SXSW Xcript: Business Models for Virtual Worlds

First Screenburn panel, first transcript: Terraforming the Internet, When 3D Models Meet Business Models kicked off at 10:00am Central Time here in Austin, and I got pretty much all of it for your reading pleasuere (thought I ducked out as the audience questions were starting in order to try to find some Internets that actually worked.

Moderator: IBM’s John Tolva
Jan D’Allesandro from
Eric Rice, Slackstreet Studios
Bill Victor of Halcyon Worlds
Ben Batstone-Cunningham, of Alt-Zoom Studios, who formerly worked for Linden Lab, makers of Second Life

Tolva opened with a question about whether 3D virtual worlds were the next Internet (i.e., a replacement of it), or an appendage to the page-based Internet.

Rice: I don’t believe the page model is going to die. While [virtual worlds are] not by definition purely gaming, it’s certainly in a space where there’s this sense of presence [as in gaming]. It’s like watching a funny movie by yourself or watching it with someone else. The energy of people around you affects your experience. I think it’s another path, but I don’t think it’s a replacement.

Tolva responded that there are page-based communities that represent collaborative space, though that space is not physicalized. What differentiates and Second Life from very social spaces like MySpace.

Rice: It’s that live presence, spatialized, where you can see reactions.

Victor: Real-time space is by nature a collaborative environment, where other pages like MySpace and Flickr are more archival and it does that very well, though you wouldn’t want to shoehorn that into a virtual space. There’s a lot of room to build that up, but I wouldn’t force it.

Ben: When you see the online indiicator on MySpace, how are people trying to make those into virtual worlds? They have little avatars, they have people communicating in real time. Not becasue they are designed that way, but because they want to use it that way. Seems like they’re trying to get that virtual world experience through MySpace.

Jan: MySpace and the other social media sites are in fact worlds, and that’s where people are spending their time, the eovlution of th Internet in general, particualrly young peopel 13-25, they don’t email ecah other, they communciate via these social media sites. I think the next step is the virtual world, and as they become more robust, I dont’ think they’ll displace, but they may be the next step replacing the social media sties.

Ben: Talked about different between augmentation and immersion, in use of virtual worlds. A lot of people are looking for these VWs to be augmenting their real world and the Web. I think that’s where the real strength is, not replacing, but the augmentation of the Web.

Tolva: In the context of a business model, seems like points of tangency between page-based Internet and 3D worlds, or 2.5D worlds, as a location for busienss of some sort. How do you see these experiences interpenetrating. I see the tangency in user-created content. It’s so easy to create content today, Twitter and Tumblr and blogs and all that. Yet in VWs, it sometimes seems to run counter to that. Seeing success in companies that do give you that toolset, but plenty of platforms where you have to be skilled with high-end 3D modelling tools to do that. What can we learn from the Web’s evolution from read to read-write platform?

Rice: In DIY model there’s almost an anarchy of content. Beautiful next to awful. That’s going to be a big challenge. There’s going to be a shakeout: Where is this content coming from, who’s going to make it? I’d hate to build all of World of Warcraft, but I would like to have a place where I could collaborate. WHo’s going to give how much control is one of the hottest issues.

Jan: It becomes interesting too when these VWs become advertsigin platofmrs. They want to exert some kind of control over their brand. At Meez we have a walled garden that some may sneer at, but we have a lot of options for persoannlization and opportunities to express who they are. We try to reach a certain audience. For advertisers, they ahve a lot of conecrn over what control am I going to have over my brand. Though they’re entering SL in droves, it’s with a bit iof trepidations. No different from real world. You can sell someone a Coca-Cola sweatshirt and htey can go rob a bank in it. Does that mean Coca-Cola endorses the bank robbery?

Tolva: Seems like you’re saying businesmodesl in VWs cloalseyl approximate regular business modesl. Are there cases where there would be a libailtiy or not make sense for a busniess to be involved in a VW?

Rice: There’s been carmakers and hotel chains. Ther’es a Starwood hotel, they set up a virtual hotel. That makes sense, the travel indsutryu’s got this sense.

Ben: Youy’ve got this microcurrency, you’ve got people making 100s of 1000s of dollars in SL. Why not an accounting agency?

Victor: You have to realize it’s an extension of your brand, and if you don’t protect it and you don’t keep active in it, you’re going to have a problem.

Rice: This is alsmot the same conversation we had about blogs and podcasts. Advertisers have similar concerns about advertising on a blog or a podcast.

Tolva: Can we isolate anything truly unique that we didn’t see in blogging or Web 1.0?

Jan: The way we look at it, there’s 2 potential business models, ther’es advertsiign and there’s the sale of virtual itesm. SL and a few others have done a pretty good job of proving there’s an appetite in this country for buying virtual things. I think we’ll see more and more of that. It’s huge in Asia.

Rice: IOd’ aadd media to the list, allt he independent usicians I’ve seen performing in Second LIfe. Who’s to say we can’t kick it in a pub right off of Grand Theft Auto and see a badn streaming into the world.

Ben: I think that advertising is a real easy one. All these Web 1.0 metaphors are easy for us to think aboiut because we undersstand them. That’s why it’s hard to start thinking about what’s going to come next, beyond selling virtual goods. What about selling virtual services. Getting a tour guide in Second Life. That’s kind of a cool thing. It’s not a new business model, nbut much of SL is built around this real-world metaphors, these VWs are built around these real-world metaphors. Selling jetpacks isn’t really a real-world bnisienss model.

Jan: I think that the opportunity for brand extentsion in virtual worlds is probably better than any kind of advertising. User have the opportutiny to take these brands out of the virtual world and extend them wherever they go online. That’s almost impossible to replicate in the real world at the same volume.

Jan: We look at this in a bit different way, we see Meex as a virtual station not a virtula world, we encourage users to export their avatars to wherever they go online. So our pitch to advertisers is that not only do you get advertising in the world, users then export them wherever they go online. People are very interested in this.

Rice: The people are going to exist across all of these worlds. Now companies look at what might be relevent for a platform, but also, can something come out of that [independent of platform]?

Tolva: A lot of that mashup seems manual. In 3D worlds there seems to be higher barriers to mashing things up. I don’t see the level of remixability just yet.

Victor: Something I think would assist in that was a move to OpenID, where you cvan have an account that works across these worlds. It’s easier said than done, though.

Ben: IT’s up the individual to transfer themselves right now, but these communtiies are transfering. It’s still very much an emergent phenomenon. One person goes to a new world or space, and then boom, everybody’s there. That’s not auomatic, but it feels that way. When my community goes there, the cost of switching over becomes that much less. The question you’re leading to is whether I can export my home from a place like Second Life to a place like Sony’s Home, but what I’m hearing is that people don’t care about that. What they care about is, is there an easy way to make sure my friend in Second Life is the same as my friend in Sony Home.

Jan: We have this quote from focus groups with high shcool students about what is it, I want to be different, just like all my friends.” They also said, “I think Meez is cool,. I don’t know if I would use it, but if all my firneds were using it i Would.” We laughed and thought, haha teenagers. But then we realized wer’e all the same. What it’s all about is ocmjmunity. People want to be whre their peers are, where their friends are. People want to be where people like them are. These virtual worlds or environemnts, it doesn’t matter so much what the technology is, as long as people are there.

Rice: The easy technology will win though.

Jan: I worked at AOL from 1995 to early 2000. AOL was it in 95, then a few years later it became not cool, Internet on training wheels. We now have the Second Life early adopter crowd leading the market and creating the model, creating the industry. It’ll be interesting to see what the next thing will be as the technology gets better. Will Second Life just get bigger and bigger, or will there be a next big thing?

Tolva: Is there any useful distinction these days between solely social space, and games? Gaming is a very different business model from the social virtual worlds we see. Are there lessons to be learned from the gaming industry.

Ben: I don’t think it’s all that different. Why is WoW sdo populat? It’s not because it’s a great game, it’s becasue there’s a lot of people building communities there, and those communtiies really support the gameplay. You don’t think so at first, but what really kind of ties you into WoW and $15 a month business model, is getting to know other people, and that’s going to be what’s going to keep you paying money for SL. You owant to pay that money to support your role in the community. You want to pay to grow your community and continue paticipating in it. All the business modesl go toward the same thing: How do we keep people together? Because that’s where the money will be made.

Jan: Where there are a lot of people are, there are a lot of revenue opportunities.

Rice: I’d like to havfe an instance in WoW that’s a pointless but very inmportant social space where i can talk about how to get thorugh the game without worrying about a tiger jumping me.

Tolva: One interesting thing is how people have to learn to behave in the world. Opportunity there in learning what the interactions in these worlds can teach us about human interaction, human styles of self-organization. There are HR companies interested in what’s happening in these worlds for what it can teach them about teamwork, for instance, that could be an opportunity.

[At this point, your correspondent takes his leave.]


  1. Aleister Kronos

    Thanks for blogging this Mark.

    I meant to get to Sheep Island to listen – but failed! I tried Phreak Island (as advised on The Sheep’s blog pages) and there seemed to be nothing there.

  2. Jerry Paffendorf

    Hey Aleister, Should’ve been streaming OK, I’ve been watching it on the screen here most of the day while running around SXSW. I’ll check with Phreak Isle, should be good, but haven’t been over in a while. If anyone wants to host a stream in SL let me know. Unfortunately can’t just put it out because it would get swarmed on the web in a second.

    csven > Okay, I’m a little bummed. I didn’t learn anything.

    You’re a blackbelt csven. There’s definitely edumacating going on here for those coming into the conversation. I wish I had more time to pay attention to all of the panels. To Twitter myself here:

    Running back and forth between the 1st and 3rd floor, helping stream video and man the booth, lunch with Jamais Cascio, Valerie’s flight got canceled so I’ll be on the mapping panel at 5 talking about building the video game version of the planet.

    More than 100-whatever characters, but there it is. What a difference from last year where no one really knew Second Life or talked about virtual worlds much. Boy that’s changed, and virtual worlds are getting woven into a lot of the conversations. Sony’s Home is a big topic of conversation.

  3. csven

    It *is* pretty interesting how SL is being so heavily referenced (and, btw, not a “resident” number in sight!). Equally interesting is seeing how poorly it’s still understood.

    Be that as it may, the coverage in general for both GDC and now SXSW has been excellent. Before long it’ll be like sports where those in person don’t get the play-by-plays and those tuning in by remote get the best seat (speaking of which, my mother went to a digital theater to see an opera

  4. Prokofy Neva

    What was valuable about this panel for those of us watching at home is that there were some precise definitional words coming into usage. Like “the page-based Internet” and “physicality of social space” and “archival”; also the concept of the portable avatar a la Meez and then how “Myspace is a world”. (It’s not, but maybe all the people coagulating on it together will migrate into worlds like Kaneva or Home or Second Life.)

    >Rice: I’d like to havfe an instance in WoW that’s a pointless but very inmportant social space where i can talk about how to get thorugh the game without worrying about a tiger jumping me.

    You can. It’s called “Second Life”.