Liveblogging the Virtual Goods Summit: Virtual Items - Mainstream or Not?

Moderator Robert Scoble gave the best possible introduction, so I'll leave it with him: "A little while ago I got an interview of the Frank Mueller watch company in Switzerland. And I think it has applicability to this panel. They use several techniques to make a watch worth $20k. They used materials scarcer than gold, or they made each watch unique. How do we make this stuff go mainstream? How do we use the marketing techniques that the diamond industry or the fashion industry use to make things like a diamond ring, that has no real practical value, valuable?"

Or, as John Vars of Dogster said, "It’s definitely mainstream. The users of Dogster aren’t gamers. They watch Oprah."

   

Virtual Items: Mainstream or Not?     Virtual items are beginning to appear in many new contexts. As virtual items continue to penetrate new markets, what will it take for them to become more widely accepted? Is becoming mainstream the right goal for virtual items? Our team of speakers will share their views on the prospect for virtual items becoming mainstream. » Jia Shen, RockYou! » John Vars, Dogster » James Hong, HotOrNot » J.T. Stephens, Six Apart » Robert Scoble, PodTech (moderator)

Scoble: A little while ago I got an interview of the Frank Mueller watch company in Switzerland. And I think it has applicability to this panel. They use several techniques to make a watch worth $20k. They used materials scarcer than gold, or they made each watch unique. How do we make this stuff go mainstream? How do we use the marketing techniques that the diamond industry or the fashion industry use to make things like a diamond ring, that has no real practical value, valuable?

Hong: I don’t think you need to convince people. You haven’t seen it here as much in Asia, because everyone here is focused on advertising, the lower hanging fruit. We couldn’t back money from advertising back then, and bandwidth was just too expensive. So everyone went to subscription models. But Asia didn’t have that hten, and they had mobile systems that were easily translatable to virtual purchases. I don’t think it’s a question of mainstream or not, it’s just when we’ll get there. The Web is about bringing people together, but the problem of having everyone in the same room is that we’re all alike. So the question is how do we see ourselves differently.

With HotOrNot, we turned it into a dating site, and asked can I advertise myself to a girl if I like her? So it’d be like Google, but instead of an ad, it’d be your picture, but that’d be creepy. So we asked what if I put a flower there. That’s not so creepy, and it’s kind of nice. We had to create scarcity because it’s a gesture. People sometimes buy them for themselves to make themselves look better, but usually it’s person to another person. A picture of a red rose costs $10 and it dies after two weeks, to create scarcity.

Vars: Does a rose on HotOrNot smell as sweet?

Hong: It looks as sweet. And the price is three times as sweet. So we looked at what it means to give someone a flower, and we saw it as a gesture.

Shen: The difference for us is that we’re more about social expression instead of self-expression. Everyone else is about making yourself stand out. I think that’s the real distinction that will bring it to the mainstream. You look at what makes you stand out a little bit more, decoration or flair.

Scoble: How many widgets do you create per day?

Shen: A quarter million. We think of social networks as like the first day of high school. You don’t want to wear the same shirt as the person next to you. The whole concept of virtual goods and widgets are to make yourself stand out, to say look I’m cool, here’s the music I like.

Scoble: And the Facebook profile is very viral, because when you add a widget, it shows up in your feed. The viralness is about to really explode.

Shen: Statistics and numbers about how popular you are isn’t really the social networking aspect to look at. It’s instead how many gifts did my dog get.

Vars: The virtual gifts have real meaning. It’s definitely mainstream. The users of Dogster aren’t gamers. They watch Oprah. We’ve tried and found a lot of success in viral marketing, and virtual gifting, while it may not be a way to acquire someone, it’s great to move them up in the lifecycle. Virtual gifts have really made our users  become experts.

Stephens: There’s definitely currency in establishing yourself in the network. And in LiveJournal, we look at how gifts establish networks. We look at people suffering from terminal illnesses, and in gestures of support, people will send over a V-gift. It’s kind of the thoughtfulness that counts. That’s a human quality that will always be there.

Audience: You can say about young people they have sort of ADD, so do you need to invent or create faster? As soon as everyone gets one widget, they’re not different anymore?

Shen: Initially, you have to keep up, but doing a lot of these things, you’re coming up with things that will set standards for social networking. Once someone has a horoscope, everyone’s got to get one. When someone gives you a gift and you build up comments, that builds a long-term stickiness. That’s why virtual goods are interesting to us.

Vars: James, do you guys test how much deeper a relationship becomes when someone is given a rose?

Hong: You basically look at how interested you are in meeting someone, and if both people click  yes, they become a double match. IF person A bought person B a flower, they are 4x more likely to make that double match. It’s not just teenagers and high school kids that this affects. It’s just that you can’t teach old dogs new tricks. But as we all are growing up, the most important thing is that online relationships are not less important than offline relationships. If I drew my girlfriend a flower and gave it to her, she’d be happy. It’s not the gift. It’s the relationship. Why would online relationships be worth less than an offline one? It’s not. The scarcity I’m giving up by getting to know someone is my time, not my presence. That works in either world.

Stephens: I’m sure you have commented on a random blog, and there’s nothing a blogger loves more than seeing a comment. That’s like a virtual gift. Even if it’s negative, it’s saying that I read your post and considered it.

Scoble: I interviewed a guy who started Paper Models, and you could print out a model of a plane and fold it up. He sells models now of California missions, and people find it on Google because 4th graders need to build these things. But he figure out that he needed to get his model into Google. How do you guys get it out there?

Vars: We have a problem defining what virtual is? Is an MP3? Maybe 5 years ago, but now everyone has them. Is a piece of software that you download virtual? Now things are attached to meaning.

Hong: What is virtual? We only call music physical because it used to come through a physical medium. In reality, the CD isn’t the product. It’s the sound. The only thing that’s changed now is that the delivery of the music or the gestures is the transmission.

Scoble: Will we see super twitter where I pay a dollar and it shows up on everyone’s radar?

Hong: paying for attention? Probably.

Audience: I take issue with the comment about young people. They have a lot of time, and so do old people. If you want to hit mainstream, you have to look at that market. Look at the Wii.

Hong: The Wii is awesome. Convalescent homes are buying them because the folks can’t play tennis, but they can do it here. And if you’ve played boxing, you break a sweat. At least I do. And at HotOrNot, we do have a lot of older people using the dating site. Their propensity to buy the virtual flower isn’t higher or lower than anyone else.

Shen: The real way to look at what we’re doing is just looking for a large group of users who want to socialize. The Wii is interesting, because MySpace is a cultural thing that may be hard to use, but Wii and the Miis are putting interesting, easy to use social networking tools out in the broader demographic.

Audience: One of the big things on Facebook recently was issuing gifts. And since the application came out, there’s been a lot of free gifts, absence of scarcity. What do you think about that?

Vars: Scarcity creates more meaning. Buying or giving a gift, like that Halo in Gaia, where there’s only a few of them, that’s worth more.

Shen: I’d say first that Facebook isn’t a great example for virtual gifting. My experience is that you can give one free gift and then start buying them. I have a decent amount of real friends that do not have more than one gift. I think the things that are missing that would make Facebook more valuable is that people today don’t appreciate scarcity in Facebook. They don’t tell you that you need to buy a gift right now.

Vars: Facebook hasn’t cultivated an environment where those gifts mean anything.

Stephens: On LiveJournal, we don’t have scarcity. They’re ephemeral, and people appreciate that. There’s a gesture of people taking that gift and sending it out. That free gift isn’t going to impact your bottom line.

Hong: Scarcity can also be in the time it takes to send a gift. And you also create scarcity by making the gift cost something.

Scoble: Facebook is already training us to be tribal with groups, and I wonder if the cost of a gift that we all share might be a part of that. Like the Livestrong bracelets.

Shen: One problem I have is that there’s too much inventory. If you look around, for me, there’s only a couple of gifts I see all the time. On HotOrNot, you can see that there’s a few gifts, so people know they cost a certain amount.

Vars: They really need to have clear meaning.

Shen: The gifts I see are really social. Like underwear or rings, they’re things that already have social value. They keep adding things that don’t, though.

Hong: And they’re all the same price. The ultimate model we wanted to launch but didn’t have the guts to do is that you set the price for a flower, but then we tell the girl how much you sent.

Scoble: Some other real world tie-ins, like cars we see  bumperstickers that say “I Support Our Troops.” Will we see something like that in the real world.

Stephens: We see people that wear Frank the Goat, our mascot, shirts.

Hong: Do you have tie-ins for virtual products that come with actual tshirts?

Stephens: Not yet. That’s a good idea. [laughter]

Hong: And the margins are much worse for real goods. There’s shipping and timing and things like that. I started a company that sells real flowers. It does well, but I just don’t want to deal with it.

Audience: I’m curious about what you think the price sensitivity is for these things. Is there a market for a virtual item that costs $1000?

Vars: I’m just going to make one gift that cost $100M. I only have to sell one of them. I don’t think there’s a price maximum. In the mainstream it’ll be slower than Gaia or Entropia. $10 seems reasonable.

Hong: We’ve done some elasticity testing, and it boiled down to intent. We had two rows of flowers based on whether you’re trying to get someone’s attention or develop an existing relationship. We sell more expensive flowers to people that have a relationship. We know the profit maximizing point is the highest point in each band. We just did it randomly, but it turned out that the highest priced flower was selling the most. We haven’t tried going higher, but maybe we should.

Stephens: I think there’s a risk of the community turning against you if they see you as greedy. You really want to make sure the community is with you.

Vars: It’s like what the gaming guys are talking about balance. The $50 item doesn’t cost you anything, but it might throw off the field.

Shen: Don’t think about individual players. It’s a virtual market with a lot of players, and there are different markets with different values. In the real world, the thought process is very similar.

Joey Seiler
www.VirtualWorldsNews.com
joey (at) showinitiative.com
(512) 535-8650
skype: joey.seiler.vwnews