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Andrew Chen has a great post on his blog titled Virtual goods: Who will be the Amazon.com of virtual item sales?. He discusses the fact that the virtual goods industry needs a single, standardized e-commerce platform that provides virtual goods retailers with:
- Product recommendations
- Price testing
- Product bundling
- Search, browse, and navigational hierarchy
- Reviews, ratings, lists, and metadata
- Affiliate programs
- Ad targeting
As virtual goods becomes an increasingly important revenue channel for social networks, social networking applications, virtual worlds, and MMOG’s, the need for a powerful virtual goods e-commerce platform will get more and more acute.
Yesterday, Forbes released an article called A Cupcake On Your iPhone that talks about Viximo’s virtual goods platform and some of our iPhone initiatives. The article has a great quote that sums up our platform business:
For Web publishers, Viximo offers a soup-to-nuts virtual gifting service that provides digital content from its community of independent developers, billing via Paypal, a revenue-share program with artists and their sites, and analytical tools that track what goods sell well. The aim, says Frasca, is to create a platform for digital goods across multiple publishers, including mobile
The article also discusses our iPhone strategy which is one of the reasons I’ve been so short on blog posts lately. If you interested in learning more about Viximo’s virtual gifting platform or talking about the virtual goods space in general, give me a shout!
Things have been a little crazy on the Viximo front, and the Virtual Worlds 2008 Conference Series which I nobly planned to finish a week after the conference still has a couple of posts left.
This article is inspired by Virtual Goods and Branded Virtual Goods: The New Way to Revenue, a session in the Marketing and Entertainment track of Virtual Worlds 2008. The panel was moderated by Giff Constable, COO of Electric Sheep Company and featured Craig Sherman, CEO of Gaia Online; Matt Bostwick, CEO of A4R4 Media and formerly head of MTV’s Virtual Worlds group; Ruben Steiger, CEO of Millions of Us; and Gene Yoon, VP of Business Affairs of Linden Lab.
A New Era for Branding
Let’s face it. Brand marketers have had a tough few years. The mass exodus from offline media viewership to online media viewership has left many brand marketers scratching their heads. While call-to-action marketers have basked in the measurability and effectiveness of pay-per-click and pay-per-action search advertising, brand marketers are reeling from a one-two punch of decreased TV ad viewership (courtesy of TiVo) and the increased ubiquity of the lowly banner ad.
But a new era for branding is dawning—one that will make the gains of search advertising look paltry by comparison. Matt Bostwick explained that “branding” is what happens when a consumer takes a marketing message and makes it part of her mind, heart, and lifestyle. In the past, a key tool for transforming “marketing message” to “brand relationship” was poignant television advertising (just try watching a great Nike ad without having an emotional reaction). Certainly, online video will be an important vehicle for brand marketers, but the ultimate tool in the age of the avatar generation is branded virtual goods.
Branded virtual goods spark the cycle of brand engagement. The cycle begins when a viewer sees the brand in the low-barrier context of a virtual world. When a user chooses to interact with that brand, the relationship begins. As that relationship matures, the user becomes an online advocate for the brand and shares it with her social network. Return on investment is achieved in two stages: 1) when the user buys a virtual representation of the brand online and 2) when that relationship moves offline and the user buys physical branded product.
Is this really working? Absolutely. Over 80% of the MTV Virtual Worlds community have purchased a branded virtual good and these virtual goods have been used over 5 million times. Altogether, that has resulted in 50 million viral endorsements—not 50 million “impressions”, but 50 million endorsements made from one user to another. And MTV has found that people who purchased and used branded virtual goods have a radically increased interest in purchasing that brand’s physical goods.
The Vanishing Line Between Real and “Virtual”
So why is all this working? Why are people carrying online brand relationships into the real-world and vice versa? It all has to do with the avatarization of our identities. The “avatar generation” is the first generation where nearly everyone will have an avatar, where the line between people’s digital lives and offline lives will become vanishingly thin.
Parents of children who use Webkinz are all too familiar with this phenonmenon—they know that the physical plush toy is almost incidental to its online manifestation. This phenomenon is amplified by the fact that people tend to play “as themselves” in online worlds. Since avatars represent their creators, the products consumed by avatars and within virtual worlds represent real world purchase intent. Stardoll leverages this by coordinating virtual goods product availability with real world product availability. If a girl likes the way her avatar looks in that new DKNY pencil skirt, she can run out and buy it from the brick-and-mortar store that day.
Some people worry that branding sullies the virtual world experience—that people don’t want brands in their virtual worlds. Certainly, some worlds represent an online “utopia” for their users and these users want to escape the trappings of the real world. To some extent, that is why brands have had a hard time in Second Life. But, for many people, brands are a valuable mechanism for self-expression. The virtual worlds that attract users who express themselves through the clothes they wear, the bands they listen to, and the brands they use will find that branded virtual goods enhance the experience and make the virtual world more real.
A Choice-Based Medium
The most salient characteristic of branding in virtual worlds is that virtual worlds are a choice-based medium. If consumers choose your brand, that becomes a powerful viral distribution mechanism, but if consumer’s don’t choose your brand, it dies on the vine. Matt Bostwick describes this as a swarm of “brand bots”. Brand marketers send these automatons into an array of virtual worlds. In some worlds, these brand bots multiply and evolve as user’s shepherd them through the social fabric of the world, and in other worlds they go neglected and die. Many factors determine the fate of these brand bots including the nature of the virtual world, the receptivity of that world’s audience, and the resonance of the brand message. Its up to brand marketers to chose the right worlds for their brands, find the most receptive target demographic, and craft a winning brand experience.
Marketing Strategy for Virtual Goods
There is a tendency to think of virtual goods campaigns as a form of advertising or media buy. In general, media buys are fire-and-forget, but virtual goods campaigns are very different. The “build it and they will come” strategy just doesn’t work, and early players figured that out quickly. Kicking off a virtual goods campaign needs to be thought of like any other product launch—its the beginning, not the end. Just as a solid marketing strategy is necessary to win with a product launch, it is the bedrock of a successful virtual goods campaign.
“Interactive” Product Placement
As television advertising viewership has evaporated, brand marketers have found an oasis in product placement. While many forms of traditional advertising are declining, PQMedia, a consultancy focused on alternate forms of advertising, predicts that product placement spending will rise from $3.1B in 2006 to $5.6B in 2010.
In many ways, virtual goods campaigns are really a form of product placement woven into the dynamics of virtual worlds. What’s the key differentiator between traditional product placement and virtual goods campaigns? Interactivity.
Since virtual worlds are a choice-based medium, product placement in virtual worlds is subject to the swarm effect I discussed earlier—the products are given over to consumers, instead of television producers, to place, position, and promote.
The tactics that make a successful product placement campaign work in virtual worlds too:
- Carefully select the contexts in which your product appears—the contexts should be relevant and complementary
- Products should be identifiably, but subtly, branded—big and loud logos are too heavy handed
- Know that you are giving up some control and be aware of the risks and rewards
- Make it easy for the consumer to take action (e.g., TV placements are often followed by informational ad spots to help close the sale, Stardoll makes it easy to buy the clothes featured online, etc.)
One of the tactics that is unique to virtual worlds is that virtual goods can reinforce brand messages through the mechanics of that virtual world. Craig Sherman from Gaia Online discussed how Nike is integrated into their world. A key brand message for Nike is that they help you achieve better athletic performance. How do you reinforce that in a virtual world? Well, when a consumer buys a pair of Nikes in Gaia Online, they enable that person’s avatar to run faster. As with real-world product placement, virtual goods campaigns aren’t just about slapping a logo on a visual asset.
Theatrical Experiences
Craig Sherman and Ruben Steiger discussed the strategy for integrating brands and branded virtual goods into Gaia Online. The true power of the virtual world medium is unleashed when operators and brands work together to create theatrical experiences that permeate every facet of the virtual world. Certainly, one of the masters of offline theatrical experiences is the WWE. Ruben discussed how Millions of Us, Gaia Online, and the WWE worked together to pull that theatrical flair into Gaia.
They started the campaign with an event in Gaia’s forums. John Cena, one of the WWE’s main protagonists, was an active participant in the forum. Like fans at an offline WWE event, various people started heckling John in the forums. When the forums got to a heated pitch, one of the Gaia users was revealed as John’s nemesis and that kicked off the rivalry at WWE SummerSlam. The campaign was a major success (it has been honored with a couple rewards) and virtual goods related to the WWE became highly sought after in the Gaia community.
Ruben explained that virtual goods allow brand marketers to explore entirely new areas. Virtual goods can act as the medium for stories or brand messages, can evolve over time, can unlock capabilities such as being able to run faster, and can make users an integral part of the brand story.
Channel Strategy
Channel strategy is one of the four pillars of traditional marketing strategy. It turns out that channel strategy is just as important for virtual goods campaigns.
The first step in defining a successful channel strategy is to select the appropriate online services and virtual worlds for a given brand. As with offline channel strategy, one of the callenges of an online channel strategy is dealing with lack of control if the channel is not owned and operated by the brand. Many brands are addressing this challenge by developing their own virtual worlds. For example, Mattel built its own channel for its Barbie brand with Barbie Girls and Disney is planning to invest up to $100 million in 10 different virtual worlds for its brands.
As in the real world, it’s not always optimal or practical for product brands to vertically integrate into distribution. This will become increasingly true as virtual world development costs follow the same path as video game development costs (it currently costs about $5 million to implement a basic virtual world and this cost will increase to $20-$50 million over the next 5-7 years). Matt Bostwick hit the point when he said: “You don’t need to build New York City in order to sell Coke.” Even in the cases where a brand decides to implement its own virtual worlds, valuable opportunities are missed if that brand focuses exclusively on those worlds.
Once a brand has selected the appropriate virtual worlds for its products, then it needs to devise a distribution strategy for reaching consumers in those worlds. Oftentimes, the operator of the virtual world will be instrumental in defining that distribution strategy. However, in more free-form worlds such as Second Life, the brand may need to implement its own promotion and distribution plan.
Brands would be wise to follow the example of the L’Oreal campaign in Second Life which was run by K Zero. Typically, when brands have implemented campaigns in Second Life, they create their own venue and attempt to drive traffic to that venue (this is the analog of a brand running its own brick-and-mortar retail store). Instead, K Zero and L’Oreal worked with successful virtual entrepreneurs to promote and distribute L’Oreal’s virtual products through their existing distribution networks. What L’Oreal lost in “brand control”, they more than made up for in increased awareness and distribution.
The best practices for channel strategy carry over into the online world: success is achieved by selecting a mix of appropriate channels and by carefully managing, motivating, and monitoring those channels. Channel decisions are never easy, but the right ones separate success from failure.
Just the Beginning
We really are at the dawn of a new era for brands. Opportunities abound, but so do risks. Brands will have to navigate a permanent shift to increased consumer choice and control. The music industry faced a similar inflection point a few years ago. Consumer brands are already proving that they are much more savvy than the big record labels, and they’ll reap the corresponding rewards.
Tucked away in Room 5 on the ambiguously named “Technology & Results” track at the Virtual Worlds Conference, Matt Palmer and Glenn Ginsburg presented a session titled “Stardoll: The Next Level of Engagement”. Stardoll not only represents the next level of user engagement, it also represents the state of the art in brand integration and virtual goods business models.
Stardoll’s Audience
Spreading Like Wildfire
Stardoll has over 16 million registered accounts and is adding 35,000 new accounts per day. But Stardoll doesn’t suffer from registered account bloat; the site reaches 7.8 million unique users per month. Those users generate 600 million page views over 35 million visits per month. Even at a modest CPM, that’s a whole lot of revenue, but Stardoll’s business doesn’t rely on banner ads. Instead, Stardoll relies on virtual good sales and integrated sponsorship. As result, they simultaneously achieve a higher revenue per user and provide a better user experience. But more about that later.
Perhaps you’re thinking that this growth must be the product of a massive, expensive, unsustainable media campaign? Not a chance, Stardoll hasn’t spent a dollar on paid media. Growth is driven by viral buzz and press exposure.
Global Appeal
Stardoll is an international phenomenon. It was started by a Finnish woman who wanted to share her passion for fashion with her friends and family. Today, the 60-70 employee company is headquartered in Stockholm, but commands a global audience (44% in the U.S., 46% in Europe, and 10% in Asia). The site has been translated into 15 languages and additional translations, such as Japanese, are on the way.
Girl Power
Not suprisingly, Stardoll’s audience is primarily female (93.1% female, 6.9% male). The site appeals at a universal level to its key demographic - a demographic that has been notoriously difficult to reach in a meaningful way. Stardoll is attaining scale without diluting their core audience; it has the highest concentration of teen girls of any online service.
In addition to teenage girls, the site has found a surprising audience - their mothers. 81% of mothers visit Stardoll weekly and 63% visit the site without their daughter. Co-viewership on that scale is virtually unheard of on the web.
Stardoll’s “Gameplay”
Who Knew Putting On Clothes Could Be So Much Fun?
At Microsoft Game Studios, we urged our first party developers to identify their game’s core fun as early as possible. Once that core fun is identified and refined, building a great game is actually pretty straightforward. For Halo, the core fun is aiming and shooting with a variety of well-balanced weapons. For Age of Empires, the core fun is establishing an efficient unit production pipeline.
The Stardoll team knows that their core fun is dressing a paper doll. Apparel is dragged off hangers and onto the paper doll. It can be placed anywhere on the screen, and that simple mechanic yields a good deal of fun. Want to give David Hasselhoff that much needed gangsta look? Drag his pants down low. Think it’s about time for Avril Lavigne to ditch that good girl look? Low rise pants and a little cleavage couldn’t hurt.
Stardoll builds on that core fun with an array of thousands of dress-up and make-up options. This gives Stardoll’s entire audience, from Goth girls to Glam chicks, a powerful way to express their unique identities.
From Solitary to Social
Stardoll’s dress-up function acts as the foundation for a broader experience that looks a lot like other virtual worlds. Stardoll users get their own space, called a Suite room, which they can decorate to suit their tastes. A new chat feature lets a user share the dress-up experience by inviting a friend to her Suite room.
The heart of Stardoll is StarPlaza, an online shopping mall that features Stardoll’s internal brands, such as Fudge and Pretty in Pink, and real world brands, such as DKNY. Stardoll also features an active aftermarket, called StarBazaar, where users and buy and sell items in their wardrobe. Basically, its a virtual vintage shop.
To date, all of the apparel and other virtual items in Stardoll have been designed by Stardoll’s creative team. StarDesign is a soon to launch feature that allows Stardoll’s audience to create their own fashions. The combination of StarPlaza, StarBazaar, and StarDesign will enable Stardoll’s users to participate in a rich virtual economy based on the fashion they love.
Stardoll’s virtual world features are complemented by features that are more commonly seen in social networks. Each user is given a profile page that looks a lot like a typical social networking profile page. However, due to the site’s younger demographic, the contents of the profile pages are limited. Girls can’t upload photos, but they can express themselves with images of their MeDoll and a variety of profile customization options. Stardoll also features Clubs that are similar to Facebook Groups. The Clubs feature was launched five months ago and there are already over 500,000 Clubs in the system.
Stardoll’s Business
Virtual Goods Done Right
Six figure real estate deals in Second Life and massive gold farming in World of Warcraft are what get the media’s attention when they talk about virtual goods. But Stardoll is the company that has flawlessly unlocked the power of the virtual goods business model.
The first key to Stardoll’s success is that they’ve found a genre of virtual items that are truly valuable to their audience. Celebrities and their fashion are an aspirational obsession for millions of people around the world, and Stardoll taps directly into the vein of that obsession. That same insatiable desire to look trendy in the real world translates, without skipping a beat, into the online world.
The second key to Stardoll’s success is that they provide an incredibly rich platform with which fashion brands can reach their demographic. As soon as fashions hit the runway or the retail shelf, they are available in Stardoll. If a girl thinks her MeDoll looks cute in that new pencil skirt from DKNY, she can run out that day and grab the very same skirt from her local brick and mortar mall. That same branding extends beyond just apparel. MeDoll make-up is provided under the Sephora brand and jewelry is based on designs from Heidi Klum’s jewelry collection.
All of this makes Stardoll one of the most powerful branding and lead generation tools thats ever been available to the fashion industry. They have even had consumers ask when Stardoll’s house brands, such as Pretty in Pink, will be available in brick and mortar stores.
Advertising Done Right
Stardoll doesn’t fall back on banner ads to augment their virtual goods business. Instead, they weave marketing messages into the features of the Stardoll experience and, as a result, create an advertising experience which is fun, engaging, and far more powerful than static banner ads.
For example, during a recent advertising campaign for Disney’s movie Enchanted, Stardoll took scenes, characters, and costumes directly from the movie and incorporated them into the world. As a result, Stardoll’s users could immerse themselves in the fiction of the movie and develop an attachment to the movie world before Enchanted even hit screens. In a unique twist on banner advertising, Stardoll offered a poster that users could hang in their Suites. That poster was hung in hundreds of thousands of Suites and generated millions of ad impressions. Stardoll’s approach to advertising generated everything from casual brand impressions to deep engagement in a way that added value to the audience’s experience and was elegantly integrated into the site’s core activities.
Stardoll provides a similarly rich branding platform to actors and music artists. Every celebrity featured on Stardoll has their own unique URL so that they can use their Stardoll presence as a promotional vehicle. In addition, Stardoll often runs explicit promotions for celebrities and musicians who are featured on their site. For example, Stardoll recently ran a contest where a member of their audience was flown to an Avril Lavigne concert and got to meet her backstage.
Stardoll’s approach to advertising highlights some important lessons:
- Audiences want advertising, but only for the brands they care about
- Audiences want to chose the brand messages they receive; they don’t want those messages pushed to them
- Just as in the real world, online brand associations are powerful personal identifiers
- Engagement is maximized when branding is woven into the core activities of the site
- Above all else, advertising should be fun for the user, not a distraction
A Model for the Future
Although virtual goods have resulted in extraordinary success in Asia, there has been some doubt as to whether virtual goods would become a mainstream business model in Europe and the U.S. When Cyworld recently close its doors in Europe, some people asked whether virtual goods would ever be relevant outside of Asia.
Stardoll is proof positive that virtual goods have a very promising future in Europe and the U.S. The Stardoll team has hit on a recipe that is uniquely engaging to their core demographic, and they are leveraging that recipe to provide maximum value to their users and their advertisers.
I’m glad that I stumbled into Room 5 at the Virtual Worlds Conference. Stardoll is defining the future of virtual goods today — and I’m amazed that they’ve flown under the industry radar for so long. Stardoll has captured the attention of 16 million girls around the world, but they don’t even have a Wikipedia page.
On Thursday April 3rd and Friday April 4th, I attended the Virtual Worlds 2008 conference in New York City. This year’s attendance, which rose sharply from last year, serves as a reminder that interest in virtual worlds is exploding.
The conference featured an impressive array of speakers and some really good ground was covered. In-depth session transcripts have been posted on Virtual Worlds News, which is run by the organizers of the event. Rather than post my own transcripts, I’ve put together a series of articles inspired by the sessions I attended. These articles will be posted over the next week.
Virtual Goods Branding 101 discusses the tightly coupled relationship between brands and virtual worlds.
Metrics for a Brave New (Virtual) World discusses the effort to define and standardize metrics for virtual world media.
Second Life is the Industry Anomaly, Not the Standard discusses how the relevance of Second Life is waning as more successful virtual worlds take center stage.
Stardoll: Casual Web Community or Hardcore Virtual World? discusses how Stardoll has defied conventional wisdom about what is and isn’t “hardcore”.
Virtual Worlds Through the Generations provides an analysis of virtual world growth segmented by age demographic.
Zen and the Art of Curated Experiences discusses how virtual worlds are using structured activities to create a more engaging experience for their users.
I’ll add links to the articles as they are posted. So check back here or subscribe to the RSS feed if you’d like to keep up to date.
Virtual World News announced today that TurboSquid has partnered with VastPark to distribute their collection of 3D assets via VastPark’s virtual worlds platform. Currently, TurboSquid acts in a capacity similar to stock photo agencies such as iStockphoto; they provide pre-fabricated 3D assets to game and virtual world developers. These developers use TurboSquid’s assets to augment their internal art teams in the same way that a book publisher might use stock photos to augment their internal art & design team.
However, the true value of a virtual good isn’t determined by the material from which it is made (in this case, the 3D geometry and textures that TurboSquid sells to developers), rather it is determined by the economy and social context within which it is sold. So an asset that TurboSquid sells for $300 in a B2B transaction may generate tens of thousands of dollars in B2C sales if it is used to create a rare, sought-after in-game virtual item.
Accordingly, TurboSquid seems to be shifting their strategy from a stock asset agency to a virtual goods provider. The first step in this shift is their partnership with VastPark. VastPark has been described as “the Ning of virtual worlds”. Using VastPark, anyone can create and share their own virtual world. With this partnership, VastPark’s users will be able to use TurboSquid’s extensive collection of assets to make their worlds richer and more immersive.
Matt Wisdom, CEO of TurboSquid, describes his company’s strategy:
“Ultimately where we’re trying to go is to take 3D to the consumer marketplace. We’ve done very well with sort of stock 3D and the professional marketplace. The big picture is when regular consumers are buying 3D, whether it’s clothes for their avatar or avatars or any representation they want to have online. We’re trying to connect the consumers to the artists in the virtual worlds.”"
Sometimes virtual goods get a bad name. After all, what father wouldn’t load his shotgun at the thought of his daughter getting a Polka Dot Thong on Facebook? And what mother wouldn’t shake her head knowing her teenage son had spent $1 of her hard earned money to send that thong?
Well, virtual goods aren’t all innuendo and frivolity. Sometimes virtual goods can make the real world a better place. Causes, a popular Facebook Application with over 9 million installs, lets users send over 20 different Charity Gifts to their friends. Charity Gifts range from Blankets (a $10 donation to the American Red Cross which is used to purchase two blankets for people suffering from a disaster or emergency) to Baby Chicks (a $20 donation which helps a hungry family in Cameroon start a flock of chicks) to a Laptop (a $200 donation that provides a laptop to a child in a developing country). Charitable donations are made in the recipient’s name and can be displayed on the recipient’s Facebook profile.
The notion of charitable virtual gifts wasn’t lost on the team at Facebook. When Facebook Gifts launched in February 2007, all proceeds for the month were donated to Komen for the Cure. Facebook chose the foundation because Breast Cancer Awareness is the largest cause related group on the site. Today, Facebook Gifts is a for profit enterprise (quite profitable, Facebook made an estimated $15 million in virtual gifts during the first year of the business). However, if you are willing to rummage through a few thongs, you can still find the Pink Ribbon in the Facebook Gifts store.
CarePages is a free website that helps family and friends communicate with a loved who is hospitalized or receiving health care. Patients and their families can create a CarePage which is very similar to a social networking profile page. Owners of a CarePage can leave updates and upload photos, and visitors to that page can leave messages and virtual gifts. Virtual gifts are free to give and organized into helpful categories such as Encourage, Kids, Smiles, and Support.
PrayAbout is a unique social community that has been described as a way to “hack into God’s inbox”. Members of PrayAbout can submit prayer requests. A prayer request is non-denominational prayer that the submitter wishes to be answered. Members can add photos and update their prayers over time. Visitors to the person’s prayer request may leave a message and may light one or more virtual candles for that prayer. Virtual candles can be purchased for about 10 cents to about 25 cents per candle. They can also be earned by inviting friends to the site, receiving candles for a prayer request, and lighting candles for a popular prayer. Lighting candles is a way for the community to virtually hold vigil for a prayer and show their spiritual support to a member in need.
Handipoints is a kid-focused virtual world that puts a different twist on things. Kids earn points by completing chore charts setup by their parents. By completing these “quests”, kids earn “handipoints” that can be redeemed for real world items and bonus points that can used to purchase virtual goods in the Handipoints online world. Online game designers have known for years that players will do almost anything to earn virtual rewards. Handipoints is betting that they may even be willing to do chores.
Virtual rewards provide a very real incentive and virtual gifts add very real value to our online social gestures. We’ve seen virtual goods at work in the most frivolous parts of our lives, but they can have as significant an impact on the things that really matter like standing by a friend in need or teaching kids that positive habits have long-term benefit.
According to the New York Times, Chinese experimental artist Cao Fei, known in Second Life as China Tracy, is creating the world’s first virtual art installation. RMB City is a virtual city in Second Life that is meant to be an artistic commentary on the rapid industrialization of China. The virtual city will incorporate elements of famous Chinese landmarks such as the Forbidden City, the Great Wall, and Tianamen Square.
Lombard-Freid Projects, a New York art gallery, is currently exhibiting RMB City. The exhibit is part art showcase and part real estate sales office. Cao Fei is offering art collectors and virtual real estate investors a chance to sponsor individual structures in the city for prices as high as $120,000. Sponsors get two years access to their structure in RMB City and a commemorative artwork at the end of their “lease”.
If Cao Fei is able to get those prices, she may just find herself in the 2009 Guinness Book of World Records for “Most Expensive Virtual Object”. She would be dethroning Jon “NEVERDIE” Jacobs, the current recordholder, who purchased an asteroid space resort in Entropia for $100,000.
Erik Bethke, CEO of GoPets, conducted a session on how to apply MMO principles to any experience to make it more engaging. For good coverage of his talk, check out Worlds In Motion and Lightspeed Ventures. You can get the slides for the session here.
Erik’s talk focuses on a really powerful observation: the mechanics that make massively-multiplayer games so successful have universal appeal. While there has been some good thinking about how to apply general game mechanics to make applications more fun, MMO mechanics can have a much more powerful impact because they are derived from the social dynamics that are core to social media.
Virtual gifting is a common use case of virtual goods for social media sites. Facebook Gifts is the most well-known example, but other sites have had success with virtual gifting including LiveJournal, Hot or Not, and Dogster/Catster. Current examples of virtual gifting are distilled down to their essence - select a gift and send it to a friend.
Erik’s session highlights a number of ways that virtual gifts can be taken to the next level.
Leveling, Questing, and Crafting
Leveling, questing, and crafting are three of the most important mechanics of MMOs.
Leveling is the concept that there should be well-defined rungs as a person climbs an achievement ladder. This is something we all experience in our jobs, but other examples are just as powerful. How many of your have stuck with the same airline, through thick and thin, to make sure that you got “elite” frequent flyer status? Thats just a form of leveling.
Virtual gifting is exactly the sort of activity that could benefit from an achievement ladder. Like combat in an MMO, virtual gifting is initially very compelling but can loose its luster after the thrill has worn off. If virtual gifters earned levels as they sent or received more gifts and if those levels came with tangible rewards (such as an increased selection of available gifts), then users would be more likely to stay engaged over time. In addition, “elite” gifters would have an elevated status in the community which enhances their sense of achievement and projects a model for other users to emulate.
Some of the free gifting applications on Facebook have implemented simple leveling systems, but, to my knowledge, none of the “official” gifting programs have done this.
Questing is a mechanic were players are given explicit tasks to complete throughout the game experience. Players receive significant rewards when they complete a quest - rewards which are generally higher than what can be earned by the equivalent amount of ad-hoc play. As a result, quests encourage certain play patterns and thereby keep people engaged by structuring the gameplay experience. The “Profile Completeness” indicator on sites such as LinkedIn and OkCupid are great examples of “quests” outside of the game industry.
Right now, users give virtual gifts for holidays, birthdays, and “just because”. Its a completely self-directed process and one which is easily interrupted. Virtual gifting would be more enjoyable if there were little quests like “give gifts to three new friends”, “give gifts to three members of the opposite sex”, “give three charitable gifts”, or “give all the gifts in a particular set”. The social networks have a rich enough set of data about users to come up with really interesting virtual gifting related activities.
Crafting is a gameplay mechanic where player’s can transform less valuable resources into more valuable resources by investing time, skill, money, and creativity. Just as productivity is the engine of the real economy, crafting is the engine of many virtual economies.
Facebook Gifts encourages a form of crafting by suggesting that members chain gifts together to form innuendos, but this can go much further. How about allowing users to craft new gifts by uploading photos? What about using the gifts that a person has received as resources to create a new gift? For example, give the user an editor to create a bouquet of flowers - but they can only use the type of flowers that they’ve received as gifts.
Embrace Hardcore Users
Erik points out that even the most casual experiences have hardcore users - and those hardcore users have found something pretty fun to do in your application. Hardcore users will be 1) the largest revenue generators, 2) the product’s biggest evangelists, and 3) exemplars for the rest of the community.
Believe it or not, there are hardcore virtual gifters. These virtual gifters are generally women who are hubs of their social networks. They use lightweight social gestures, like sending virtual gifts and writing on friend’s walls, to maintain their friendships. Hardcore virtual gifters introduce new users to the virtual gifting feature and keep the flow of gifts going by encouraging others to reciprocate.
Virtual Gifting 2.0
The success of virtual gifting defies common notions of value, but Facebook and others have proven that people are willing to pay real money to enhance the social impact of their gestures. Sending a virtual gift is what Erik would refer to as a transaction - the basic unit of gameplay. But transactions lose much of their meaning when they aren’t driven by a broader set of measurable goals. Today’s virtual gifting features are just beginning to scratch the surface of a much deeper social media experience that can be unlocked by applying MMO mechanics.
With all the focus on the electronic entertainment industry, its easy to forget that the video game industry has a long lineage that extends back to tabletop games. Tabletop games consist of traditional board games (e.g., Monopoly), pen-and-paper role-playing games (e.g., Dungeons and Dragons), collectible card games (e.g., Magic: The Gathering), and miniature wargames (e.g., Warhammer).
Of course technical advances have thrust electronic entertainment, including video games and virtual worlds, to the forefront of the broader games industry, but the tabletop games segment still attracts both a large casual audience and a smaller, but highly dedicated hobbyist audience. The tabletop gaming industry’s largest trade show organization, Gen Con, draws an audience of over 27,000 consumers to its U.S. Gen Con event.
The collectible card packs and miniatures that form the nucleus of many hobbyist tabletop games is the closest real world analog to the in-game virtual items that are driving the growth of the virtual goods economy. We can gain a new perspective on how to create engaging virtual goods experiences by looking to the example set by collectible card games and miniature wargaming.
Collectibility
Tabletop game manufacturers take significant steps to enhance the collectibility of their trading cards and miniatures:
High Production Value. Each trading card or miniature is designed to have high production value and adhere to an overall artistic theme. This focus on design enhances collectibility by making each piece an “art object” that can be admired and collected based solely on its aesthetic value.
Collectible Sets. Trading cards and miniatures are often grouped into sets of varying size. At the highest level, Magic: The Gathering groups cards into categories based on five different colors. At a more granular level, Magic: The Gathering cards belong to dozens of different sets ranging from 92 cards to 422 cards. By grouping cards or miniatures into sets, tabletop manufacturers take advantage of the natural tendency for people to collect and complete groups of things.
Booster Packs. Collectible card games and collectible miniatures are often purchased as part of booster packs. Booster packs are sealed packages of cards or figurines that contain a small, random assortment of items (5-15 cards or 3-10 figurines). Purchasers of booster packs can generally expect to get at least one rare item per pack. As a result, these packs appeal to the same “lottery mentality” that makes slot machines so compelling.
Uncommon and Rare Items. The supply of trading cards and collectible miniatures is constrained by manufacturers in order to introduce scarcity into the market for their collectibles. Items are typically categorized as common, uncommon, or rare. Scarce items typically have a unique look and higher functionality than their more common counterparts which further increases their value. For example, there are less than 10 copies of the most rare Pokemon cards and these cards trade for thousands of dollars.
Deck Construction. The rulesets of many collectible card games and miniature wargames require players to construct a deck or army by selecting a limited set of items from the player’s full collection. Oftentimes players construct a gameplay deck of fifty to sixty cards from their collection of hundreds or thousands of cards. Players construct decks based on what they know about their opponent, the strategy they wish to employ, and any variants to the game’s rulesets that are in place. This dynamic encourages players to amass as large a collection of cards as possible so that they have the most strategic options when they go to play the game.
The collectible nature of trading cards and miniatures is a significant revenue driver for the tabletop games industry. As a result, tabletop game manufacturers can afford to give their rulesets away for free while generating a lot more revenue per customer by selling collectible content. Virtual world and MMO operators in Asia have already figured this out and now that model is beginning to be adopted outside of Asia.
Personalization
Personalization of miniature figures is an entire cottage industry unto itself. Miniatures are typical sold as cast metal figures that must be painted before they are ready for the tabletop battlefield. For some players, figure painting is an integral part of the hobby, and for others its a job best left to professional figure painters. For the most serious hobbyists, there are even miniature painting competitions.
Personalization goes beyond mere painting. Some hobbyists alter the appearance of their miniatures by swapping parts of their figures, such as heads and arms, with parts from other miniatures or part collections purchased as “conversion kits”. Many wargamers also spend considerable time designing and constructing the battlefield scenery on which the miniature wargames are played.
For many hobbyists, personalizing miniatures and battlefields is actually more fun than playing miniature wargames. Tabletop game manufactures figured out a long time ago that personalization adds an entirely new dimension of enjoyment to the gaming experience.
Functionality
At their heart, trading cards and miniature figures are simply game pieces like a rook in chess. They aren’t just decorative, they are functional. Trading cards in particular have detailed functionality that is described on the card itself - for example, a particular Pokemon card might be able to steal a card from the other player’s deck. Many virtual items, such as a sword in World of Warcraft, are also functional, but there are still lessons to be learned from tabletop games.
For example, scarce items are generally more powerful in both tabletop and video games. However, game balance issues are much more acute for tabletop games due to the need to support fair competition. In other words, a player with the most rare cards should never be the defacto winner in a Magic: The Gathering tournament. How then do collectible card games tackle this issue? Rare cards have more powerful and unique functionality, but they require significantly more resources to deploy (i.e., they are only an advantage if the player has the tactical wherewithal to find the right time to deploy the item).
This alludes to a second lesson from the collectible cards industry. Oftentimes, the functionality of different cards can be used in concert to get a greater combined effect. Players call these combo decks, and these combinations further enhance the collectible nature of trading cards.
So while MMOs have learned the basic lesson that functionality should be proportional to scarcity, there is fertile ground for innovation in thinking about how to balance the impact of rare items on the economy and how to leverage interactions between a player’s collection of virtual items.
Tradability
In many respects, tradability is a knock on effect of the collectable and functional nature of trading cards and miniatures. However, tabletop game manufacturers also take deliberate steps to enhance the tradability of their products.
Firstly, tabletop games are designed to be highly social. When players gather into ad-hoc groups or at formal events, trading naturally occurs. Secondly, manufacturers deliberately create an economy where one man’s trash is another man’s treasure. They do this by creating clusters of items that work well together (so that a player with an existing collection is naturally inclined towards that cluster) and ensuring that booster packs contain a range of items, including rares, from several different clusters. As a result, every time a player buys a booster pack, he may get items that he doesn’t want but are valuable to his friends.
Tabletop game manufacturers know that a vibrant trading community may not directly generate revenue, but it does enhance engagement with the manufacturer’s product and indirectly drives booster pack sales. Instead of prohibiting aftermarkets, MMO operators should be following the lead of their tabletop brethren and doing everything they can to foster an active aftermarket.
Lessons for the Electronic Entertainment Industry
There is currently a raging debate about whether the MMO industry will move to a free-to-play model with virtual goods driving revenue or whether monthly subscriptions will continue to be the modus operandi outside of Asia. As today’s game designers envision the future of MMOs, they will be well served by looking to the past for inspiration on how to create a virtual goods economy that both enhances the game experience and maximizes the revenue opportunity.
Update (3/2/2008): Take a look at Saga which bills itself as “world’s first collectible online real-time strategy game”. Instead of charging a monthly subscription fee, they generate revenue by selling booster packs of troops for $2.95.
Last week’s Game Developer’s Conference put the limelight on the rapidly growing game industry, but it also highlighted a significant pain point - virtual good sales create very real accounting issues for successful virtual worlds and MMORPGs.
The video game industry has been way ahead of the game when it comes to implementing a variety of business models and accepting a variety of billing methods. In this case, necessity has been the mother of invention since many of the industry’s young consumers don’t have access to credit cards. Sulake, the makers of Habbo Hotel, have been particularly innovative in this space. The company accepts 186 different payment methods in 31 countries including credit card, SMS payments, money orders, and prepaid game cards available through major retailers such as Target and Walmart.
Sulake even manages to pass some of the transaction costs to consumers by varying the exchange rate between cash and coins, Habbo’s in-world currency, based on the billing method used and amount of currency purchased. Consumers get as little as 5 coins per dollar for high transaction cost billing methods such as prepaid cards and as much as 6 coins per dollar for low transaction cost methods such as credit cards or ongoing subscriptions.
Now that the industry has figured out how to get money into the system, it’s now faced with the challenge of keeping it there. The industry faces a number of challenges:
- Lack of Parental Consent. If a child fails to get the consent of his or her parent before making a purchase, that parent can have the charge reversed. Although there may not always be sound grounds for reversal, credit card companies often side with parents regardless of circumstances. This not only results in customer service overhead for the virtual world or online game operator, it can result in lost revenue from the sale of limited edition or exhaustible items which cannot be reclaimed.
- Outright Fraud. In many of the major virtual worlds and online games there have been cases of fraud where a user converts cash into in-world credits, uses those credits to purchase a rare item, sells that item for real currency on a sanctioned or unsanctioned aftermarket, and then cancels their original credit card payment. As a result, the user commits a form of “cybertheft” by profiting from virtual goods that the user never paid for. In some cases, the operator can recover the payment, but the credit card dispute process is time-consuming and often biased to the cardholder.
- Stored Value Accounting. For years, airlines have had to keep significant liabilities on their books related to the accumulation of frequent flyer miles. The industry faces a similar problem. Should operators recognize revenue when cash is converted into in-world currency? Should the accumulated balance of all in-world credits by accounted as a liability on the balance sheet? What happens if a user abandons their balance? Should users have the right to claim a cash credit for their account balance at any point in the future? The answers aren’t clear.
As Joshua Jaffe mentions in his TechConfidential.com article, there is no turnkey payment solution that addresses the unique needs of the video game and virtual world industries. Certainly, with the emergence of economic platforms like PlaySpan and TwoFish, we’ll start to see industry-wide platforms and best practices related to payment collection, chargeback risk mitigation, and fraud deterrence.
