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by
Michael Cai,
Director of Broadband & Gaming,
Parks Associates
 Virtual
worlds, despite all the press attention of late, are
still in the early stages of development. Virtual
worlds came into existence several years before
YouTube, MySpace, and Facebook, but their adoption
rates pale in comparison to these services.
According to a recent Parks Associates survey of
Internet gamers ages 13 and older, only 7% visit a
virtual world on a weekly basis, compared with 37%
who visit social networking sites and 41% who watch
short videos online with the same frequency. Even
more alarming – among the people who have ever
visited a virtual world, only about 28% are active
visitors (visiting on a weekly basis), much lower
than the 62% and 52% for social networks and online
video sites, respectively.
Our survey did not capture the
high-growth part of the industry. Kid-oriented
worlds, such as Neopets, Habbo Hotel, Webkinz, and
Club Penguin, are attracting tens of millions of
children, sometimes along with their parents, to log
on daily. BarbieGirls, a virtual world Mattel
launched in April 2007, signed up 3.5 million users
in less than three months. Several kid-oriented
worlds are already raking in millions in revenue.
Last year Disney (NYSE: DIS) acquired Club
Penguin for $700 million. Although Habbo Hotel has
not released its revenues, it has recently surpassed
100 million registered avatars worldwide.
Everyone’s jumping on the
bandwagon; more than 100 kids worlds will launch in
the next 12 months, including several with
significant brand equity such as Cars from Disney, SpongeBob SquarePants from Nickelodeon, and Lego.
 Two
big success factors for child-oriented virtual
worlds are that they are structured and provide
interesting things to do for their participants. The
number-one reason for visiting virtual worlds is to
play games, and this is especially true for kids.
For instance, more than 50% of Webkinz and Neopets
users go there mainly to play games. In contrast,
visitors to 3D virtual worlds such as Second Life
cited “Escaping Real Life,” “Being Someone Else,”
and “Creating and Managing Avatars” as their top
three reasons. In our view, such motivations lack
sustaining power. In order for 3D virtual worlds to
grow their active resident base, they need to
provide more organized and engaging activities. Many
newbies to 3D virtual worlds feel overwhelmed and
bewildered when they first enter the wild, seemingly
vast and unstructured virtual world. Some industry
pundits are making the argument that whatever you
can do on the 2D Internet; you can do it better in
3D virtual worlds. Such vision may prove true ten
years from now, but currently the technology is not
mature enough and mass-market consumers simply don’t
see enough value to migrate to 3D Internet. Another
key success factor is to better leverage the social
aspects of virtual worlds, and the industry is
moving in the right direction. Several companies,
including Vivaty and Scenecasters, recently emerged
to bridge 3D virtual worlds and 2D social networks
such as Facebook.
Despite technology and business
challenges, backers of 3D virtual worlds are
marching along. Large media companies such as Viacom
are investing heavily, believing that the medium
promises real opportunities. MTV already operates
more than ten virtual worlds, including Virtual
Laguna Beach, Virtual Pimp My Ride, and the upcoming
Virtual Lower East Side, a world devoted to indy
music. Large technology companies such as IBM,
Intel, and Cisco Systems are promoting 3D virtual
worlds for obvious reasons. In addition to media and
technology companies, financial institutions,
service providers, universities, and pharmaceutical
companies have shown significant interest in the
medium. In 20 years there will be no debate about
the utility and importance of virtual worlds; they
will be an indispensable part of consumers’
connected life, similar to today’s Internet.
However, most of our readers are
likely to be more interested in what will happen in
the next 12 months than in the next twenty years. We
hereby offer the following near-term predictions:
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Sony Home will finally launch
and create lucrative opportunities as content
providers deal and negotiate premium placement
and marketing opportunities within the world.
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Another 6-8 million Internet
users will try a virtual world in the next
twelve months, and weekly active users will
grow.
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Increasing stickiness and trial
conversion rates remain top priorities for
virtual world operators.
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Competition for eyeballs is
heating up, especially in the child-oriented
worlds; new worlds without significant IP will
find it difficult to survive.
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There will be many experiments
with platform interoperability and universal
avatars. Several efforts are already underway,
including IBM and Linden Labs’ collaboration in
pushing an open standard and the China
Recreation District initiative to build a
virtual platform that can host millions of
avatars.
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Social networks will add 3D
virtual world features, and 3D virtual worlds
will leverage Web 2.0 lessons, including
enabling more user-generated worlds. An Aussie
start-up MyCosm aims to provide robust tools for
any consumer who wants to build a high-quality
virtual world.
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3D virtual worlds will become
more user friendly and compelling.
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There will be more private
virtual worlds or firewalled virtual worlds from
large international corporations
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