Second Life: How Virtual Worlds Create Real World Value (mtg in SF)

At last month’s Podcast Hotel, I finally had a chance to catch up with good friends Ted Tagami and Kathleen Craig, who have been moving at warp speed working for Millions of Us producing some amazing work inside Second Life for some very, very big brands. After delving into the practical business value and the utopian ideals of virtual worlds which many of us have been discussing for over a decade, I invited him to speak at this month’s San Francisco Social Media Club meeting to share what they have learned so far from their real world experiences.

This is going to be the sort of meeting you don’t want to miss. So please join us On Thursday May 24 from 6-830pm at Adobe’s SOMA HQ for a presentation and discussion on Second Life and the potential for virtual worlds to deliver real world business value. Ted Tagami will lead the presentation which will be followed by a round table discussion and a live Exploration of Second Life. Ted will be joined by his Millions of Us colleagues - Mat Small, Director of PR, and Kathleen Craig, Producer. During Ted’s presentation, we will hear different case studies of how brands have been able to successfully enter Second Life.

As always, the round table format is meant to be interactive, where everyone has a chance to ask questions, share their personal experiences and add their perspective to the conversation.  If the group is fairly large, we will break into smaller groups for more intimate discussions, but since we will be “in world” for most of the presentation, are striving to keep the group together.
Special Thanks to Adobe and Crimson Consulting for sponsoring the San Francisco meeting. We are looking forward to seeing you on Thursday. Please do register here so we can let Adobe know who is coming and prepare the room accordingly.

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Social Media Now: Virtual Religion

James Au, whose pioneering beat for Reuters is Second Life, has a fascinating story this morning about the rise and apparent fall of Avatars of Change, one of the first native religious orders to be formed in SL.

The group was founded  as a Neo-Confucian “ecumenical religious and cultural order, united by the Avatarian Way.” It’s membership is interdenominational and it’s practices seem to be centered around consulting an I Ching-based, software oracle.

Au’s story revolves around a controvert sparked when the group’s founder (an offline Christian whose avatar is Taras Balderdash, a gray-bearded Asian man in a silk robe with a blue dragon on his shoulder) asked group members to vote on a proposition that would bar Muslims on the basis of the proposition that Islam is inherently intolerant and therefore not “Avatarian.”:

“There are many jewels of Moslem culture,” he avers. “Music, Sufi mysticism, etc., but the world is now dealing with the youthful energy of its fundamentalism. What I am hoping to hear from our Avatarians is a positive argument against my position; someone who argues, based on the Quran, that I am wrong. So far all I’ve got is constant reminders of other religions being intolerant, particularly Roman Catholic Christianity.”  Taras considers this an evasion of the point. “I am interested in the theology. People are people, whatever their faith, and God loves them all. But what hope do we have that a tolerant Moslem theology will win out?”

The vote, which is scheduled to conclude this Sunday, naturally sparked controversy in SL.

(Au interviews a Sufi, Drown Pharaoh, who leads regular prayers in an SL mosque, whose response to AoC paints the group’s vote as an extension of old western Orientalism. If the exchange reads as an argument among theology students that’s because it is. Drown Pharaoh identifies himself in the story as “a religious studies graduate and a committed member of an interfaith community on SL, Koinonia.” The discussion is fascinating, and it mirrors offline debates about the nature of Islam and about who is entitled to speak for Muslims.)

And enough of an AoC membership revolt that the religion appears to be collapsing. From Au’s interview with Taras  Balderdash:

My questioning the tolerance of Islam for other faiths has produced such grief and chaos that I have rethought the concept of the the Avatars of Change and left the Order,” he told me late yesterday. “I am just a monk now. The Order is falling apart pretty rapidly, so I’m not sure how much of it will survive without me.”

I’m less interested in the theological debate–which mirrors debates in the offline world about the nature of Islam and who has the right to speak about a given faith–then I am in the nature of religion formation in virtual worlds. In an environment where there is no real death, where nothing is random, and there is no mystery as to the creation of the universe, what role could a native religion play?  One sign that social media is truly transformative–not just a new way of doing old things, but a new kind of culture–would be the rise of a native spirituality. But do people’s avatars have spiritual needs that are different in nature from the needs of their humans? Or is there some kind of spiritual practice native to cyberspace that can offer something missing in the real world?

I wish I had the answers. Stay tuned.

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Social Media Now: Social Media’s Virtual Economy

A decade ago an acquaintance at Time Inc. told me the company–renowned through the generations for launching era-defining magazines–would never launch a new title again. Instead, the company would add new publications by acquiring small start-ups that had built audiences they couldn’t fully monetize.

It didn’t quite work out that way for Time, as the very successful launch of Real Simple in 2000 proved. But the logic remains a dominant one in the media business. Let start ups innovate and build audiences, then grab properties that can be made profitable thanks to the economies of scale in backend production and the sales and marketing that big companies can provide.

That seems to be what’s going on in the social networking space. The latest news involves the Walt Disney Company and ClubPenguin, a site for kids variously described as a massively multiplayer game, a social network and a virtual world. According to paidContent ClubPenguin has more than 4.5 million monthly uniques and, although the basic functionality is free, there is premium game functionality available to subscribers who pay $6 a month.

PaidContent confirmed Sony’s interest  with sources described as “insiders” and reported that the price on the table is around $450 million:

Some people were intent on floating a $500 million number but our sources peg the price at around $450 million, which would be a 7.5 multiple based on this year’s projected revenue of about $60 million. The self-funded company is already profitable and, according to our information, is operating at about 50 percent margin—ie $30 million in profit this year.

GigaOm joined the race to advance the story writing that NewsCorp had made a $200 million offer for the company, but also getting a non-denial denial quote from Lane Merrifield, co-founder of New Horizon Interactive, the Canadian company behind ClubPenguin.

Om Malik sees the rumored deal as part of a trend, noting that Disney is rumored to be looking at another Canadian tweens site, Webkinz:

Club Penguin isn’t the only company generating interest. Disney, for instance, is rumored to be interested in Woodbridge, Ontario-based Webkinz, another Canadian tween site that has been growing a break neck pace, and is a kid favorite….

One of the reasons these kid-focused communities have taken off versus the more complicated communities like Second Life is that they are dead simple and highly focused.

Most of these online worlds run on Flash, so there’s no complicated client download/installation.

Ok, I get the focus, I get not needing to install a client, but dead simple? Well, maybe ClubPenguin is, though I’d hardly describe Second Life that way.

What I suspect is profoundly interesting to big media players is the new economic models that fire virtual worlds–not only subscriptions for games (something about ClubPenguin that certainly must appeal to Sony), but also the purchase of stuff, both real and virtual. As GigaOm notes Webkinz is owned by Ganz, one of Canada’s largest manufacturers of stuffed toys–and going back to the 1980s cartoon/product boom (remember GI Joe, Transformers, My Little Pony, Care Bears), the connection between products and media properties that feature them has proved to be fertile ground.

The best take on the economic appeal of it all comes from Andrew Chen, entrepreneur in residence at Mohr Davidow Ventures, who correctly notes  virtual worlds appeal because of the sales of virtual products

First, let’s start with the numbers:

Habbo Hotel generates $77MM in 2006 (Source)
Club Penguin generates $65MM in 2007 (Source)
Second Life exchanges $1.MM in the last 24 hours (Source)

IMVU, Puzzle Pirates, and Stardoll are all doing very well also
These numbers are pretty exciting because they are NOT advertising dollars, but rather people directly purchasing merchandise on website

Advertising doesn’t work on social networks, Chen explains:

Ads don’t support what people go to social networking sites for….

Because of this, it’s well documented that the CPMs for social networking sites are quite bad. Clickthrough rates are very low - in the case of Facebook, you’re talking about 0.04%, or 4 clicks in 10,000 impressions. Compare that to Google, which is delivering upwards of 300X the CTR.

Seems obvious that clickthroughs would be better on a search site where users come to click, but not as effective in a virtual world where people come to stay. But, Chen notes, where ads are intrusive and tangential to the social networking experience, the sale of virtual goods is endemic, a fundamentally new business model that is native to social media:

Virtual goods in social sites is like dressing up or buying someone a drink at a night club

Because virtual goods go with the flow, in terms of what users want and expect, it makes it easier to monetize groups of people.

…

The really fascinating part about this model is that it support communities, rather than being something that interferes with the user experience. Go with the flow, and money will follow.

 

Fascinating stuff. If big companies–media companies or retailers–start gobbling up virtual worlds, it will be interesting to watch them try to strike a balance between maintaining a community vibe and ramming product down the throats of users–a uncomfortable experience even in the virtual world.

 
 

 

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Social Media Now: Spanning the Blogosphere, Selling In Second Life, Valuing Facebook

Spanning the Blogosphere: I’m not too fond of the phrase “Live Web.” First, I’m not convinced that the so-called static web era was all that static—links were live, after all, and pages were updated regularly, and message boards and other sorts of multiway communication platforms existed. Second, even as multifaceted as it has become—with widgets and clients offering all sorts of live interaction—Web-based information is just one source of information flowing into the message stream in which we all swim, a message stream that includes e-mail, IM, voicemail, text messaging and more, an environment not tied to http or the browser.

But for Dave Sifry, whose business, Technorati, is Web based, “Live Web” is the phrase of choice although he is still titling his quarterly report “The State of the Blogosphere.” There are some fascinating nuggets: There’s the enormous growth of blogging in the Middle East, particularly in Iran, as illustrated by the fact that Farsi has now become the 10th most common blogging language. There’s the  growth of tagging as bloggers’ ontological system of choice (although still only 35% of blog posts tracked by Technorati include tags). And blog spam is seasonal, peaking during the Christmas buying season.

Two other things worth noting. There is at least one sign that blogging may have peaked.  Technorati tracked an average of 1.3 million daily posts in October and 1.5 million this month. That’s slower growth in per day posting than the survey has found in the past, but not a slide in the number of posts per day as Steve Rubel suggests. It IS a slide, however, in the percentage of blogs that account for daily postings. Using Sifry’s numbers (which sometimes seem to be moving targets) it seems like the rate of daily posts per blog was  2.3% in October and  2.1% in April. 

Also, Sifry continues to highlight a distinction between blogs and so-called “mainstream media” that I think is no longer useful. Blogs ARE mainstream media, at least users experience them alongside traditional media and draw less and less of a distinction (as Sifry notes). No consumer surfing for information about Zune players would consider  Engaget and ZDNet to be in different information categories. The blogging world has to get the chip off its shoulder about “mainstream media.” Bloggers try so hard to say they’re different it sounds like they have an inferiority complex.

Selling in Second Life: GigaOm has an absolutely fascinating piece, written by Wagner James Au, about the failures of traditional marketers to make hay in Second Life. The piece jumps off from a small scale survey (200 repondants) by Komjuniti, a SL brand consultancy. There’s not much news in the survey (when asked people feel marketing is intrusive and uninteresting, I mean, duh!),  But James Au’s suggestions to marketers using SL are fascinating. To wit: Because teleportation is the primary mode of transport, forget billboards, no one sees ‘em; just like in RL, events, giveaways, and the like are necessary to draw people to your location; and finally, join the fantasy:

To play in Second Life, corporations must first come to a humbling realization: in the context of the fantastic, their brands as they exist in the real world are boring, banal, and unimaginative. Car companies are trying to compete with college kids who turn a virtual automotive showroom into a 24/7 hiphop dance party, and create lovingly designed muscle cars that fly, and auction off for $2000 in real dollars at charity auctions.

….as the Komjuniti study suggests, they can keep building sterile shopping malls, and continue wondering why Residents prefer nude dance parties, giant frogs singing alt-folk rock, and samurai death matches– and often, all three at the same time.

Valuing Facebook: There’s a suspicious meme making the rounds started yesterday by Mark May, an investment analyst at Needham & Co (is Facebook beating the bushes for buyers?). In a report May argued that Yahoo made a terrible error in December abandoning attempts to acquire Facebook to the tune of $1.5 billion, because now Facebook is worth many times that number. At Barron’s Online Eric Savitz picked up the ball and ran with it, quoting May:  Facebook is no doubt one of the most important Internet companies to have been created in the last five years.

No doubt. But is it worth more than $1.5 billion? Not according to Douglas McIntyre at 24/7 Wall St:

Comscore says that Facebook as 16.7 million unique visitors a month. Even better, the site has 24 visits per unique visitor, putting it just behind Yahoo! among all web properties.

…The New York Times digital properties have a unique monthly audience of almost 40 million. The market cap of the entire New York Times Company (NYT) is only $3.4 billion. It even includes those worthless big newspapers.

Maybe Facebook is worth $1 billion, maybe less. But more? No way.

But McIntyre is still basing the entirety of his valuation on pageviews. Meanwhile at ZDNet, Larry Dignan got his dander up about arm chair CEOs piling on Yahoo:

Now time for a reality check.

If News Corp. still can’t figure out how to monetize MySpace (it’s getting there) how can Facebook be profitable enough to justify a big valuation? My hindsight indicates that Facebook should have taken Yahoo’s dough and ran. It’s one thing to build an audience it’s quite another to make money from it.

Facebook is the “in” thing for now. Let’s follow May’s logic and assume Yahoo did pull the trigger on a Facebook purchase (of course we’d all pick that apart too.) Guess what would happen when Yahoo bought Facebook? It would be an “out” thing. Consumers are a fickle bunch and will leave in a second. Suddenly that valuation doesn’t look so hot.

Is social media really all that? I know it’s heresy to think that social media may not be the second coming of the Web boom, but there are a few areas of concern. Perhaps Mozilla’s social media meets browser effort hurts traffic at MySpace and Facebook. Perhaps someone cooks up a technology that allows you to take your profile–and all of your friends–somewhere else easily. Bottom line: We don’t know how much money social media can make.

I’m with Larry on all but his last point. Social Media really IS all that.

 

Link Love:
MySpace Music Players: MySpace Speaks

Google MyMaps Smashes Mash-ups

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