and tapping creativity should be the virtual world mantra
  • Planning and measurement are lacking

The findings of the report won’t be a surprise to the commissioning consortium but it does provide a useful overview of the ROI challenges for business in virtual worlds and some broad strategies on developing effective engagement strategies.

Forterra ups the ante in enterprise virtual worlds

Enterprise-focused developer Forterra this week ramped up its virtual world offering, emphasising the gains for business over traditional teleconferencing and videoconferencing solutions. Forterra’s OLIVE virtual world platform has reached version 2.2 and with the upgrade comes integration with IBM’s instant messaging / web conferencing application, Lotus Sametime.

The video below provides a striking example of the potential of virtual worlds for enterprise (the really interesting stuff starts around the one-minute mark):

Forterra’s pitch to business is based on cost-reduction:

Audio and Web conferencing are inexpensive, ubiquitous, and generally easy to use. However for meetings involving complex or longer topics the participants can be challenged to grasp the discussion context and maintain focus due to multi-tasking. Virtual meetings in OLIVE are proving to be less expensive yet more engaging and productive for users. Most enterprise-grade teleconferencing systems charge $0.10 to $0.25 per person per minute which can equate to thousands of dollars of expense per employee every year. OLIVE pricing is an order of magnitude less.

Other features in the new update include a reservation system for virtual meeting rooms, with full integration with email calendars via MS Exchange and Lotus Notes. PowerPoint and Windows Media files are able to be viewed in-world, as can any Windows desktop application. Another feature that stood out for me was avatar integration with services like LinkedIn, Facebook, Lotus Connections, or an enterprise-based HR system or Learning Management System. Participants in meetings can right-click on an avatar to get full profile information from the selected service.

We’ve covered another integrated enterprise solution, Immersive Workspaces, previously. These solutions are helping to tackle perceptions of virtual worlds as insecure environments with no obvious return on investment.

Out of consumer error – insert more consumers

Source: Journal Of Virtual Worlds Research Vol. 1. No. 2. ISSN: 1941-8477  November 2008

“Consumer Behaviour in Virtual Worlds”

The “New” Virtual Consumer: Exploring the Experiences of New Users

By Lyle R. Wetsch, Memorial University of Newfoundland, Faculty of Business Administration, St. John’s, Newfoundland, Canada.

In essence, Lyle Wetsch’s idea is that there are insufficient numbers of people already participating in virtual worlds, so businesses need to attract new users into these worlds, to “effectively recruit real world consumers into the virtual world and retain them through positive interactions.” Whether or not this should be the goal, or whether the goal should be to study the existing populations of virtual worlds and make the advertising and other offerings more attractive to them, is somewhat of a moot point. What is more important here is that there are new users entering these digital environments, and that we need to understand their grievances and positive experiences, in order to know how best to tailor consumer experiences for them.

40 undergraduate business students and 10 MBA graduate students spent 12 weeks in Second Life becoming acclimatised to that environment, all having entered as first-time users. Through blog entries, online discussion groups and interviews of these students, information about new user experiences was gleaned. Wetsch feels that this information is able to “guide suggestions for improving the experience of new virtual consumers in order to create long-term consumer relationships with an organization’s virtual presence.”

Second Life is one of the prime candidates being considered as a potential advertising base for real world consumers. It is one of few virtual worlds with the capabilities required for business endeavours – user-created content and user-to-user transactions.

In summary: section by section

Research Problem: We need to reduce churn – this is where users register, but fail to continue to use the product – by coming to understand the new user experience better.

Theoretical Framework: Research done on text-based chat environments. This seems inadequate – users interact with other users, but are more likely to interact with their environment, unless a business has provided a staff member to interact with at their build.

Methodology: “Student comments and discussions provided insight into the mind of the new entrant to the virtual world in real-time as they experienced it, commenting on their blogs at the time the incidents occurred to enhance the
accurate recall of events.”

Findings:

  • Technical Requirements: Many students were disappointed with the lack of capability to run Second Life that their computers demonstrated. Both the students and the researchers compared Second Life graphics and overall quality of response to other “gaming” environments, not taking into account that those other environments, using game-like graphics, can store much of their data locally, rather than having to make continual updates, as happens with Second Life.
  • Graphics: Those students able to access the digital environment easily were for the most part impressed with the graphical quality of Second Life.
  • Avatar control: Interestingly, this group of students seems to have had quite a lot of difficulty with avatar control, particularly those with prior gaming experience, who found the different controls to be disorienting. Time and practice seemed to fix the problem.
  • Griefers: “Griefing was experienced by less than 10% of the students.” However, those affected by it seemed most upset and put out by it.
  • Variety of experiences: Many of the students expressed great disappointment with the Search function, especially when comparing it with Google’s performance.
  • Lack of people/interactions: The students had quite a lot of trouble finding other users to interact with. Even when they were able to find groups of users conversing, often the other people would not talk to them. This brought about feelings of isolation and loneliness.
  • Building is not enough: A lack of effort is recognised by users, and will have a decidedly negative impact on them as consumers.

Conclusions and Implications

“The key is the INTERACTION. Without the interaction, there are better channels to present the information.”

  • Expectation Management: Users are more likely to be forgiving if you let them know what they are getting and why they are getting it – if you have a good, rational explanation for, for example, the technical requirements for your product being so steep, people tend to be more forgiving.
  • Ease of use: Improve the new user experience by making the environment easier to interact with. Provide useful tools and expectation management.
  • Interaction: Make it interactive. If there are no users to interact with, consumers need some other sort of interaction to keep them engaged.

Virtual worlds are big: market research

US-based market research firm In-Stat have released a research paper entitled ‘Virtual Worlds and Web 3.0: Examined, Compared, Analyzed‘.

To see the 58-page report in full you’ll need to pay US $2,995 (that’s only $51.64 per page folks!), but the overview is:

  • virtual world businesses earn nearly 90% of their money from sale of virtual items
  • The number of registered virtual world users will have exceeded 1 billion by 2012, with a total revenue of US $3 billion.
  • Ten criteria were used to rate virtual worlds, with the social networking aspect coming out as the strongest hook. On the face of it, none of the findings seem earth-shattering for virtual worlds observers. For more traditional businesses, the revenue projections would certainly draw some interest. Market research on virtual worlds in becoming more and more frequent as business sees the potential opportunities – market research businesses in particular.

    The projections put forward by In-Stat don’t seem that unrealistic given the current revenue and registration numbers – what do you think?

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