Liveblogging SXSW - Casual Multi-Player Online Games: Serious Revenues

I popped in just five minutes late, but the panel was already in full, fast swing. With a virtual who's who in current virtual world and casual MMO development, Michael Acton Smith (CEO, Mind Candy), Adrian Crook (Consulting Producer Designer, Independent), Joe Hyrkin (VP Sales & Business Dev, Gaia Online), Jeremy Liew (General Partner, Lightspeed Venture Partners), Nabeel Hyatt   (Founder/CEO, Conduit Labs) look at current trends and opportunities.

Immersion: 2D vs. 3D

“It’s an issue we look at all the time because we’re not 3D,” said Hyrkin. “We’ve found that not being 3D has a lot of benefits. Quick example, MTV has 4 virtual worlds. They’re all built around TV shows. They actually came to us and said, ‘Hey, can you build a Gaia-like experience for us.’ In the first 48 hours, we drove more engagement into the Gaia Virtual Hills than all their 4 worlds over the previous months.”

When asked what it comes down to when definining a virtual world, Hyatt said he’d stopped worrying about whether Conduit was building a virtual world or MMO or what have you. Immersion is what matters, and that can come from anywhere. 

Different Ages

That’s especially true across younger demographics. Hyatt is looking at a growth area of 16-year-olds at the bottom with a focus on college age users “starting to build their social world online.”

After kids get drivers licenses, he explained, they stop caring quite as much about what they can play online and start focusing more on building a personal identity. They certainly game, but users are more and more online with avatars, looking to move past just Guitar Hero.

“I think to a certain extent when I talk to people our age, mid-30s and so on, outside of the game industry, they don’t understand why someone would buy a virtual item like a sword or something,” said Crook. “Generationally there’s a distinction that people our age make between virtual life and real life that people 25 and under don’t make. As people age, their reason for engaging in games is going to change, […] but they’ll retain that lack of distinction between online and real life that makes them such rid consumers of those items.”

There’s large potential there, but so far it hasn’t taken off to the degree that the genre has in Asia. Younger audience, though, are already keyed in.

“If you build a great audience for a younger audience, it can grow very quickly,” said Smith. “The virality of that audience is much greater, as we’ve seen with Club Penguin and Webkinz and so on.”

That becomes even more true as we start to see worlds built around mainstream activities like pets, dancing, music, and sports instead of fantasy elements like in World of Warcraft.

Brands vs Start-Ups

When you combine that mainstream approach with existing popular brands, like Barbie or Build-a-Bear, the growth comes even faster. [Plug: come to Virtual Worlds 2008, April 3-4 in NYC for more from these companies.]

As a startup, it’s a little harder.

“To go after 6 to 10-year-old kids as a startup, I’d have to have unbelievable penetration,” said Hyatt. “One of the ways we’re addressing that, quite frankly, is going after markets by segmentation, not just age, but specific people that will really enjoy the product that aren’t being served. As a start-up, you don’t go after every 25-year-old. With a very specific business proposition, you can do just fine. There are a lot of things to do on the Internet, not just play games.”

For Gaia, Hyrkin isn’t worried.

“It’s fine for them to build their big brands,” he explained. “Movie studios are great at making big movies. That doesn’t mean they’re going to be great at providing great online entertainment. A lot of the non-studio-branded companies have a great advantage. We’re all about building this online space. It’s still to be determined if all these guys are going to be successful. MTV is a great example. They’ve been very successful with what they wanted, but scalability remains to be seen if they branch away from the support of their TV shows.”

How to Make Money

Crook has focused on free-to-play models for some time.  [See our notes on his previous rundown.]

As far as delivery, Smith is following the toy-based model. With Webkinz, it’s basically “a pre-paid card that you can take to bed with you and cuddle. There’s something tangible that they can have. And the other smart thing is that it’s only a year subscription. Then you have to buy another toy.”

Bella Sara is another example Smith is following. [See our coverage of the horse-themed virtual world and collectible card series.]

But virtual goods is where all the buzz is.  Gaia has moved from free items to auctions between players to a new cash shop where they purchase items directly from the company. There’s the attachment to items for personal expression,  but equally important is the economic value it brings to the world.

“Even if you don’t like the thing, you’ll buy it, because it becomes an investment down the road for additional Gaia gold,” Hyrkin said.

Soon the company will begin looking at item decay, consumables, and one-off animations to drive additional purchases.

Other companies have switched to subscription models, though. It makes it easier, often, for younger children who don’t have access to credit cards for ongoing micro-transactions, explained Smith. Hyrkin explained that it’s also a matter of reassuring parents about safety.

For older users, independence is more valuable. Gaia Online, Hyrkin said, makes 40% of its revenue from prepaid gift cards.

“The cards can be used to do anything,” he said. “It’s also important to recognize the blurred line. Users look at online and offline as all the same. They look at going to buy a card at Target to buy something online as totally natural.”

Hyrkin also looked at the various sponsorships Gaia has seen.  For a one-month sponsorship, the company typically draws $100,000 to $200,000, but he says the company is beginning to see deals in the higher six figures.

Gaia, for example, is launching a major campaign with Nike later this week.

Comments

[Izzy Neis]

Hey!

This is GREAT info - definitely adds to my notes. And btw, glad I ran into you. Sorry if I got to rambling your poor ear off, lol. This market fuels me and it's fantastic.

Catch ya laters, Joey,

Izzy

[mimi]

I don't know if I like the idea of item decay and consumables on Gaia. That's actually one of the things I like about the site - that when you purchase an item for your account, that item remains on your account forever. Just thinking of them going down the much-mocked and oft-scorned (by MANY Gaian users) Neopets route actually makes me feel a little ill.

A lot of Gaians aren't going to be thrilled about this.