Beyond Facebook Gifts: Virtual Currencies 101

Reposted from Mashable

Anu Shukla is the Founder and CEO of Offerpal Media, the leading monetization solution for social applications and online communities.

The word on the street is that social networks, as popular as they are, can't make any real money. After all, who's going to click on an ad while they're in the midst of socializing with their friends?

While there's a grain of truth to this rumor, it's fast becoming an out-of-date perception. What's changed? A new economy based on social web properties that use virtual currency to capture users' imaginations.

By creating a demand for premium content such as virtual gifts or upgraded features, savvy social publishers are finding that at least a portion of their users will gladly fork over real cash in order to pay for, say, a pretend peony on (Lil) Green Patch or to buy the latest toys for their virtual babies on Make A Baby. Even better, plenty are willing to wade into the world of online surveys and advertising offers in exchange for these "must have" items in their games.

Though no one knows yet the exact size or potential of the market for virtual goods and services, conservative estimates put it at over $2 billion for this year alone. Not bad for a marketplace that barely existed a couple years ago. Even better, all signs indicate that the growth is just beginning.

As more and more social web publishers catch on to virtual currency as an incredibly effective way to not only monetize their traffic but also engage and motivate their users, the trend will only pick up steam. And as advertisers understand the channel better and realize that it is ideal for both performance-based campaigns as well as branding efforts, don't be surprised if virtual currency becomes the most sought-after ad channel on the web.

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What is virtual currency?
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Virtual currency, as you might imagine, is what you use to buy virtual goods or virtual services. It is essentially as good as real currency. The only difference is that it only applies within the realm in which it was issued. This currency has all kinds of names in the online world: it may be called "bucks," "coins," "points," "dollars," "tokens," "jewels," "rewards," "chips," "treats," "vouchers," "boosts," or "credits" (all of which we've seen), but whatever their name, virtual currencies have a definite value and can be redeemed in a number of ways.

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What are virtual goods and services?
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Ever noticed the little gift icons on Facebook lately that urge you to send a present to a friend? Virtual gifting is a reportedly $50 - $60 million a year business for the company, and that doesn't include any of the gifting that takes place on third party applications. But beyond Facebook's own virtual gifting, it's also built into a number of applications, offering revenue opportunities for the developers of these games.

Virtual worlds and avatar-based communities have been charging people for decorative types of goods like fancy upgrades for their avatars or special backgrounds for their profile pages for some time now. At WeeWorld, for example, where you can create your own personalized WeeMee and take it with you around the web, you can spend WeePoints to pimp out your avatar with just the right hair, right clothes and right accessories.

Virtual goods can also be more functional than decorative, such as the case when virtual currency is redeemed to unlock hidden features or advance within a gaming scenario. This type of virtual good is especially prevalent in MMOGs or other types of social games. For example, at Mobsters, the number one app on MySpace, users can redeem virtual currency to help them grow their mob and level up faster towards the top of this underground world.

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How is virtual currency earned?
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We've already mentioned that virtual currency can be earned by either buying it with real currency or by taking part in ads, but there are several other ways that publishers can allow their users to earn virtual currency. One is by inviting other people to the property, a tactic that also encourages viral success and growth. Another way is by simply coming back and logging in every day, which helps increase stickiness and loyalty. And yet another way is by rewarding them for completing certain tasks or quests, thereby helping build engagement and activity.

But the most monetizable way to let users earn virtual currency, by far, is for completing ad offers.

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How can advertisers tap into virtual economies?
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As advertisers know only too well, so-called "banner blindness" has become an increasing fact of life, but especially so on social networks. Wise application developers know to integrate advertising offers into their app in a way that contributes to, rather than distracts from, the overall user experience.

For example, participants in the (Lil) Green Patch application need what are called "GreenBucks" in order to choose the types of plants they want to send to friends. By signing up for Blockbuster, for example, or by participating in any number of advertising offers such as completing surveys, requesting insurance quotes, downloading ringtones, etc., they can get a hold of that foxglove they planned to give to their aunt Agatha, or a lily they hoped would brighten the day of a friend.

By tapping into the user's social activities and motivations—in this case, sending a virtual gift—advertisers' offers essentially provide the fuel that enables consumers to interact with each other within an application. The key to success, from the advertiser's point of view, is using all of the juicy demographic and behavioral data on hand in order to target their audience strategically. Do that, and they will generate new customers far more effectively than through any other channel.

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Anu Shukla is the Founder and CEO of Offerpal Media, the leading monetization solution for social applications and online communities. A serial entrepreneur, Anu is also the founder of Mybuys Inc., a venture-backed company in the eCommerce personalization market. Prior to Mybuys, Anu pioneered the category of Internet Marketing Automation as founder and CEO of Rubric, Inc. Rubric was acquired in 2000 for $366 million. Prior to Rubric, Anu held a variety of executive roles including Vice President of Worldwide Marketing and Product Management at Compuware/Uniface Corporation (CPWR).

http://feedproxy.google.com/~r/Mashable/~3/AVAi9ryAEdQ/

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The Social Future of Virtual Worlds?

[Reposted from Kotaku]

Those concerned with 'virtual worlds' — as opposed to 'games' — spend a lot of time contemplating the role of virtual worlds in a wider market; over at Terra Nova, Bruce Damer looks at the potential future of virtual worlds, which could be a lot bigger than most people imagine. Some potential answers to keep the industry growing? Piggybacking off platforms that are currently growing at a rapid clip, making sure virtual worlds are 'worth' something — perhaps some as of yet undiscovered little platform will be the key:

As we can see from the history of computing, it is often the case of "the small gobbling up the big, and everything else". Trivially small, lightweight yet rapidly replicating platforms often grow up to become all-encompassing solutions. DOS grew up to become Windows and along the way the PC triumphed over the time-shared mainframe, minicomputer and workstation. Could it be that there is some small world platform out there that is destined to become the standard? Dick Gabriel of Sun Microsystems has written much wisdom and books on this phenomenon (http://www.dreamsongs.com/Books.html) in which he posits that one of several ways to create a virally spreading success is to hitch your wagon to something that is already growing. Does this mean that a small world embedded in Facebook or some other social network(s) is the answer?

It's an interesting article that pulls examples from other (formerly) 'new media'; the rise and sustainability of virtual worlds is an interesting problem. I suspect even the 'big ones' will be trucking along pretty quietly — not unlike a lot of the popular free to play MMOs from abroad.

http://feeds.gawker.com/~r/kotaku/full/~3/327461411/from-the-margins-to-the-mainland-the-future-of-virtual-worlds

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Meez Finally Launches Virtual World

[reposted from Mashable]

Meez users have been requesting a virtual world in which their custom avatars can roam around and become more social with each other for some time, and now they finally have what they've always wanted. Meeznation is the brand new virtual world made just for Meez avatars.

The virtual world wasn't entirely under wraps, as Meez has been testing out a few virtual rooms through its Facebook application earlier this year. This testing laid the groundwork for many of the social aspects that were applied to Meeznation. The virtual world hosts games, customizable rooms, various applications like a graffiti wall, and the ability to do things like watch YouTube videos with friends.

Unlike most other virtual worlds that have grown out of an avatar-creation and sharing site, Meez has layered in a good deal of functionality, activity and interaction for the avatars. For instance, there's chat capabilities in every virtual room, and similar to an IM chat client that converts the characters ";" and ")" into Meez avatars will act out certain commands that you type into the chat window. Type in "rofl" and your Meez avatar will roll on the floor laughing.

Some reactions aren't as readily known, and you'll have to learn by experience to figure out what these actions are. During the demo of Meeznation, presented by Director of Marketing Michael Lehman, I noticed some avatars sitting cross-legged, floating in the air. As a newcomer, it's not very obvious that you'll need to type in "Ommm" in order to get your avatar into this meditative position. Having such "secret" reactions and interactions within the virtual world adds more of a gaming quality to Meeznation, and will hold some users' attention longer, especially as Meez intends to continually introduce new actions such as this.

Other actions seem better fitted with certain virtual rooms, which can be branded as part of Meez's advertising options within this virtual world. Just as brands like Nike, Panasonic and Sears have provided gear, objects and backgrounds for avatar customization, some virtual rooms in Meeznation can be presented to offer even more interactive marketing.

One example shown to me during the demo of Meeznation was a listening lounge for the upcoming 50 Cent album. Here users can listen to songs, click on album posters on the wall to purchase those corresponding albums through iTunes, chat with others about the album, and even have rap battles with each other.

Rooms aren't limited to brands and those predefined by Meez–individual users can create their own custom rooms, just as they would an IM chat room. The amount of interaction that can go on in one of these user-launched virtual rooms is enhanced by a "message system" that allows users to communicate with each other even if they're not in the same room at the same time. One thing that Meez learned from testing virtual rooms on Facebook is that real-time chat is fun, but not all-inclusive. Enabling users to leave messages and gifts for each other in a virtual room is like having an inbox in your virtual world chat room.

And most of the behavior that takes place within these virtual rooms can be measured for Meez's purposes, and for branding purposes as well. Metrics will be acquired based on user activity, as an extension of what Meez already provides in terms of stats for user behavior. This will consist of looking at the conscious decisions that users make, such as entering a room, how long they remained in the room, and what types of branding paraphernalia they interacted with.
While Meeznation isn't directly connected with the Meez Facebook application (in terms of visiting back and forth between the two apps), new rooms launched on Meeznation will be available through the Facebook application as well. This too could lead to some interesting behavior analytics that can be accounted for in regards to advertising and branding potential of Meez's virtual world.

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Economical Gaming

[from Techcrunch]

This guest post is written by Jeremy Liew, a Managing Director at Lightspeed Venture Partners where he focuses on investments in gaming, internet and consumer enabling technology companies. Jeremy is co-producing the Social Gaming Summit next Friday, June 13th, at UCSF Mission Bay. Most of the companies mentioned below will be presenting.

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The last few years have seen a transformation in the consumer internet world as online media has evolved into social media. Many new social media companies have shot to tens of millions of users very quickly, including Facebook, MySpace, Digg, Yelp, YouTube, Slide, RockYou* and Flixster*. The trends that have driven the growth of these Web 2.0 companies include:

- Dramatically reduced development costs and cycle times, which have led to highly iterative product management
- Dramatically reduced marketing and distribution costs as CPC advertising, viral growth and social network platforms have replaced Superbowl ads and distribution deals with portals
- Easier monetization due to the proliferation of ad networks

As the game industry embraces web games, multiplayer games, and social games, we are seeing these same trends emerge. Web games and multiplayer games are well understood. Social games however, are a newer phenomenon.

Social games are not just multiplayer games. In social games, existing social relationships add context and motivation to the gameplay. Social games are more fun to play with people you know than with anonymous strangers. Examples of social games include Friends for Sale*, where you had better buy your girlfriend back from that guy who has been hitting on her at the gym, (fluff) Friends, where if your BFF feeds your pet, you are compelled to reciprocate, and Power Challenge, where you can't let your team's loss to your fraternity brother's team go unavenged.

Even single player games can become social when the right infrastructure for community and social interaction are built around them, including high score leaderboards, achievement badges, challenges and simple message boards, as Kongregate, Addicting Games, MiniClip and MindJolt are demonstrating.

The gaming industry is now starting to experience the same trends that the online media industry has experienced over the last few years:

Dramatically reduced development costs

Lazard estimates that Halo 3 cost $30m to build. Rockstar says that they spent $100m to make Grand Theft Auto 4. While both have been wildly successful games that sold over 10m units each, these are big numbers to spend on development. A new generation of lightweight web games is now being created at a fraction of these budgets, and these games are being played for free by millions of users. Games like Zynga's Scramble, Social Gaming Network's Warbook and Stardoll (originally Paperdoll Heaven) were all originally launched on less than $100k and all have entertained millions of players.

Of course these free games can't compare to the complexity, quality or polygon count of Halo 3 or GTA 4, but they do provide entertainment to their players, and they are all evolving and
improving over time. Because all these games live in the browser, they can be constantly updated and refined as game designers watch their players' usage patterns. They give players more of what they like, and cut out gameplay that players don't like. Teams are small and development is fast and iterative in reaction to player feedback.

In the extreme, users generate the game rules themselves. Some users in online communities and immersive worlds including Dogster, Habbo Hotel, Gaia and IMVU have gone so far as to create games on their own, ranging from dance parties to plays to petting zoos to quiz shows.

Dramatically reduced marketing and distribution costs

Halo 3 spent an additional $30m on marketing, mostly offline. GTA 4 blanketed the billboards of San Francisco as part of its massive launch. These marketing budgets are akin to the Superbowl ads of the early 90s internet companies. Yet CPC and CPA based advertising have been as much a boon for gaming companies as they have for other online businesses. With more games playable inside a browser, or easily downloaded over a broadband connection, games like Go Pets Live, Nexon's Maplestory, and Three Ring's Puzzle Pirates have become experts in success-based online player acquisition.

Furthermore, Games have exploded virally on the social network platforms. On Facebook alone, three games (Texas Hold'em, Zombies and Friends For Sale*) have more than 8 million players (installs). Five of the top ten Facebook apps (by daily active users) are games; Owned, Friends for Sale*, Texas Hold'em, (Lil) Green Patch and Scrabulous. This is a direct consequence of the social games phenomenon. Social games are more fun to play with your friends, and social networks are an ideal environment for killing time with friends. As a result, they have been able to very efficiently ride the distribution channels that the social networks provide.

Easier monetization

The dominant model of monetizing games is still retail - selling crystal cases for $60 a pop. This presents a real barrier to game publishers, who have to convince a prospective player to fork over a substantial amount of money before she has even tried the game. Publishers have to generate demand, which is what led to the high marketing budgets for Halo 3 and GTA IV mentioned previously.

Now more game companies are experimenting with free to play games that make it a lot easier for a prospective player to try before they buy. These games monetize either through advertising or through virtual goods sales. Just as with online media, ad networks like Double Fusion, Massive and Mochi Media have made ad sales much easier for game companies, so that they can focus on their core competencies. Equally, virtual goods business models, well established in Asia, are starting to gain more momentum in the West as well. Habbo Hotel is reportedly doing more than $50m in virtual goods sales (mostly in Europe) and Nexon's Maplestory is doing around $30m in virtual goods sale in the US. Companies like Acclaim, Stardoll and K2 Network are ramping their virtual goods sales in hot pursuit.

Future for social games

The trends outlined above are likely to lead to many new and valuable gaming companies. Let EA, Nintendo, Activision, Ubisoft and the like continue to fight for market share amongst hard core gamers. New social games startups, including free to play MMORPGs, social network games, web based games and single player gaming communities, are busy converting the much larger market of casual players into their customers.

Techcrunch readers interested in learning more about Social Gaming can use the code CRUNCH to get a 10% discount on tickets to the Social Gaming Summit.

* Lightspeed is an investor in Flixster, Rock You and Serious
Business (which publishes Friends For Sale)

http://feeds.feedburner.com/~r/Techcrunch/~3/305675158/