Innovation feeder


Business innovation in the virtual world

Fascination with Second Life and the other ‘alternate realities’ seems to be continuing. I went to a seminar the other day to listen to a bunch of Aussie businesses who were making their foray into the SL universe. Telstra’s bigpond is undoubtedly the succestempadventure.jpgs story from our shores, having created and nurtured a fully functional thriving community on their island. Likewise the ABC are dipping their toes in the virtual shores of Second Life as an R&D experiment much like many others. There was also a real estate company present who is using recreating their real estate imagery boards for sales and linking them through to the website. It’s odd when people mimic their offline business models online, given the capacity of Second Life to completely change the way we think about real estate altogether. Nevertheless, all brave companies for giving it a red hot go.

The smarty pants at Accenture have written an interesting article on Real Business in Virtual Worlds which I read this morning. This article is by Kishore S. Swaminathan
[Outlook Journal, September 2007]. You can click through to Accenture and read the full article here

Virtual Worlds, Real Business?
By Kishore S. Swaminathan
Outlook Journal, September 2007

Even as we rush headlong into the world of Web 2.0, there’s a veritable groundswell of blogosphere wisdom that holds that virtual worlds will form the basis of Web 3.0.

The media buzz around new virtual worlds such as Second Life would almost have you believe that—as the video game generation grows up and graphics technologies advance—the web as we know it today will be a thing of the past and virtual worlds will be the way of doing business online. Even the industry analyst Gartner has opined that, by 2011, 80 percent Fortune 500 companies will have some kind of virtual world presence.

Emerging reality? Misguided optimism? Marketing hype? Before you bet the farm, let’s take a closer look at virtual worlds to understand their strengths, weaknesses and business potential.

Unlike websites, virtual worlds are graphically rich 3-D environments that mimic the physical world. Users represent themselves as avatars (Sanskrit for “incarnation”) and navigate by moving themselves around. As they move through these worlds, they discover new places, interesting objects and bump into other people (or their avatars) with whom they can interact.

Within this common framework, however, there are two very distinct classes of virtual worlds: “scripted” video games that have story lines, rules and goals to attain; and “non-scripted” worlds, where users (and businesses) can create their own subworlds and experiences.

Contextual Commerce
In 2002, the online game EverQuest became, in terms of per capita GDP, the 77th-richest nation in the world, a notch below Russia and far ahead of China and India. How? Players started selling virtual goods—magic keys that open doors to more advanced features of the game and specialty weapons to slay monsters and ogres—as well as their avatars for real money in “player auctions” on sites such as eBay.

A new cottage industry soon emerged that today employs more than 100,000 people—mostly young adults—around the world. They work 12- to 18-hour shifts battling Ironjaw Basilisks and Ice Thistle Yetis to collect drops of Greater Arcane Protection Potion and blocks of Ancient Sinew Wrapped Lamina that other players are willing to buy for real money to shortcut tedious parts of the game, gain magical powers and have more exciting gaming experiences. Some professional gamers also offer “power leveling” services—for real money—to help other players with difficult adventures that would otherwise mean hours of battle and endless wandering.

We’re talking serious money here. The economy for virtual goods and services for video games is estimated to be upwards of $800 million!

If fighting Ice Thistle Yetis and collecting Ancient Sinew Wrapped Lamina don’t fit gracefully in your business plan, online games do provide other, more sober business options that might. With a loyal user base of more than 25 million, they are increasingly becoming a medium for contextual advertising to highly targeted audiences.

Responding to this opportunity, many blue-chip companies (including The Coca-Cola Company and Procter & Gamble) are buying advertising and product placement in video games, ad agencies specializing in game advertising are springing up, and Nielsen Media Research has come up with a rating index—GamePlay Metrics—to cater to game advertisers. Yankee Group estimates that game advertising will grow to be a $732 million industry by 2010.

Online games even provide opportunities for contextual commerce. In a creative tie-up between Sony Online Entertainment and Pizza Hut, a player of EverQuest II could order pizza and choose his toppings (no gender bias intended: It’s usually a he) from inside the game without wasting precious game time fumbling for the phone.

But the current excitement around virtual worlds comes from “unscripted” worlds like Second Life, There, Moove Online, Activeworlds and others. These are worlds with no ostensible goal or purpose, worlds that exist simply as places to explore and experience—and, of course, to conduct commerce.

Consider this. As of May 2007, Second Life claimed 6.5 million members. More than 60 real-world companies, three US presidential candidates and a Unitarian church have set up shop in Second Life. Nike and MTV have a significant presence in There.com, which boasts a more modest half million users. Both Second Life and There have their own currencies—Linden dollars (L$) and Therebucks, respectively—that float against the US dollar. Second Life not only boasts a money supply of about $10 million; it even has a stock exchange, with more than 50 listed virtual stocks.

What exactly do the denizens of these worlds do? Broadly speaking, they exist, explore, experience, express and exchange.

They exist as virtual incarnates—avatars again—in a graphically rich, topologically laid out landscape, which they explore by moving themselves around to discover new places—buildings, stores, clubs and gardens, along with some less wholesome venues (which are among the most popular in Second Life). They express themselves by creating interesting virtual objects, by dressing up their avatars with virtual decorations or by chatting with others. They experience—or more accurately, create experiences for themselves—by joining special-interest groups and guilds, buying virtual homes, getting married to other avatars, adopting virtual children and going camping with the family. And they exchange virtual goods for virtual currency.

Inane? Intriguing? Bizarre, perhaps? Whatever your personal feelings may be, these worlds continue to generate buzz, attracting businesses and individuals alike. If you spend a few hours in Second Life or There and chat with the regulars, you’ll at once be puzzled and amazed to see that these make-believe worlds are all very real to their residents, who take their virtual world experience seriously indeed.

You can click through to Accenture and read the full article here

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