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Virtual World Population: 50 million by 2011

When technology analyst group Gartner recently asserted that “80 percent of active Internet users (and Fortune 500 companies) will have a ‘second life’, but not necessarily in Second Life” by 2011, a lot of people jumped the gun and assumed 8 out of 10 of all Net users would be in a virtual world in four short years. Not exactly, Gartner Chief of Research Steve Prentice tells us. “Firstly,” says Prentice, “this statement refers to ‘active’ Internet users– a subtlety missed in much of the subsequent reporting.”

Their actual estimate, as it turns out, is decidedly less expansive, but about as impressive, and that’s by conscious choice. The statement was meant, says Prentice, as “a wake-up call to the CIO and CEOS out there that this is not a game, just sort of messing around. It’s interesting [and] we think it’s going to big.”

By “active”, Gartner is referring to “people who are heavyweight Net users.” And by their definition, all of them are broadband users. “They’re my kids, to be honest, back from school, right onto MySpace.” That in mind, the estimate is actually that 50-60 million Net users will participate in a virtual world by 2011. “Doesn’t seem totally outrageous to me,” says Prentice.

Considering the largest existing worlds, including South Korea’s Cyworld, and its 20 million uniques, World of Warcraft with its 8 million subscribers, and Europe’s Habbo Hotel with its own 7 million regular users, that guess is actually on the conservative side. (While researching another story, Lisa Cosmas Hanson of Chinese game market analyst Niko Partners told me she estimates 26 million online world users by 2011 in China alone.)

To arrive at that figure, Prentice considered numerous variables, chief among them these five:

* Upward growth rates of existing worlds and social networks like MySpace.
* Usage patterns of current online world users (“Especially in the teen and young adult area…”)
* General computer game usage (Gartner cites a recent Entertainment Software Association report indicating that 69% of US head of households already play computer games.)
* Penetration and growth of Internet-enabled notebooks in this generation and spread of easily accessible wireless Internet.
* Involvement by major firms like IBM in virtual worlds, coupled to metaverse consulting groups to serve them there. (“[T]his reflects both a growing interest from their client base, and will result in growing pressures (and competencies) to accelerate the move by corporate users into the virtual worlds space.”)

Surprising to me at least, Prentice believes most virtual worlds of 2011 will not be console-based, and that they’ll primarily remain a PC-centric platform. But he thinks it’s possible we’ll see metaverses accessible through phones and PDAs by then. (”Never say never: people said they’d never watch movies on a phone, and they do.”)

Another surprise is that Prentice thinks none of the existing virtual worlds will dominate four years from now– hence the “‘second life’, but not necessarily in Second Life” qualification. At this point, he says, “Linden is [like] the AOL of the early Internet. The biggest ones don’t even exist yet.”

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What’s the ROI on marketing in Second Life? After attacking the topic from a couple directions (most SL users seem receptive, but so far, are largely unimpressed with existing attempts), we finally have some concrete numbers to work with, at least on the more relevant metric of unique visitors.

So how does anywhere from 6,454 to, well, zero, grab you?

That’s the spread of weekly visitors to real world corporate sites in Second Life, according to SL demographics expert Tateru Nino. Every Monday on my Second Life blog, she reports on the number of Residents to visit these locations; the world’s dynamic map enables her to headcount actual visitors, and with some common sense extrapolation (sampling numerous peak and offpeak use periods), winds up with a fairly accurate estimate of total uniques.

In the three weeks since she began, the highest weekly total belongs to Pontiac, which hosts a kind of virtual autobody island where Residents can customize their cars (pictured), followed by a site for Showtime’s The L Word (4,687), where regular events are held on a recreation of the show’s main locations; IBM has an expansive site which includes an open source coding tutorial lab (4826).

The low end, however, is littered with some of the world’s most prestigious corporations and brands. Despite entering Second Life to much mainstream media fanfare, companies like Sears, Sun Microsystems, Dell, Coca Cola, Reebok, Coldwell Banker, and Calvin Klein have so far failed to attract even 500 weekly visitors each (during Tateru’s headcount, at least)— some of them far less.

For comparison’s sake, there are currently about 400,000 Residents who log into SL on a weekly basis; about a million have logged in over the last month. By far the most popular sites remain grassroots “native” locales; over the last three weeks, for example, the most heavily trafficked place was not a casino or a sex hangout, but “Phat Cat’s Jazzy Blue Lounge”, a PG-rated ballroom for elegantly dressed avatars. With a highest weekly performance of 31,248 unique visitors, it vastly eclipses even the most popular corporate site.

So roughly a year after SL’s mini-dot com boom began, most companies are still struggling to even be noticed. I recently put these paltry figures to Steve Prentice of Gartner, as a caveat to his firm’s bullish predictions that 80% of Fortune 500 companies would have a virtual world presence by 2011. He seemed surprised, then fingered the relative lack of company avatar activity at most of these locations.

“[Y]ou’ve got to be able to go in there and interact [with people],” he said, “that’s the nature of 3D interactivity.” Though many companies will quit in frustration, Prentice believes they’ll learn from their early botched attempts— whether they want to or not. “Like the [early] Web,” he added, “most will be brought back to the table due to user pressure.”

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Skype Got Game? Too Little, Too Late?

Om just passed along the news that Skype just launched a Game Developer Program, replete with their own branded Game Channel, and a dev kit so folks can create third party games that run over Skype, and make them money. This is a great idea bound to succeed– rather, it would have been, if it had been launched a few years ago. Now, they’re competing in an already crowded market.

VOIP is essential for hardcore gamers who depend on group chat for split-second teamwork in Counterstrike, World of Warcraft, and other online multiplayer games. Thing is, there are already a number of established VOIP providers in the game space, like Teamspeak, Ventrillo, and Xfire, and it’ll be difficult for Skype to rebrand itself as a game channel provider, especially for gamers who have been using services like those for years.

Then again, hardcore gamers are just a small fraction of a much larger market, and the real potential for a large audience is in casual games. If Skype’s game channel can come up with a few hits that truly leverage voice communication, they could taste success in their latest initiative.

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Here come Virtual World Intranets… Seriously

Online worlds on the Internet? That’s so last month ago. Judging by recent initiatives from Sun and IBM, the latest trend is a corporate-controlled, business-centric virtual world architected for internal use only– call it the intranet metaverse. In Sun’s case, it’s MPK20, a “a virtual 3D environment in which employees can accomplish their real work, share documents, and meet with colleagues using natural voice communication.”

The idea is to bring remote workers in Sun’s worldwide offices together into a single embodied space, “where the spacial layout of the 3D world coupled with the immersive audio provides strong cognitive cues that enhance collaboration.” (Via 3pointD, where blogger Mark Wallace has worthwhile commentary.) In IBM’s case, it’s a rough-and-ready 3D environment created by their Innovate Quick team, using the Torque graphics engine from Garage Games.

“The project team is exploring ways to scale, and also applying different models of operation,” Ian Hughes of IBM’s UK branch tells me. “We are building a user base of interested users and developers as part of our CIO office technology adoption program.” Hughes spearheaded IBM’s early explorations of Second Life as a private development lab for the future 3D Internet, where the team creates cool applications like a universal language translator for avatars.

In SL, Ian goes by the unlikely Resident name epredator Potato, and looks less like an IT specialist than an alien hunter the Governor of California memorably dubbed, “One ugly mother****er.” The trouble with using Second Life for IBM business, writes Hughes, is that it’s inaccessible behind Big Blue’s firewall [some intranet, internal applications cannot be reached from Second Life], and they were looking to bolster the companies existing internal communication channels. “What we need is the ability to gather some people together and use the human aspects of the avatar interaction to be more effective in our communications.”

While some Net pundits have quickly dismissed Fortune 500 interest in virtual worlds as mere marketing hype, it’s projects like these which suggest that high tech companies are serious about their potential to transform the Internet. If they privately come up with new protocols and technology that adds real value to the way they do business, the future of the broader Net as a 3D medium is all but insured. By the same token, they may just end up adding another level of aggravation to the conference call.

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MMOs Dreaming of a China Boom

SPECIAL REPORT: On April 19, the San Francisco Marriott played host to “Mastering the Craft of Online Gaming”, a conference dedicated to the business of building MMOs. Overall, the event was underwhelming and unattended, but that doesn’t mean there weren’t some interesting tidbits to be gleaned from attendees. The biggest take-aways:
American development companies underestimate the power of the Asia markets, and middleware is the path to success.

Ozzie Monge is vice president of business development at research firm DFC Intelligence. Based in San Diego, Monge was passing around a copy of his company’s latest report on the Chinese market. While the report didn’t contain any information that hasn’t already been covered in the mainstream gaming press, its weight and girth did underscore the fact that Asian gaming markets haven’t just exploded, they’re continuing to expand every day. With 180 million Chinese expected to be online by 2010, that could mean as many as 50 million potential subscribers by that time.

Monge stated that his firm’s research has shown the Chinese online game marketplace will be the biggest and most lucrative world-wide. 

Elsewhere at the show, infrastructure salespeople from the likes of OpSource and Emergent hawked their services to a non-existent crowd of developers. Indeed, the conference was attended almost entirely by vendors and speakers. Those poor speakers who happened to be from actual MMO companies, such as Three Rings CEO Daniel James (who gives good numbers), were hounded by sales pitches all day.

This was probably due to the fact that the world of MMO games is not yet one of entrepreneurial spirit: indeed, most companies would rather farm out their properties to experienced MMO developers than try to go it alone. While this may change in the future, it means that, for now, MMOs are typically made by expert teams who don’t think they need to attend educational conferences. 

However, the biggest sales person at the show was easily IBM’s George Dolbier. He’s IBM’s CTO of games and interactive entertainment, and he said that his company is seeing more and more interest from companies who don’t want to build everything from scratch.

“We try to take a neutral approach to the market, although we do have our internal leanings. If you were starting development of an MMO three years ago, there weren’t very many commercial choices for middleware, let alone the ability to outsource end-to-end infrastructure. Today, we see announcements on an almost weekly basis for a new pieces of middleware. There’s a lot of talk in the industry about how things like Emergent can save you like 12 months and dramatically enhance development,” said Dolbier. 

And that’s the key to getting new products up and selling in emerging marketplaces.

Discussions from attendees pointed to Brazil and India as possible new markets for MMOs, with limiting factors being broadband and poverty rather than technical knowhow or desire for gameplay. 

The net result of the Mastering the Craft of Online Gaming Infrastructure conference was to hammer home the concept that MMO’s are just applications. Derek Wise, Netoptex CEO, said “Games are software as a service. I think we can say that out loud now.” And he’s right. When it comes to massively multiplayer games, they’re just big database-driven thick client applications. The only real difference is that the development team includes artists and sound guys.

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Does Virtual World Advertising Work?

The debate over the value of advertising in the metaverse just got a lot more interesting. Earlier this month, I noted a survey which suggested that real world marketing in Second Life wasn’t working. That still seems largely true, but now a new study from Seattle-based Global Marketing Insite strongly implies that it’s not from lack of interest— which is, according to the firm’s report, surprisingly strong.

When asked, “Are you more likely to purchase/use a brand in real life that is represented in Second Life?”, 37% of SL users surveyed by GMI responded “Definitely”, while 41% responded “Maybe”. These numbers are in marked contrast to the report from the Hamburg-based research firm Komjuniti, in which 72% of SL users polled said they were disappointed with marketing efforts in Second Life. And where Komjuniti’s data was based on interviews with 200 SL Residents, GMI garnered this figure from 479 Residents, selected via a double opt-in process, GMI’s Jensen Gadley tells me, after e-mailing me their full raft of data.

Instead of asking the respondents what they thought of existing SL marketing, says Gadley, GMI asked them what they thought of it in principle. “The Komjuniti survey specifically asked people what they thought of advertising campaigns in Second Life,” he explains. “The problem is if you ask anyone point blank if they like advertising, in almost every medium, people are going to say no.” Instead, says Gadley, “We decided that since Second Life is such a new technology, asking people what they think of specific marketing and branding techniques wouldn’t tell us much about the platform’s potential.”

With that angle of attack, GMI came away with decidedly different answers. So the problem with SL marketing doesn’t seem to be rejection of advertising in general, just indifference to the kind of virtual advertising they’ve seen thus far.

These figures, of course, aren’t likely to resolve the larger debate over Second Life’s comparative value as a marketing platform.

After all, GMI’s study is taken from an extensive, multi-country survey of 9,529 respondents who were asked about their perceptions of Second Life, with only 5% reporting that they even had an SL account— hence the 479 who gave their specific responses to SL marketing and other topics. What’s more, 87% of those surveyed haven’t even considered creating one. This points to the relatively small number of total SL users, in relation to other online worlds— at this writing, about 500,000 regularly log in on a weekly basis. (Gaia Online, by contrast, has 2,000,000 monthly users, 10-20% of whom participated in a recent New Line marketing campaign, as compared to the 1% or less who’ll typically engage in an SL-based campaign.)

On the other side of the ledger, proponents of SL marketing are likely to point out the advertiser-friendly demographics compiled by GMI— 65% of Second Life users polled have a reported household income of $54,000 or more; 51% of them log in 6 hours or more a week.

So the debate over the ROI on SL advertising continues. To be sure, the real short term tension is desire versus reality. Because with few exceptions, most corporate-sponsored sites in Second Life are sparsely and intermittently attended.

And for the next year, at least, even the most effective Second Life campaigns will meaningfully reach an audience numbering in just the high five to mid six figures. (In other words, it’s comparable to boutique advertising on a popular blog.) And as SL marketers for the film 300 recently found out, that totally leaves aside the question of whether advertisers are comfortable with putting their products in all the surreal or disreputably grabass situations that Second Life’s content creation tools make possible.

(This is just a sampling, by the way, to what is easily the most extensive survey of consumer perception of Second Life I’ve seen thus far, everything from real world family demographics to moral boundaries for avatars— read GMI’s summary, and note the contact link there to get the whole thing.)

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Virtual World Revenues, $6 Billion by 2012

David Cole of DFC Intelligence, a game industry expert for years, has been a guiding source for me for years, and he just revealed some astonishing numbers about the MMOG market:

“I can let you be the first person we tell that we forecast the worldwide MMOG market going from $2.2 billion in 2006 to $5.9 billion in 2012,” he e-mails me.

These figures are part of an upcoming DFC report, and they are bullish in the extreme. For proportion’s sake, bear in mind that the entire computer/videogame industry is currently a $7.4 billion business.

“In terms of overall growth,” Cole continues, “the market in both North America and Europe is expected to triple.” Furthermore, over $2.3 billion of that revenue is expected to come from advertising and digital distribution of virtual items/characters etc, not subscriptions.” This would be quite a reversal, for most Western MMOs still rely on a monthly subscription model.

The DFC forecast, it’s worth noting, is pinned to online games, with some ambiguity on how to count revenue from the numerous virtual worlds on the market or about to be launched; many are social hangouts or user-created collaborative spaces, and not games in the strict sense of having pre-defined goals, levels of success, and so on.

“Does MySpace count?” Cole asks rhetorically. “Every free site that has an avatar?” (Many online worlds are free to the user, and depend on external advertising deals for revenue.) DFC’s solution for virtual worlds, he goes on, was to only count user-to-company payments.

“If you can get them to pay a subscription fee or get them to buy items in a virtual world… for those consumers that starts to become a game.” With those services, he says, “[W]e would count the subscription and virtual item revenue, but not any ad revenue they generate.”

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Kutaragi to Step Down From Sony

In an announcement that shouldn’t surprise regular GigaOM readers in the slightest (warning signs emerged as far back as last February, and reached crescendo pitch in November and December), Sony Computer Entertainment Inc. just announced that CEO Ken Kutaragi, the “father of the Playstation”, will leave his post in June and become an “honorary chairman of SCEI”.

By most appearances, his new title will be an “emeritus” position in the sense attributed to Rupert Murdoch, when he showed a Newscorp exec the door: “The ‘e’ means you’ve been given the elbow and the ‘meritus’ means that you bloody deserve it!” Unsurprisingly, most analysts attribute the departure to the Playstation 3’s poor performance against the Wii, and worst blow of all, as compared to the Xbox 360.

Not entirely deserved, however, for despite the numerous missteps in its development, pricing, and marketing, the PS3 ultimately failed because Kutaragi succeeded with the PS2 so well.Though seven years old now, the Playstation 2 is still selling better than the Playstation 3; with a 116 million+ installed base, a massive library, and a list price under $100, there’s little incentive for Playstation fans to spend $600 upgrading. (Especially when quality backward compatibility was in doubt.)

So there’s tragic irony in Kutaragi’s departure. Having transformed videogaming into a truly massive entertainment medium, he seems to have assumed that the market he did so much to create would follow him to the next level.

As IDC analyst Billy Pidgeon put it to the AP, “Sony didn’t notice that their audience was dwindling and didn’t increase the base by playing to a wider demographic, and instead it played the old-school game of playing to the 18- to 32-year-old male early adopter.” But in those seven years, the young men who had eagerly snatched up the PS2 were now having kids of their own, making them ripe targets for a console that could appeal to their whole family. So rises the Wii– and so goes Kutaragi-san.

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According to Digital Spy, market research firm NPD says the PS3 is selling marginally better in its first four months than the 360 did for the same period. “Figures show that the PS3 is selling slightly faster in the US than the Xbox 360 did at the same stage in its release,” an NPD spokesman told the UK publication. The news comes amid a lackluster PS3 launch across most of Europe last week.

It should be noted that significant production shortages plagued the 360 in its first few months to market, but the numbers do put early PS3 sales into context. Most consoles struggle during the initial launch period due to a shortage of games and the tail-end success of legacy systems. But the case by some analysts that both next-gen systems are under-performing may have some added validity.

Still, Sony must ultimately prove that their system is worth the $200 premium over Microsoft’s comparable 360. Giga has contacted NPD for comment and will update as soon as we know more.

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Will Halo3 help Microsoft secure the Digital Living Room?

The latest skirmish in the console wars took place this weekend, at the Mission District’s ultra-hip Foreign Cinema. That’s where Microsoft offered the gaming media a hands-on media preview of Halo 3, one of gaming’s most anticipated titles— and the company’s bid to expand their broadband audience.

Make no mistake about it, though the PS3 trails far behind and the Wii isn’t a direct competitor, the 360’s position as the HDTV-powered next gen champ is far from assured. The console has sold 10 million units to date since first launching 18 months ago, and claims six million online members to its Live service. It is hard to say how many of those are paying members, and how many are part of trial or some giveaway.

Still, those numbers are impressive, but just to put them into perspective, 10 million 360 owners represents only 6% of the total number of consoles sold last generation, and six million registered online users is tiny in comparison to the total gaming population. Granted, it’s still very early in the traditional 5 year life cycle of consoles, but the trajectory isn’t promising. Despite Xbox Live boasting the largest online console community to date, it doesn’t appear to be gaining ubiquitous traction, at least not yet.

Enter Halo 3, the jewel in their gaming crown, and the franchise the company hopes can not only boost online membership to higher levels, but bait gamers into purchasing additional downloadable content such as movies, music, TV shows, and episodic game content.

Of all 360 exclusive titles, Halo 3 is the one best positioned to do that.

How well did it succeed? We attended the Microsoft’s event at Foreign Cinema where we were treated to an open, hands-on session. The party atmosphere wasn’t very conducive to intimate gaming, but the game experience is classic, proven Halo. It plays slightly faster than previous editions, which makes frenetic gameplay situations that much more intense. There’s new vehicles and weapons, including a sweet cannon turret and missile launchers that slow down your player, but spew massive damage on your enemies. I especially liked the ginormous laser blaster with equally imposing damage. Microsoft showed off three new multiplayer levels, two of them set in two, outdoor environments, lush but limited in expansiveness. The other map was an annoying sandpit level reminiscent of Return of the Jedi. Overall, the visuals were a bit underwhelming, at least in their current state.

“It’s not going to win any awards,” said one attendee at the event, accurately critiquing the game in terms of innovation. In market terms, this suggests a game that’ll keep its existing audience, but probably not do much to expand it. Or for that matter, gain the 360 any extra edge in Microsoft’s bid to become the main digital distribution channel of the next gen living room.

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