Virtual Goods Summit: Why Virtual Goods Matter

Nabeel Hyatt of Conduit Labs moderated a panel on Why Virtual Goods Matter, and What’s Driving User Adoption, at the Virtual Goods Summit at Stanford University.

Craig Sherman of Gaia Online
Daniel James of Three Rings
Amy Jo Kim of Shufflebrain
Byron Reeves of Stanford University and Seriosity

Reeves: The human brian is not specialized to differentiate between virtual and real. Same neurons fire when an avatar smiles at you as when a real person smiles at you. Seriosity is looking at what happens when you create an opportunity to do serious things with virtual currency attached, such as sending email messages with virtual currency attached. The result? You open the email faster when currency is attached. Virtual money changes real behavior.

Amy Jo Kim: It’s pretty obvious that it’s extremely successful overseas. Now is the time the US market is ready for this. I don’t think in the past it has been. But broadband penetration and young people experiencing real and online life seamlessly make it a pivotal time. My particular interest is virtual goods that incorporate user-generated content. We’re seeing a real explosion of user-generated content and excitement around content-sharing networks. It’s very important to think through to what extent you want users to be able to create items to trade back and forth.

Daniel James: My background goes back to text MUDs. I’ve been a long-time believer that the interface is not the issue, what we’re dealing with here is deep psychological behavior that’s independent of interface. Immersion has to do with the mind, not the graphics. Three Rings makes Puzzle Pirates, a casual MMO. We do about $350,000 a month in revenue, of which $250,000 is virtual currency sales. We think this is the business model going forward for online entertainment and virtual environments. We’re building a new project, a Web-based social expression world based on player-created content, called Whirled.

Craig Sherman: I run Gaia Online. I spent five years in online genealogy. Then an entrepreneur at Benchmark Capital, was totally taken by the space of virtual worlds and currencies. Looked at 250 companies and found Gaia. A billion total posts on message boards. Average visitor spends over an hour a day, every day. Virtual economy, we have about 50,000 completed auctions every day. Plus 12 virtual stores that are like an Amazon space, 6,000 items sold. Core experience at its heart is like going to a MySpace or Facebook. Start with profile, then blog, friends list. You build you as an avatar, a 2D anime-style avatar. Hang out in Flash-based MMO. Play games, write poetry, fiction, submit to newspapers, watch movies, draw or vote on art, etc.

Nabeel: Inside your communities, what are the types of metrics or things you look for to see engagement.

Craig: Our site skews a bit older than Habbo, maybe 13-24. We have three people on staff whose full-time job is to open envelopes with single dollar buills and quarters in them. The users can’t figure out how to get the cash to us. One user sent in a $5 bill in a $14.95 FedEx package so it would get to us on time. So that’s one measure of engagement.

Daniel James: You roll out new stuff and your revenue steps up. We put pets out last summer and had the best month ever. Clear correlation between if you release new stuff you will see people adopting it. That’s why user-created stuff is so exciting. We’re 1/3 subscription, 2/3 microcurrency, maybe 1/4 and 3/4. Average revenue per user across the board is very similar, but it disguises completely different curves.

Byron: Seriosity is very different in that you can use the virtual currency to do a whole lot of different stuff that’s not actually tied to the place the product exisats. One evidence for use is who’s transporting the currency to whom, are they inviting other people to in the economy. The more interasting metric for us recently is what are the different ways people can invent to use a virtual currency other than the information overload we’re tackling. Answer is it works like money, and wherever money might work, this helps. Auctioning scarce resources, rewarding a friend fo rbringing a pow3er cord you forgot from a conference room. Signalling importnace, giving feedback.

Nabeel: Do most people care about goods for a social reason or because it’s tied to achievment?

Amy Jo: It completely depends on what kind of world you’re creating. In a gaming world, functional goods have the most power, because you can achieve something inside the game. You think of power-ups, special properties. What we’re seeing in the social worlds, which includes all the social networks, is that social meaning is attached to objects that are purely decorative. Those items, which don’t have any power in themselves, have tremendous social power that is granted by the other people in your social sphere.

Craig: All our items on our site are decorative. We don’t offer anything functional. But two examples: We had one item sell on eBay — we don’t allow that in general, but some happen — for $6,000. It’s a halo you wear on your head. It was rare. And rarity is one way of conferring value to things. Our core principle on our site is, whether you were born in Atherton or in the Bronx, you can get rich in Gaia because it starts out fair. We’re on the opposite side of Second Life, where Second Life celebrates the ability to make real money in the real world. That’s valid too, you just have to decide which direction you want to go. We have almost 7,000 items that you get only with gold that you can only get by investing time on the site. Once a month we offer two collectibles, which cost $2.50, and are only available for the month. The other example, at Comicon last year, we had a virtual OMG hat on the site for $2.50 sold once, then we made a real one. We were selling them at the event, and a guy came over in his late teens, pulling out his $19.95 and said, “It’s so cool I can finally buy this, I couldn’t get the real one but I can finally get the copy.”

Daniel: In Puzzle Pirates, the split is pretty much 50/50 between funcitonal and decoartive in terms of how much we bank. Most of the functional revenue comes from what we call badges, which give you privileges. You have to have captain’s badge if you want to be captain of a crew. Those are kind of micro-subscriptions. Captain’s badge lasts 30 days, costs $10. Puzzle Pirates is pretty much skill-based, so you’re still going to lose even if you have a really fancy sword, so it doesn’t skew things too much in perception of the players.

Byron: If you look at real life, the distinction between decorative and functional, these things are absoltuely hopelessly confused, and we would never think for a minute that I shouldn’t bring a decorative material to persuade you, in addition to any particular intellectual point. The evidence is good that the distincations will be hopelessly cofused in the virtual world as well. Offering as a business plan ways to do both is certanily the way to go. Although it maybe the case that having two different columns could be hidden from the users.

Amy Jo: If you are building some kind of integrated MMO-style virtual world, the issue is very, very differant than if you’re building something more sandbox-like and social. If you’ve got any kind of game going on, you’ve got game balance issues. If you’re building more of a social world, where it is people interacting with each other, then functional items won’t wreck the balance. What they will do is affect the social balance. You want to ask yourself what you want to promote in the world.

Nabeel: Do users care about who’s making their goods?

Amy Jo: I don’t think there’s one answer to that. Habbo is interesting because the goods are created by Habbo staff, but the users do all the configuration inside the rooms, which itself is a meta level of content. Whereas at There, the users absolutely cared about who was creating the content, and mostly what they cared about was the quality and creativity of the content. The audience at There was much more excited about some of the user-created content than the Levis and the Nikes. What we saw was that they wanted stuff created by each other, both because it was more out there, and because of the social dynamic. People would go to a party or disco and 90 percent of the converastion was, oh you’ve got her newest shirt, talking about a content creator. The users who created the content became the celebrities.

Craig Sherman: All the powers of user-generated contant are obvious, but there are dangers. One is quality. Hired artists make better quality stuff than the average user. Also, user-generated can lead to a form of chaos that’s overwhelming and confusing when you’re trying to create a coherent sense of a brand. Second Life is extraordinarily powerful, but for some people it’s a little overwhelming and confusing because it’s the wild west.

One comment

  1. ted

    Hi Mark –

    Thanks for the great coverage on this Summit! I was so bummed I could not go due to travel conflict. I can’t wait to grill Peter on more details Monday…