Virtual Worlds Forum

Zynga, a games network which operates a series of social casual games, has raised $29m in a Series B round, led by Kleiner Perkins Caufield & Byers, bringing its total funding to $39m. It has also announced the acquisition of YoVille, a virtual world Facebook application. Zynga is already making its games available as applications on Facebook and other social networks, with 2.9 million daily active users across their different offerings, including Texas Hold’em and Scramble (a word game). It had been believed that Kleiner Perkins were no longer investing in Web 2.0, according to a recent Fortune article, but Partner John Doerr made an exception for Zynga saying that they have ‘cracked the code’ in developing viral games.

The reason that Zynga has attracted such enthusiasm from investors is the appeal of its model. It is able to create games on the cheap which nevertheless appeal to huge audiences. By creating a portfolio of games, and using social networking sites and cross-promotion to build up a user base, they start to be in a position to be very profitable. They are also freed from the tortuously long development cycles of large, traditional games companies such as EA (whose former Chief Creative Officer Bing Gordon is also joining Zynga’s board today).

However, this new model absolutely relies upon the social aspect to games, and it is likely that a desire to strengthen this is the motivation behind the purchase of YoVille. A virtual world built on top of Facebook is not a unique concept – Vivaty is another example – and there is a reason for that; the social network offers a boost to viral growth, and the combination of an appealing virtual world with the Facebook platform is a recipe for lots of users.

K Zero have put together a fantastic graph, which plots the different virtual worlds according to the market they sit in – both in terms of their functionality and their target age group.

(click through for full sized graph)

The most immediately obvious feature of the graph is that the age axis does not go above 40. Virtual worlds are a new technical phenomenon, and it should be no surprise that their initial adoption will be by younger people. This is surely the biggest gap in the virtual world market, but the important question is whether there is a market in that gap. 2D web social networks for older people have started to emerge, such as Saga Zone which is aimed at over 50s, but it is too early to tell whether people of that age group will adopt new methods of communication en masse. On the face of it, virtual worlds for old people could be a big hit, enabling often lonely elderly people to have more social contact, and the 3D paradigm may even make more sense than the world of websites. I suspect that this is a very long term growth area, although the industry has to hope that the market emerges before current users of Club Penguin reach pension age!

We reported last week on the launch of WebFlock by The Electric Sheep Company – essentially a platform upon which virtual worlds can be developed and then built into websites.

I was joined on a podcast by Sibley Verbeck, CEO of Electric Sheep, to talk about the announcement as well as get his insight into the latest developments in the virtual worlds industry – particularly the impact which Google Lively will have.

Listen to the podcast to get the full story, but the big point that I took away from my discussion with Sibley was the importance of going mainstream. I think he’s right to see that as the absolutely key thing that the industry has to work towards. Part of the solution will be technology – which is where WebFlock comes in – but it is also going to require clear strategic thinking to find ways to make virtual worlds more valuable to mainstream users. Mainstream adoption for Verbeck is what will enable business models to start to work more effectively.

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In a virtual equivalent of the Relay for Live events which take place worldwide to raise money for the American Cancer Society, Second Life residents have raised nearly $200,000 of very real money (L$52,050,171 precisely) for the cancer charity. That’s double what was raised in last year’s efforts.

Charities rely upon people rallying around a cause to raise money, and virtual worlds have shown themselves to be an ideal way to do that. It is likely the hyper-connected environment of virtual worlds, in which communication is incredibly easy, which allows people to work together so effectively. The trend is a wider consequence of the internet – websites such as JustGiving, where users publicly donate money to a particular cause, having been invited by a friend, are evidence of that.

David Miliband (UK Foreign Secretary) has spoken about the power of communication driving support for a cause in the context of its ability to rebalance the relationship between the state and the individual. He calls it the ‘civilian surge’: “There are 200 million Chinese learning English; there are more bloggers in Iran than any other country in the world per capita; Buddhist monks march for democracy in Burma. I got the idea of a civilian surge when I was talking to David Petraeus [the US military commander] in Iraq because, he says, ‘You can’t kill your way out of this problem - you need politics as well as security.”

There is, of course, a commercial lesson in this. Virtual worlds offer brands the potential to mobilise support in their favour. If a brand can find a way to be the ‘in thing’ in a virtual world such as Second Life, with users really engaging with the message behind that brand, that could be incredibly valuable. That potential is arguably at the route of advertising interest in virtual worlds, and is perhaps the holy grail. 

That’s the message from Kaz Hirai, president and group CEO of Sony Computer Entertainment, in an interview with GamesIndustry.biz. Home, a virtual world for PlayStation users, has been in development since 2005 and has been dogged with a series of delays. Initially intended to launch in late 2007, it was then postponed until spring 2008. The latest timescale is an open beta to be launched in the autumn of this year.

According to Hirai, the reason for the delay is the desire to get Home right first time: “had we launched it before we thought it was the right time and the right features and functionality to launch it - with the high anticipation, people would go there in droves the first time around, they would check it out and say, “This isn’t fun at all, so I’m not coming back again.” With virtual worlds so dependent on user numbers –an empty virtual world which is supposed to be all about socialising isn’t much use- this may well be a sensible position to take.

The promise of Home is certainly great. Xbox 360 has enjoyed phenomenal success, and has turned into a real revenue generator for Microsoft. Home could potentially go beyond that, with advertising revenue on top of sales of commercial content and microtransactions between users. The graphics capabilities of PlayStation 3 may also enable the development of by far the most graphically impressive 3D world to date- developers will be able to rely upon content being processed the same way given the identical consoles.

Before that promise can be fulfilled, though, Home has to launch. Whilst it is still benefitting from good hype at the moment, too much delay could easily lead to a loss of interest, and the delay exacerbates any possible initial disappointment with the product. It’s a high stakes game; Sony could still get it right, and win big, or things could go very wrong.

MTV, the Viacom-owned music channel, has launched a virtual world: MTV House. It is a 2.5D world built in Flash, similar in that respect to Habbo Hotel. There are several different rooms: MTV One, MTV Two, MTV Hits, MTV Base, MTV Dance as well as MTV Bathroom and MTV Kitchen, all of which are accessed from a central lobby.

The main purpose at this stage seems to be to create another way for users to access MTV’s content. Heavy prominence is given to online videos, for example, which are discoverable in the different rooms. Each room also has a ‘character’ in it, an automatic avatar which, when clicked, gives a list of relevant content. In time, MTV is presumably hoping that a powerful social aspect to the world develops as well. Right clicking on the world reveals that it was built by Yomego, a virtual world development agency which offers a white label solution – it looks like this is what MTV has deployed.

The business model is to be based around advertising, in a potentially win-win situation for MTV; if House is successful, they increase user engagement with their own brand and content, as well as creating more inventory to sell.

This light weight approach to virtual worlds, with barriers to adoption as low as possible, may well be the most successful way for traditional media brands to take advantage of virtual worlds, at least initially. It stands a good chance of mainstream adoption, and is a low cost way for brands to ‘dip the toe in the water’ of virtual worlds.

House has initially been launched in the UK, and MTV intends to role the product out worldwide in the coming months. 

GigaOm has an interview with Mark Kingdon who replaced Philip Rosedale as Linden Labs CEO last April. Linden Labs and Second Life aren’t in great shape: growth, certainly in paid users, has stalled, and they are facing new competition every day which threatens to out-innovate them. The greater popularity of virtual worlds and MMOs such as World of Warcraft and Habbo Hotel, and the high-profile failure of many brand experiments in Second Life, might lead one to suggest that Second Life isn’t nearly as relevant as it once was.

Kingdom, though, is very bullish about Linden’s future. He’s disdainful towards Google’s Lively which was launched this month, comparing the vast number of consumer and enterprise use cases of his product to what he sees as Lively’s single use case: visual chat. He’s right at the moment – Lively doesn’t amount to much at launch – but Google has consistently demonstrated in the past that it can enter a space late and beat the incumbents through fast, enlightened iteration.

Refreshingly, he is aware that Second Life’s UI is far from ideal at present (potentially a key area on which Google could beat the incumbent virtual world, I would have thought). The ‘first hour’ experience of the product is irritating and counter-intuitive, and he states “We’re also working very hard to make Second Life intuitively, and maybe even delightfully, usable”.

Kingdon also confirms that an IPO isn’t in the short-term plan, which makes a lot of sense. Second Life, having been ridiculously over-hyped, is now suffering hangover from that, with many writing it off as irrelevant. They may be right, or they may be wrong, but with industry confidence in the archetypal 3D world at a low, Linden is absolutely right to postpone going public. If, in the short to medium term, they can restart growth of both user numbers and revenue (which whilst not public can be assumed not to be growing very fast, if at all, at the moment), and in the long term successfully establish themselves as the ‘glue’ between interoperable virtual worlds making money providing value added services, then they will be in a far better position than they are today. That’s a big if, though. 

Microsoft is to position its Windows Live ID as the ideal solution to managing avatar identities in an age of interoperability. In an interview carried by Reuters, Zain Naboulsi of Microsoft talks about Microsoft’s efforts to encourage adoption of its technologies in conjunction with OpenSim. Microsoft wants programming language C# Express and database system SQL Express to be used to create and run OpenSim environments. More interesting, however, is the suggestion that Microsoft will position its online identity system, Windows Live ID, as the solution to the inevitable difficulty of managing an avatar’s identity in the era of interoperability towards which the virtual worlds industry is slowly marching.

Windows Live ID is the identity system which lies behind login to Microsoft’s online services, such as Windows Live Messenger and Hotmail. It has also made it available to third party developers to use it in their services. For example, Facebook (if it wanted) could enable users to login using their Windows Live username and password. The advantage of this is clear: the user only has to remember one user name and password and can easily control which online service providers have access to their information, and Microsoft gets to be in the powerful position of an identity broker.

However, Microsoft is not the only identity provider seeking to be the answer to a widespread problem on the web. Google has a similar service, but a more high profile option is the open source, distributed OpenID system. This is arguably better than proprietary systems as anyone is able to install the OpenID software and become an identity broker. It would perhaps be a better ideological and technical fit with OpenSim. Another potential obstacle in Microsoft’s way is Linden Labs, whom we reported recently are interested in becoming the guarantor of the infrastructure of interoperability, a central part of which would presumably be managing avatar identity between different worlds.

This is a fascinating problem which has many different potential solutions, not all of them ideal for the user. Ultimately it seems unlikely that any one provider will be able to wrestle control of the coveted position of identity broker, but what is certain is that many will try.

OGPlanet, the US MMO publisher which we reported last week had been funded, has announced the opening of applications to join its closed beta for its upcoming casual MMORPG, La Tale. As with all games OGPlanet publishes, La Tale has already been released in Korea, and this beta is for the localised US version.

The game’s art style is anime, a cartoon style which is increasingly popular outside Asia, from where it originates. According to the press release “La Tale’s whimsical art style and detailed 2D worlds bring a lighthearted touch to the MMORPG genre, and have won it a large following in Asia. Simple gameplay and intuitive quests make La Tale accessible for players of all ages, while a large, immersive world promise hours of entertainment.”

From the language of the website, it would appear that La Tale is targeting a relatively young demographic, emphasising ‘cute characters’ and easy controls. If that is the case, it is certainly entering into a crowded, but large market for casual MMORPGs aimed at youngsters, most notably Disney-owned Club Penguin.

Applications for the closed beta are only open today. OGPlanet members can apply through the La Tale website.

Roo Reynolds, IBM’s metaverse evangelist, has been hired by the BBC as Portfolio Executive for Social Media at BBC Vision. Given his experience of driving metaverse adoption, it seems likely that the BBC has hired him to explore (at the very least) the possibilities of integrating their television output with some kind of virtual world.

In the past year, the BBC suddenly appears to have woken up to the wider changes of new media; the launches or revamps of initiatives including the iPlayer, podcasts and blogs indicate a wider realisation that they must create as many routes to their content as possible. Most recently, the redesign of BBC Three’s website which places user generated content at the core of the channel and makes a simulcast available, suggests that BBC Vision is seeking to drive real innovation at the intersection between traditional television media and new digital media.

Virtual worlds may seem like a logical next step. The BBC has a chance to be ahead of the curve on this one; virtual worlds have not yet reached the mainstream, allowing them to experiment and innovate in good time. Perhaps more exciting, however, is the power that the BBC has to bring virtual worlds to the fore in Britain’s media landscape. They are required by their charter to be mainstream. In order to operate in virtual worlds, therefore, virtual worlds must be mainstream – if they have not already reached it, the BBC will have to take them there.

This breathless speculation must come with the caveat that it is entirely possible that Reynolds will not be working on virtual worlds; it isn’t in his job title, and it is unlikely that the BBC would be able to be involved in virtual worlds with just one (known) expert employee. Nevertheless, any move into the space would be undeniably significant. 

EA’s CEO, John Riccitiello, has confirmed that they are developing an MMO version of the latest game in the Star Wars franchise, Knights of the Old Republic in partnership with Lucasarts.

According to an interview in Portfolio, EA is moving aggressively into the MMO space with the Knights of the Old Republic as well as an MMO based on the popular Warhammer war strategy game played with models. The two games appear to be part of a plan B, in contrast to the plan A option: acquiring World of Warcraft off Vivendi. Riccitiello confirmed that discussions took place, but a deal was not possible ‘because [Vivendi] couldn’t afford control of EA, and I wasn’t giving it up.” Basing their two upcoming MMOs on brands established and popular with gamers of different sorts already is the next best thing, as it allows EA to use its financial clout to gain a head start against the multitude of MMO competition.

The rush to MMOs on the part of ‘traditional’ gaming firms is partly because of the highly appealing subscription model. Where users can be persuaded to pay, popular MMOs are highly lucrative with the ability to sell both the game (or expansion packs) and the right to play the game. According to Riccitiello, MMOs are also part of the gaming industry’s strategy to shift off consoles and mobile devices: currently 2/3 of the game industry is based upon consoles, which is EA expects to fall to 1/2 in three years time. 

2008 feels like an exciting year for the virtual worlds market. Startups are springing up everywhere you look, established worlds have a good idea of how they need to evolve, big media and entertainment brands are interested in the space, and corporate use of virtual worlds is becoming more common. Yet there are still plenty of challenges facing this industry. With the aim of provoking some discussion, here’s ten of them.

The Wall Street Journal has an opinion piece today from Benjamin Duranske, a lawyer and author on virtual worlds, on the role that virtual worlds will come to play in the real world. Much of its content, whilst news to the rest of the world, will not be new to readers of this blog: that virtual worlds are going to be big news in the future for both consumers and brands. However, Duranske makes two points which are certainly worth considering.

He points out the increasing authority of the real world in the virtual world, particularly giving examples of the difficulties which Linden has had with illicit activities in Second Life in the past, which it is now seeking to address. The long arm of the law will inevitably get longer as virtual worlds become less of an unknown quantity in mainstream legal and law enforcement circles, and that’s clearly a good thing. It is an absolute requirement if virtual worlds are to be considered a mature phenomenon, ready to reach the mainstream, that they are seen as a tool of the real world, and not somehow other from it. The application of law in a virtual context is symbolic of that shift, as well as an important goal in itself.

The second point Duranske makes is that 3D walled gardens will not succeed in becoming the new 3D web, just as the walled gardens of the early web such as AOL did not succeed in becoming the web and mobile network operators’ walled gardens have now broken down in favour of the open web. This is perhaps no longer a controversial point; Second Life, as discussed earlier this week, is no longer attempting to ‘own’ the 3D space, and is instead pushing for open standards and to make its money acting as a guarantor of infrastructure, rather than trying to be the entire infrastructure and content itself. 

OGPlanet, a US-based games publisher which takes MMO games from Korea and publishes them in the US, has received funding from DFJ Athena, a Silicon Valley and Seoul-based VC firm. OGPlanet has been around since 2005 and has imported titles including Albatross 18, Cabal Online, Rumble Fighter, BB Tanks and LaTale (coming later this year). 

OGPlanet is free to play, and their business model centres around microtransactions which take place in-game. They are not currently profitable, but the announcement expresses a hope that they will be soon. The VC money is likely to be used to bring more games from Korea to market, and economies of scale dictate that profitability should follow from that.

In some ways OGPlanet is an odd fit with DFJ Athena, whose current portfolio does not appear to include any consumer-facing technology companies. However, both firms share the link between the US and Korea, and it is likely this which has brought them together, with a future acquirer potentially coming from either Asia or the US. 

The Electric Sheep Company, a virtual worlds design agency, have announced WebFlock, a system by which white label virtual worlds can be created. The big news is that these 3D virtual worlds will accessed through the web browser and, uniquely, be built on Flash, which means that the vast majority of web users will be able to access WebFlock virtual worlds without the need to download a plugin. This is in contrast to rivals such as Google’s Lively, launched last week, which requires the installation of special software, as well as more established virtual worlds such as Second Life, which require a full-blown client to be installed.

This announcement is a significant step forward for virtual words in their quest to reach the mainstream. Users of worlds built on WebFlock will be able to casually access them, without any of the barriers to adoption inherent with other technologies. A company seeking better engagement with its users can simply embed this on their website with the expectation that a significant number of users will enter the 3D world – an expectation impossible with other, non-flash, technologies. A comparison can be drawn with YouTube; YouTube was successful because it brought online video to the masses using a technology which made it simple – it just happened to be Flash. Electric Sheep will certainly be hoping that WebFlock achieves the same.

There are two caveats, however. The first is that the technology does not come cheap; at ‘under $100,000’, it is certainly cheaper than the option of building out a large-scale, sophisticated presence in Second Life, but it will not be an option that most companies will consider yet. Nevertheless, I suspect that many will. My second concern is that there may be a reason that no-one to my knowledge has yet built a 3D world in Flash. Flash certainly isn’t designed to handle 3D rendering, and without seeing the technology in action it is difficult to assess the extent to which Electric Sheep have overcome that difficulty.