As has already been reported on several sites, the videos from June's inaugural Virtual Goods Summit at Stanford are now online. Thanks to the organizers for making the videos freely available - I wish more conferences did this.
I took a heap of notes at the Summit, so why not share them now as well, both in "Top 10" and raw format.
My Top 10 Notes from the Virtual Goods Summit:
1. James Hong of HotorNot.com
On HotorNot, users can purchase a $10 rose to send to other users. The rose dies 2 weeks later. HotorNot figured there were three value propositions inherent to a real life rose: the flower itself, the gesture of giving it, and the trophy effect of having received it. HotorNot figured that for virtual roses, 2 out of 3 of those values weren't bad - and they were right. The $10 rose is HotorNot's highest priced item, but it is still their best seller. James Hong said re: price elasticity, "It's not impossible that if we raised the price of the rose, we'd sell even more."
2. Paul Thind of Habbo Hotel
Habbo puts spending caps on every payment method to control economy & keep parents happy - so users can spend money only on 2-3 set days of the week.
3. Craig Sherman of Gaia Online
Gaia has three full time people on staff whose job it is to open envelopes filled with dollar bills and coins because people are desperate to get money into their accounts but can't find a suitable payment method.
4. Min Kim of Nexon
Average user lifetime in a Nexon game is 2-4 years; Audition, Nexon's newest game, is 50% female; Maple Story and Kart Rider are 20-30% female.
5. Tim Stevens of Doppelganger
The typical console game would not benefit from virtual item sales because of its lack of a continuing connection with its audience. I.e. the game launches, everyone buys and plays it, then most if not all of them leave very quickly for the next game. The community doesn't grow and care about their presence in the game long-term.
6. Daniel James of Three Rings
The average Puzzle Pirates user spends 2.5 hours per day in the game. Some drop in and leave, but others spend up to 9 hours a day in-game.
7. Raph Koster of Areae
Regarding preventing and tracing fraud: "You need to serialize everything - so you can trace the path of a virtual coin right back through to its minting."
8. Kyra Reppen of Neopets
Neopets builds their item packages and costs around a template metric of $10-15 per complete outfit.
9. Kevin Efrusy of Accel Partners - Facebook's VC
The Facebook gifting service was just an experiment. A third party will use the newly-launched Facebook Application Platform to deliver a far more successful gifting solution. He said if he were an independent developer, he'd be working on that right now as he believes it is a huge opportunity.
10. Eric Bethke of GoPets
GoPets users are 80% female, one third of whom are in North America. Users are spread throughout the 20s, 30s, 40s, 50s age groups. Interestingly, GoPets highest ARPU is from the low 30s age group.
All of my raw, totally unedited notes from the Virtual Goods Summit, after the jump.
- 10.5% internet penetration in China
- 40% of net usage in China comes from net cafes
- 4000 employees, 30% of whom are in R&D
- 65% of Tencent revenue is from virtual goods
- Calls what they do "Advanced Casual Games"
- Generate $9-10M in revenue per quarter from ads
- QQ.com portal is #1 in traffic in China
- QQ IM is #1 IM client in China with 250M active users
- QQ game portal is #1 in China with 3.2M PCU
- Qzone is #1 blog site in China with 62M active users
- Biz Units
- Online games
- Communication and community
- Premium QQ IM is $1.25/month: gets you more storage, ability to choose QQ #
- Qzone (like MySpace) - buy stuff to decorate your page. Avg price of items 20-60c.
- The larger the community is, the more valuable customizations become
- Qzone store
- Original price is for non-members
- Discounted item prices for people who pay $1.25/month
- QQ Pet
- Runs around on your desktop
- Costs $1.25/month plus the cost of items
- Mini Games
- Costs consumer a monthly subscription plus the cost of each game
- All games are multiplayer only, no single player
- MTV Networks bought them 2 years ago
- Play any of the 200 games for points
- 30K new accounts/day
- 40M users
- 300M monthly game plays
- 11M avg users/month
- Content is in 11 languages
- Audience is tweens
- Refer to themselves as the stickiest youth site (a claim more than one outfit made)
- Neopoints economy comprised of: Bank, Shop, Neodaq, Neohome
- Neopets views themselves as "like real life" - i.e. allowing kids to "role play real life"
- 22M user created shops for trading
- 750K daily transactions
- Neopet's take on emotional drivers for Tweens:
- Self Expression
- Social Needs
- MTV promotes in-game Neopets events on TV - Altador Cup promotion saw 20% inrease in usership
- Neopets business model
- Ads & sponsorships
- Premium subscriptions
- Licensing & merchandising
- Virtual item sales
- "Digital is real life for our audience"
- Neopets' NC Mall developed by Nexon
- Launching with Paypal as payment method
- Kids ages 6-14 have $60B in disposable income from allowances, etc
- Neopets builds their item packages and costs around a $10-15 per complete outfit guideline
- One third of Korea's population are Nexon gamers
- $230M revenue in 2005, 85% via virtual items
- Refer to where you customize your character as "dressing room"
- Show character profile everywhere possible to maximize value of customizations - customize your lobby experience
- Average user lifetime in a Nexon game is 2-4 years
- Items are split into decorative, functional and decorative & functional
- Stat tracking is an example of a functional item
- Clothes are decorative
- Have to be careful with functional items not to ruin the balance or increase barrier to entry for new players
- Decorative items cost 60c - $1.80
- Functional items cost 90c - $4.50
- Decorative and functional items cost 60c - $10
- Why virtual items? Because they enhance the game experience and are meaningful
- Kart Rider
- 15M subs, 25% of Korea
- 220K PCU in Feb 2005
- Will launch in US soon
- May start to focus more on ads and product placements as a growth revenue area
- Free players are content for other players - can't ignore them just because they don't pay
- There is a clear divide between game points (attention currency) and cash points (real money currency) - a single currency would be far too hard to tune, so don't try to merge them
- 50% of Nexon users are 13-24, so prepaid payment cards are vital
- Audition, Nexon's newest game, is 50% female
- Maple Story and Kart Rider are 20-30% female
- Unofficial motto: "be you without real life restrictions"
- "Real time social networking"
- Celebrity guests
- 24/7 moderation
- 70% of users 13-16 years old
- 7.5M unique users world wide
- 1.7M unique users per month
- Coke Studios & Virtual Magic Kingdom developed by Sulake as well
- 20f/t employees in North America
- 200 site moderators and community managers
- Habbo is in 19 countries, running 29 communities
- Habbo Homepages - newly launched - like MySpace
- In-world games cost 20c to buy tickets to
- Sound machine is a device you can purchase for you house to enable you to create music by mixing together packs of music you buy for $5 each
- 5-15% of free to player users ever choose to pay
- 50% of Habbo users are from English-speaking countries
- Tencen does $65M/quarter from virtual item sales
- Gifting is a big fraud issue
- Habbo puts spending caps on every payment method to control economy & keep parents happy - so users can spend money only on 2-3 set days of the week
- Credit card penetration in China is low
- Fixed line telephones are used as payment in China - they take a big cut, but provide excellent security
- SMS is huge in Europe as a payment method
- Habbo does SMS payment in North America, which is rare because NA SMS carriers take a massive cut (40-50%) of payments through their systems. Nexon wants to see SMS surcharges in NA get down to 10-30% before they opt to use it as a payment method. They believe it will get there once gaming services that can utilize SMS payments reach critical mass in NA and demand as much from carriers.
- Habbo has a $15 ARPU
- Once the customer is used to one payment method, they are very loyal to it
Why Virtual Goods Matter
- "The same neurons fire when an avatar smiles at you as when a real person does"
- The younger crowd (25 and down) experiences online seamlessly - for them there is no line between the online and real world… online is the real world
- Daniel James: "Graphics are not important - the mind models the situation"
- Puzzle Pirates has a $100 lifetime value per user
- Virtual worlds are like going on holiday - you have to convert your money to the local currency
- Craig Sherman, Gaia Online
- 2M uniques/month
- 1M posts/day on forums
- Average user spends 1 hour per day, 30 days a month on Gaia
- 50K in-game auctions each day for virtual goods
- Referred to themselves as "the first Flash based MMO" - which drew raised eyebrows from Daniel James
- Users can write fiction and submit them to newspapers on the site
- Gaia has experienced 4x growth over the last 12 months
- Users are 13-24
- They have three f/t people on staff whose job it is to open envelopes filled with dollar bills and coins because people are desperate to get money into their accounts but can't find a suitable payment method
- Best story was of how someone used a $15 Fedex to send a $5 bill
- Social meaning is attached to purely decorative items. That power is granted by other people in your social sphere.
- Collectibles are only available in a certain month. Some players buy, hold and resell collectibles later when their value has increased as they are no longer available.
- Craig told the story of a guy at a trade show who bought the OMG hat (real life copy of virtual hat that originated in Gaia) and said he was happy because he "missed the chance to buy the real one" in-game.
- Puzzle Pirates
- When Puzzle Pirates rolled out pets, they had their best month ever
- $3 is the minimum purchase in Puzzle Pirates - many users make just that
- Some customers have paid over $10K to Puzzle Pirates over their life with the product
- Average PP user spends 2.5 hours per day in the game, some drop in and leave, others spend up to 9 hours a day in-game
- 50/50 split in revenue from functional and decorative items
- Badges are functional items - work similar to a micro-subscription, where they grant you access to one mini-game for 1 month
- Captain badge is $10/month alone
- Sword affects skill in swordfighting mini-game, but swordfighting is still primarily a skill-based game so functional items don't change that balance
- Primary market larger than secondary. Secondary market in virtual goods est at $1.5-2B this year.
- Joshua Hong (K2) said "Gamers come to games because they're fun, but stay because their friends are playing"
- There is no decay in virtual items, unlike the real world where you have to replace your stuff eventually
- K2 audience is 25-32, hardcore gamers
- A particular gun in Project Entropia is worth $25K
- In Project Entropia, 8 banking licenses were auctioned off for a total of $400K
- Banks allow you to borrow against the value of your virtual goods
- IOvation (www.iovation.com) is s/w that takes snapshots of users PC configs to ensure 1 person isn't attempting fraud under many IDs
- "Virtual items sales require an exclusive business function for handing fraud" - Joshua Hong, K2
- "You need to serialize everything - so you can trace the path of a virtual coin right back through to its minting" - Raph Koster
- Project Entropia made $8M off $360M of transactions last year
- Higher level Entropia players can purchase a smart card & reader so they can login securely
- Secondary market drives primary market as more users will participate in the primary market if they believe they can sell their goods to others when they're done the game. In reality though, many users don't ever bother to sell their goods. Daniel James said Wizards of the Coast told him this at GDC a couple years ago.
- Although decorative items can't affect game balance, they can affect social balance of game.
- In There.com, users wanted user-created content far more than branded content. So much so that popular UCC authors became celebrities in There.com's world.
- Entropia lets you buy the real good to go with your virtual good
- Audit tools for tracking fraud are lacking
- Koster would like virtual worlds to work more like the web - an open system - rather than Prodigy, a closed system where you can't move your stuff/avatar from world to world. The Economist had an article on this recently, re: Metaverse.
- Opening up virtual worlds like this would also alleviate a lot of legal concerns re: closed systems
Virtual Items - Mainstream or Not
- Dogster is free gifts, with ad-support
- On HotorNot, users can purchase a $10 rose to send to other users. The rose dies 2 weeks later. HotorNot figured there were three value propositions inherent to a real life rose: the flower itself, the gesture of giving it, and the trophy effect of having received it. HotorNot figured that for virtual roses, 2 out of 3 of those values weren't bad - and they were right. The $10 rose is HotorNot's highest priced item, but it is still their best seller. James Hong said re: price elasticity, "It's not impossible that if we raised the price of the rose, we'd sell even more"
- Jia Shen of RockYou! compared social networks to the first day of high school - "how can you stand out?" - to explain why people purchase widgets to decorate their pages
- Re: Facebook's gifting platform, the panelists surmised that there are too many gifts with little or no differentation in terms of scarcity, meaning users are unable to easily ascribe meaning and value to those gifts. Panelists believed the introduciton of a $100 gift would garner more attention than the legion of $1 gifts that currently permeate the site.
Are Virtual Goods the Next Big Business Model?
- The Lounge's Tim Stevens says their revenue is split 50/50 between advertising and virtual item sales.
- He expects ad revenue will eventually dominate
- Says advertisers in virtual worlds can craft messages with storylines and items attached to them - a far richer ad experience than other mediums.
- Kevin Efrusy from Accel Partners (Facebook's VC) said that the Facebook gifting service was just an experiment and that he believes a third party will use the newly-launched Facebook Application Platform to deliver a far more successful gifting solution. He said if he were an independent developer, he'd be working on that right now as he believes it is a huge opportunity.
- Dan Kelly from Sparter said that secondary markets promote liquidity.
- "A typical Sparter user sells enough gold to play WoW for free" - the implication being that no one is getting rich off Sparter.
- Essentially, Sparter is "transferring $40 from someone with excess money to someone with excess time"
- Tim Stevens believes that the typical console game would not benefit from virtual item sales because of its lack of a continuing connection with its audience. I.e. game launches, everyone buys and plays it, then most if not all of them leave for the next game. The community doesn't grow and care about their presence in the game long-term
- Sparter aims to provide a white label service for publishers to host their own consumer-to-consumer (C2C) transactions.
- The Lounge's Tim Stevens says their revenue is split 50/50 between advertising and virtual item sales.
Virtual Goods Meet Entertainment
- Meez made $250K from ads from packaged product companies in the last 6 weeks
- Kongregate has 650K unique visitors/month - mostly teens, male
- GoPets users are 80% female, one third of whom are in North America. Users are throughout the 20s, 30s, 40s, 50s age groups. Highest ARPU is from the low 30s age group.
- In Meez, 25% of users buy currency, the other 75% earn it in-game.
- The point was made that we don't have a subscription package in real life (i.e. pay a monthly fee for a townhouse, 2 kids, a dog, etc), so why do we want it in virtual life? I.e. that model doesn't make as much inherent sense as the freedom of choice offered via virtual item sales.
- GoPets "hires their own users" for community management, something they call "homesourcing"
- Meez believes the most loyal users are female
- One idea to alleviate the legal issues that go with banning someone who has bought virtual goods (and what claim they have to true ownership of those virtual goods) was: when people are banned, sell their virtual goods on the secondary market and remit the proceeds to them (provided their goods were purchased legimately, of course). Similar to how the government in real life would do it.
- GoPets users, when polled, all agreed that they would prefer to be called "citizens" instead of "users".
- GoPets automatically reclaims unused land that users have purchased but not developed after X amount of time and gives said users back their money.
- GoPets has 90 different payment systems worldwide.
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