This Week In Virtual Worlds

How much would you pay for a virtual pair of shoes? If you’re not familiar with the concept of virtual goods this may seem like a strange question. But virtual goods are selling fast in the online world - and sales are set to keep on growing as they are introduced to a mainstream audience.

Companies are increasingly beginning to realize that virtual goods have the potential to generate huge revenues. For example, in an earlier post we mentioned the prediction from Sebastien DeHalleax of EA/Playfish - that a $1 billion social game will emerge in the near future - funded entirely by micro-payments.

While that may seem like an ambitious target, research certainly suggests the industry is set for rapid growth. K-Zero Worldswide has undertaken a detailed analysis of the virtual goods market. Their research suggests that total revenues will reach $14 billion dollars by 2012.

At the E3 games show this week, Microsoft’s X-Box Kinect (formerly code named Project Natal) stole the headlines. Using cameras and sensors, it’s wireless control system lets players fully immerse themselves in games, using gestures and movements to manipulate their on screen avatars - without the need for hand-held controllers or wires.

Nintendo pioneered this immersive style of gaming with the hugely enjoyable Wii. Sony’s PlayStation Move is also making progress with a similar concept. These developments are set to take gaming to the next level - changing the way people interact with games for good. This has implications for the whole industry.

Now, while the launch of Kinect took center stage at E3 - it also emerged that Microsoft has quietly been making serious money from virtual goods sold through X-Box Live. Dennis Durkin, COO of Microsoft Interactive Entertainment, revealed that sales of virtual goods have steadily been growing and recently surpassed revenues from subscriptions. Forbes.com crunched the numbers and estimated that X-Box live is taking at least $625 million a year in virtual goods alone. This is serious money. It even tops Zynga - the emerging giant of social gaming expects revenues of around $600 million this year according to Business Insider.

Sony is also fully aware of the possibilities of the virtual goods based business model. It announced at E3 that PlayStation Home, it’s ‘virtual world social network’ had doubled user numbers last year to 14 million. The network encourages PlayStation owners to create avatars, interact, play games and collect virtual goods, with branded areas and content from games developers.

These revelations will impact on virtual worlds and drive the growth of virtual goods in two key ways. Firstly, games consoles have not traditionally been seen as a supporter of virtual worlds, but it seems that this is changing. Clearly, as huge numbers of console owners are introduced to possibilities of virtual worlds, the overall popularity of virtual worlds will grow. As the technology improves and provides new ways to access these worlds, they will engage a more mainstream audience.

Secondly, if players are promised a more immersive gaming experience with platforms such as Kinect, then research suggests they will develop a deeper connection with their avatar. So the theory goes - as individuals invest more time and more effort into their online presence, they will be more likely to spend real money to customize their appearance and enhance their status - though the purchase of virtual goods. So while the technology is evolving all the time, virtual goods are here to stay.

Here is a selection of news and comment on virtual worlds and social gaming that we found interesting this week:

• Woozworld, the Tween virtual world, has announced a partnership with Zong, a mobile payment platform. Zong will provide the infrastructure for the purchase of virtual goods by SMS message. Woozworld CEO Eric Brassard commented, “We expect the integration of Zong to have a significant impact on the conversion rate of purchases of user-generated virtual goods.”

• Zynga has reportedly raised another $147 million in funding from Softbank, the Japanese telecommunications company. The deal will enable Zynga to continue it’s expansion into the Asian market, taking advantage of Softbank’s mobile networks for distribution and co-promotion.

• The Journal of Virtual Worlds research - Volume 2, Number 5 (2010): The Metaverse Assembled - is available now. The new issue is co-sponsored by The Virtual Goods Forum, which takes place in London on 23-23 June.

• Club v3, the Isle of Man based games developer published a white paper this week entitled ‘What is the appeal of social games’. The paper, authored by Ciaran O’Connor, explores the features needed for a successful social game and investigates ways to drive player engagement.

• Inside Facebook has released a summary analysis of Facebook gaming in Britain. After the US, Britain is Facebook’s next largest market, so it’s a useful source of data for anyone interested in social gaming. The survey notes that in Britain females represent 57.9% of Facebook gamers, compared to 60.8% in the US.

New virtual worlds and social games are regularly being announced, tested and launched. Here are a few that caught our eye this week:

• The Tiny Planets kids TV brand has launched an online entertainment portal including an immersive virtual world. My Tiny Planets allows kids to earn ‘stars’, a time-based virtual currency for in game achievements and completed missions. Players will also be able to purchase ‘keys’ to access exclusive content and virtual goods within the world.

• Disney-Pixar has announced a new addition to it’s virtual world portfolio at E3 this week. Disney-Pixar World of Cars online will encourage young fans of the animated movie to create their own car avatar, make friends, compete in races and and interact with their favorite characters.

• Worlize has announced the first user-generated social gaming platform for social networks, with $150,000 initial funding. Details are thin on the ground at this stage, but the company aims to develop a simple interface that allows users to create and customize games including puzzles, card games and MMOG’s.

• New details have emerged about the forthcoming Clone Wars Adventures virtual world from Sony Online Entertainment. The world will launch with 20 mini-games to play, including a tower defense clone and a lightsaber duel. The world will be free to play, but will incorporate micro-transactions for virtual goods and a subscription model for dedicated players.

Here is a selection of news and comment on virtual worlds and social gaming that we found interesting this week:

• Linden Lab has announced plans to lay off 30 percent of its staff as part of a restructuring program to gain ”geographic and cost efficiencies”. The Second Life creators will focus on making their world more accessible, developing a browser based experience and extending social network integration.

• Forbes.com have put together a chart of the top ten earning online games of 2009. It’s no surprise that US based Blizzard’s World of Warcraft is top of the list, grossing $1 billion last year. However, the rest of the top ten is entirely comprised of Asian produced games, highlighting the popularity of the genre in China, South Korea and Japan in particular.

• eMarketer has released new research on the growth potential of social gaming. Social Gaming: Virtual Crops Yield Real Profits reports that 39% of all US internet users have played an online game, 25% have played a social network/casual game and 9% have visited a virtual world.

• Inside Social Games reported on the phenomenon of ‘super whales’ this week. According to figures from payments platform Social Gold, a ‘whale’ is defined as an individual spending over $1000 on virtual goods within games. The average player spend is $60, but this figure is inflated by a hardcore of players spending huge sums. A Saudi Arabian high-roller heads the list with a remarkable $25,540.

• IT Business Edge has been investigating the legal and tax implications of virtual goods. The debate is ongoing, but as virtual worlds primarily monetize through the sale of virtual goods, issues of tax and legal issues will need to be addressed. Should authorities impose taxes on virtual currency?

New virtual worlds and social games are regularly being announced, tested and launched. Here are a few that caught our eye this week:

• FrontierVille has launched in beta, as Zynga seeks to expand its horizons. The Wild West themed game is stylistically similar to FarmVille, but it includes new features including the ability to control multiple avatars on a single screen. Bryan Reynolds, Zynga’s chief designer, described the project as ”Oregon Trail meets Little House on the Prairie meets FarmVille.”

• Ubisoft, best known for traditional titles such as Rainbow Six and Assassin’s creed, has re-entered the social games market. The French publisher has launched Vineyard Country, a sophisticated wine farming simulation.

• SpongeBob SquarePants is set to feature in a MMO game for the Asian market. MTV Asia is collaborating with Singaporean developer GigaMedia to bring the popular animated character to life. The game will be free to play, with an online store which will encourage players to upgrade and customize their experience.

• The US Center for Telehealth and Technology is developing a virtual world project to assist servicemen suffering from psychological health issues related to deployment. Members will have access to tutorials, information and training as well as the opportunity to socialize with other members, regardless of location.

• IBM and ProtonMedia have announced plans to collaborate on virtual world solutions for life science enterprises. The project aims to assist clients in lowering costs, improving productivity and speeding up knowledge transfer.