Virtual worlds - can it really be anything for businesses? If developments and trends (2 hr lecture / workshop FSV 1, 2, 7)

Virtual worlds are three-dimensional digital spaces that are distributed over the Internet, where large numbers of people can communicate, interact, create and consume both virtual and physical goods and services. Branding is a major presence in virtual worlds like Second Life, Entropia Universe, Planet Calypso, and Blue Mars. This lecture and workshop will focus on how some companies have used virtual worlds, including the mistakes they have made and how the media can be improved in terms of development of a customer base, profiling the business and creating a brand presence in virtual worlds. Case studies discussed include the Second House of Sweden and the business model employed by Planet Calypso.

Background Factors to Virtual Worlds and Business

Age is a particularly important factor in the virtual worlds. Most of the users of virtual worlds are today under 15 years of age.

It is estimated that there are over one billion registered accounts in virtual worlds today. An estimated 700 Million of them are under the age of 15.

What are Virtual Worlds?

The concept of a virtual worlds can be distinguished from the concept of game space by the absence of the characteristics of a “game.” Bell (2008) presents a number of previously proposed definitions of a virtual world and proposes a synthesized, more contemporary definition that attempts to take into account changes that have appeared in virtual worlds over the past several years (Chesebro, 1985; Bartle, 2003; Koster, 2004; Castronova, 2004). Bell states that a virtual world can be defined as “a synchronous, persistent network of people, represented as avatars, facilitated by networked computers” (2008, p. 1). Bell’s definition has three key components:

1. “synchronous” indicates that shared activities necessitate synchronous or real-time
communication

2. “persistent,” as explained previously, indicates that a “virtual world cannot be
paused” or does not shutdown when the user exits

3. the “avatar” is “any digital representation (graphical or textual), beyond a simple
label or name, that has agency (an ability to perform actions) and is controlled by a
human agent in real time” (2008, p. 1).

Schroeder emphasizes the experiential element of virtual worlds. Schroeder defines a
virtual environment or, equivalently, a virtual reality as “a computer-generated display that allows or compels the user (or users) to have a sense of being present in an environment other than the one they are actually in, and to interact with that environment” (Schroeder, 1996, p. 25). “Virtual Worlds Research: Consumer Behavior in Virtual Worlds”

There are three main forms of business in relation to virtual worlds:

1. Virtual goods and services
Virtual goods are non-physical objects that are purchased with real money for use in online
communities, virtual worlds, or games and fulfill a functional or decorative purpose in an online
environment. Virtual goods are typically priced from $1 to $3, but can be sold for much higher prices depending on scarcity, functionality, and design. Virtual goods include weapons or tools that help players progress in a game, decorative items like avatar gear or profile themes that allow users to express their individuality, and virtual gifts that enhance communication between friends and family. Perhaps most importantly, virtual goods also act as social badges that, depending on the social context, can convey a level of status, achievement or acceptance similar to that associated with ownership of real status symbols.

The Entropia Universe entered the Guinness World Records Book in both 2004 and 2008 for the most expensive virtual world objects ever sold, and in 2009, a virtual space station, a popular destination, sold for $330,000. This was then eclipsed in November 2010 when a player sold a virtual resort on Planet Calypso for $635,000; this property was sold in chunks, with the largest sold for $335,000.

2. Branding
The American Marketing Association (AMA) defines a brand as a "name, term, sign, symbol or design, or a combination of them intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of other sellers.

Therefore it makes sense to understand that branding is not about getting your target market to choose you over the competition, but it is about getting your prospects to see you as the only one that provides a solution to their problem.

The objectives that a good brand will achieve include:

* Delivers the message clearly
* Confirms your credibility
* Connects your target prospects emotionally
* Motivates the buyer
* Concretes User Loyalty

Branded Virtual Goods (BVGs) are virtual goods that – in addition to offering some functional or
decorative value – display an insignia, copyright protected mark, logo or derivative image of a known brand, and by virtue of being “branded”, command a higher social and monetary value among end users. This premium positioning is analogous to the difference between generic and branded products in the real world where branded items typically sell more units and fetch higher prices than their generic counterparts. A plain white t-shirt can be transformed from a cheap commodity to a sought-after product by incorporating the mark of a well-known company or celebrity. Brands have a similar impact on virtual goods. In this report, we define brands broadly, i.e. they include not only popular consumer brands, but also images of and associations with celebrities, famous athletes, sports teams, colleges, movies, musicians and televisions shows. In short, a brand creates a point of differentiation in the user’s mind, and this differentiation represents an opportunity for monetization that is not found in generic goods.
See Branded Virtual Goods Market Report : Opportunities and Strategies for Aligning Brands with Virtual Goods (August 2010)

Nation branding is a field of theory and practice which aims to measure, build and manage the reputation of countries (closely related to place branding). Some approaches applied, such as an increasing importance on the symbolic value of products, have led countries to emphasize their distinctive characteristics. The branding and image of a nation-state and the successful transference of this image to its exports - is just as important as what they actually produce and sell. The Second House of Sweden is a virtual world example of nation branding.

3. Provision of a virtual world and related media
Creating a virtual world from scratch and building a community to populate it is a long terms and specialized occupation. There are free development tools around, NeL gives you a skeleton, for free, but wants half a million Euros for a something you could actually use. Kaneva's game engine is more complete, but you can't use it for free-to-play worlds of any scale (ie. more than 30 players - and they want to host it on their own network). RealmForge is very good except for its network features, although it is rapidly improving in that area. RealmCrafter is only $55, so it's practically free, but its graphics engine is dated and it's still something of a work-in-progress. BYOND is 100% free, and is excellent - if you don't mind having a 2D world rather than a 3D one. Multiverse is a complete, end-to-end platform solution that is free for non-commercial use. The business model appears to be to build up an installed base of Multiverse browsers through free games, thereby making the platform attractive to commercial developers (who will have to pay to use it).


Links for Further Reading
Robin Teigland
Robin Teigland is an Associate Professor at the Center for Strategy and Competitiveness at the Stockholm School of Economics (SSE) as well as the caretaker of SSE’s island in Second Life. She is also the Program Coordinator for SSE's PhD program in Business Administration and a member of the faculty of the International Management PhD program at the University of Agder in Norway.

The work of the Berkman Professor of Entrepreneurship Legal Studies at Harvard University, Yochai Benkler is influential in my approach to the role that virtual worlds can play in business. His book, The Wealth of Networks: How Social Production Transforms Markets and Freedom (2006) should be considered as background to my lecture.

Revenue recognition on the sale of virtual goods

Hypergrid Business: THE MAGAZINE FOR ENTERPRISE USERS OF VIRTUAL WORLDS
By reading Hypergrid Business. We offer in-depth and up-to-date coverage of the OpenSim technology and community, which is currently the leading contender to be the hyperlinked 3D Web, with news, case studies, opinion, and feature stories. We also cover alternative open source platforms like Open Wonderland, and proprietary enterprise platforms like ProtoSphere and Teleplace.


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