(Part 1 – with slideshow and video)
I would like to start by thanking the organizers and all participants to this event. After all the hype virtual worlds and Second Life went through, I see this as a sign that we might be past the “disillusionment” and are ready to move forward. Whether SL will be the platform for that in the future is yet to see, and I hope to learn from you what you think about it.
Though I explored a bit before, this is the first time I do a talk in SL and quite frankly I feel like a hack. I possibly have the least hours spent in SL of you all. In addition, I am in the “East” track when first, I am not Asian and second, I am today in San Francisco on a business trip. If you look at my avatar, it was graciously provided by the organizers because I had no time to prep one that would not betray my identity and errands in SL ;-)
So what could I have to say?
Well, the fact is that I did spend quite a bit of time with virtual things, digital goods and Asia, where I have been based for the past 10 years. Also, though I like technology, I am most interested by the social aspects of technology.
What Clay Shirky says “When a technology becomes boring, that’s when the social effects become interesting” resonates strongly with me. It is true also at micro-levels. Many of what has been observed in SL has been around in graphic or even text-based VW since the 80′s. I was visiting Howard Rheingold in Mill Valley last week-end and the man has been researching this field for about 25 years.
So to understand why people were acting in certain ways online, I researched offline behavior, social psychology and social dynamics. I came to understand a lot better why people behave the way they do in various social environments. I can even tell you this came at a price when experimenting with offline social dynamics.
Since I have 30 minutes what I would like to talk about is three things:
1- What I learned from researching Virtual Worlds, Social Networks and Online Games in Asia
2- What I learned by researching social psychology and social dynamics
3. I’ll then share some ideas on the good things the future might hold for us, and how we can shape it.
Digital goods
First, you might have come across some numbers about virtual goods: the market would have been around $1B in US and $7B in Asia in 2009. I have some confidence in the second estimate because I actually did it myself based on our research and estimates of the various free-to-play online gaming markets in Asia.
The reality today is that there are two shifts happening. On is a business model shift, another is a mindset shift.
The business shift is the transition, or rather diversification, of the video gaming industry to free-to-play. The West and Japan have been lagging due to their huge package software legacy, while Korea then China and now most developing economies are embracing the model, generating huge profits by cutting many costs and middle-men out of the value chain.
The mindset shift is more fundamental. It is about what Aldous Huxley called in his last series of lectures “Semantic Prisons”.
I quote here “There are plenty of semantic prisons which do not permit us to think straight”.
I think this is very true. The closest everyday expression would be “assume make an ass of you and me”. We have tons of assumptions and many of our words and thoughts are locked within semantic cells. I witnessed that countless times when discussing culture or business in Asia to foreigners, or foreign things to Asians. In the specific case of virtual worlds and the business opportunities associated, I identified two major ones:
“VIRTUAL”
For many, “virtual” sounds odd because it sounds like it does not exist, has no value. Anyone paying for something virtual would surely be slightly stupid. The fact is that “virtual” is a legacy word, and so vague it is actually hurtful to the development of the industry. The opposite of “real” is not “virtual”, it is “imaginary”. And things happening online are not “imaginary”, they are “digital”.
To make an offline parallel, when you go to a concert, you don’t get anything physical either. When you buy a CD and put it into MP3, you just got yourself a sequence of 0s and 1s. It is digital too. What you have paid for is an experience, not the plastic. Brands are very good at selling physical objects charged with symbolic value, but how many are yet able to sell non-physical objects? If the margins are better, they should!
About a month ago I did a talk for 700 P&G employees, including the CEO, about digital innovation. P&G’s products might be great, but they are commodities. For them, the symbolic value is where the margin is. What if they could add a digital component and an experience to it?
The other term that is a very damaging semantic cell is:
“GAME”
Why is “game” a problem? Because we are too serious. Games are for children; games are a waste of time; games are a waste of money.
Well, there are a few things to know about games:
- First, games are a great way to learn anything. Much better than a manual or a tech demo. Just try it, have fun and there you go – you know how to use it. New technologies have a much higher chance to spread when introduced from a gaming angle. The other possibility is adult content, but I won’t cover that here.
- Second, games are already the biggest contributor to digital goods sales – if you exclude music, movies and books. In Asia, it is about 3/4 of those $7B I mentioned earlier. So it’s already working! Many people are ok to spend to have fun, despite the mental barrier of “it’s not real”.
- Third, we are already all gamers, but we don’t want to be called gamers. My aunt, a woman in her 50’s who lives in Mountain View, California plays almost every day a puzzle game on Facebook. She also likes Sudoku. I told her she was a gamer because she played more than me. She was certainly surprised to realize that. When you go bowling, play poker you can call it sport or whatever, the reality is that you are playing a game. In the case of bowling you are even renting physical items to do it.
Not long ago, the game designer, professor, thinker and writer Jesse Schell gave a talk at DICE and Long Now Foundation about the “gamification” of everything. He was mentioning a toothpaste service could measure how long you brush and give you points for each minute. 3 minutes in a day and you get, say, 100 points, 7 days in a row and you get a bonus. You could even compare scores with friends. It could be used of course to sell more products, or simply to help you embrace positive behaviors by giving you feedback, social proof and a gaming aspect.
So my conclusions here are that:
First, “virtual” is a terrible term and we should say “digital”, or not say anything.
Second, “game” should be renamed “entertainment”.
As Cary Rosenzweig, CEO of IMVU, former P&G exec and client of ours – said “Virtual goods are consumer goods”.
I would say also “video games” should be renamed “digital entertainment”, putting them alongside movies and music. It would then become apparent that movies are simply non-interactive narratives, while music is “auditory entertainment”. Nothing wrong with that, it just shows they are more alike than we usually think.
What else is there to learn from Asia?
- That online games make a killing, are extremely profitable.
- The mobile also makes huge amounts of money. In Japan, a *mobile* social network named GREE using Flash games with digital goods and avatars made over 400 million USD last year with only 20 million users.
The profit margin is 60%. Facebook made double the amount, with much less profit and over 20 times the user base.
- Tencent, who operates QQ, the #1 IM service in China, and is also a game and SNS operator, made over $1.3B IN THE FIRST HALF OF THIS YEAR! Net profit margin is 42%. The company is now the world’s third largest Internet market cap after Google and Amazon, with $35B, and still growing fast.
- Other developing markets – including, for instance, Russia, Vietnam and Thailand – are following the same path.
(to be continued)
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+8* | Plus Eight Star thinks that it is not because you follow us at @benjaminjoffe that you are virtual and that learning from Asia can help us bridge the gap.
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