BlackCherry Blogs

!Xabbu was silent for a long moment. They hung side by side, twin stars floating in an empty black sky, two angels gazing down from heaven at the immensity of humankind’s commercial imagination.

Otherland: The City of the Golden Shadow, Tad Williams

For anyone not familiar with Virtual Worlds, they are massive, online environments where people can meet, interact and play. Any definition is inevitably a simplification of the actual level of development these online worlds represent. People, in virtual worlds are no longer merely playing a game, they are living out a parallel existence where they have relationships, wage epic battles, get married, have virtual children, buy and sell goods such as clothing and real-estate, go to virtual online clubs for entertainment, change their appearance, hold down jobs, create empires, kill and be killed, learn and educate. In essence, if it exists in the real world, it exists in the virtual world. Virtual world inhabitants are living a virtual life driven as much by imagination, hope, vanity, desire, ambition, and sex as is their everyday life in the real world.

For any given demographic or age group there are a number of options to choose from depending on the user’s goals or interests. Some of the most popular virtual worlds include: World of Warcraft, Second Life, Habbo Hotel and Club Penguin. While exact numbers for any given world are tough to pin down, the scope of the market overall and the projected growth is stunning.

Cumulative Global Unique Virtual World Registrants¹

As the user base grows and based on current trends, revenue will follow based on three keys sources:

• Microtransactions
• Subscriptions
• Advertising/sponsorships

Microtransactions, the highest growth source are expected to grow from just over $1 billion in 2008 to $17.3 billion in 2015 making up about 86% of the revenue generated by virtual worlds.

Second life, produced by Linden Labs, is a good case study of a virtual world with an internal economy. Inhabitants of Second Life can purchase the currency of Second Life, Linden Dollars (L$) at an exchange rate of approximately 300 per US dollar. This internal currency is then used in exactly the same way currency is used in the real world, to purchase goods, hire employees, pay for real-estate or rent a place to live, to name a few. The Second Life economy showed growth at a rate of 94% over the previous year 2008. This is astounding growth considering the state of the global economy over the same period.

Second life also recently passed a major milestone of $1 Billion USD in user to user transactions. At the current rate of growth its economy could equal that of a real world developing nation within 5 years. Equally interesting are the user engagement stats for virtual worlds. WOW (World of Warcraft) player stats show engagement at levels averaging 22 hours/week. As a measure of comparison, on a social networking site such as Facebook which is considered to have high engagement levels, users average 2-3 hours/month.

Subscription based models for virtual worlds can also be lucrative. Given monthly subscriptions rates of $10 - $20 USD and subscriber counts in the hundreds of thousands or much higher in a few cases, it’s not difficult to imagine a working financial model. Business metrics such as these have led to some big successs stories like the acquisition of Club Penguin by Disney for something in the range of $300 Million.

These numbers represent only one side of the virtual world equation. The complex level of social interaction and the diversity of user roles found in virtual worlds represent the other. Currently, users in virtual worlds can embrace any societal role found in the real world. These include but are by no means limited to:

• Relationships – Social interaction
• Culture/Arts
• Entertainment
• Economy
  • Employment
  • Trade and Commerce
  • Real Estate
  • Retail sales
• Training and Education

Virtual World’s represent not only a compelling case for business, they represent a fundamental shift in the way people interact and in the case of virtual residents, the way they live; a brave new virtual world. Virtual World’s are rapidly evolving into a parallel form of human existence, arguably a new state of human social evolution. As technologies advance and immersive experiences move from their currently powerful form to the next level of all but indistinguishable virtual reality, the potential is staggering. Human beings are now able to enter a world, equipped, through web access, with the sum total knowledge of the human race.

These open environments that provide users the potential to script, model and build whatever their imaginations conceive, are enabling a creative and intellectual expansion without limits. Each individual has the potential to re-invent themselves and the world they inhabit, to shape the perfect existence. It is a level playing field where age, appearance, abilities and social status melt away and are reshaped in the user’s vision. This is democratization of the super human. At least at a perceptual level, anyone can aspire to the power of a God.

The compelling business model for virtual worlds may be built around terms like, prolonged engagement, user account statistics and micro-transactional metrics. These terms are the language of business and business plans. In this author's view, what Virtual Worlds really represent, is a re-defining of the human condition, a fundamental shift in the way we interact. This shift is the great disruption and the economics will inevitably have to follow.

John Mark Seck is an entrepreneur, virtual world developer, music lover and resident of Second Life.

Footnotes:

1. Source: Strategic Analytics http://www.earthtimes.org/articles/show/strategy-analytics-virtual-worlds-forecast-to-grow-at-23-through-2015,861286.shtml

Links:
The Daedalus Project http://www.nickyee.com/daedalus/
World of Warcraft http://www.worldofwarcraft.com/index.xml
Second Life http://www.secondlife.com/
Club Penguin http://www.clubpenguin.com/
MMO Charts http://www.mmogchart.com/