Joe Hyrkin took his role as Vice President of Business Development for Gaia Online about years ago. Since then, he says, Gaia's business has shifted dramatically.
"At that point we did a little bit of remnant ad inventory with banners on the site," said Hyrkin. "We made most of our money, and it wasn't much, on virtual goods. That's increased substantially. But the branding side, a year and a half ago, we started to check it out. What we've found is that not only are brands doing more business with us, they're spending more. Typical campaigns run hundreds of thousands of dollars. That's been a big difference for us: they're using us as a main staple of their outreach."
"In entertainment, Sony's done a number of events," Hyrkin continued. "Time Warner has as well. It's a cornerstone of their promotions. We're also seeing more in the consumer goods suite. We're in the early stages of a campaign with Verizon right now, and that'll be rolling out more over the next few weeks. We've done work with Skittles. These are long-term, big spends in Gaia. We're seeing brands recognize that the engagement that they wish had been available in Second Life or elsewhere is accessible in Gaia. That's not to be negative about Second Life. It's that we create the environment. For Skittles, users were doing quests with the brand and encouraging their friends to participate because they got more value. Every movie that's in our target demographic we're working with, pretty much, and that's similar for video games."
It seems like that awareness is permeating the market. I hear similar reports from most of the virtual worlds in the youth space. Brands may have pulled back from virtual world marketing after the Second Life backlash hit full swing, but they're not only warming up, but actively pursuing opportunities.
"We're getting RFPs now instead of having to go after them," said Hyrkin. "The senior executives at brands and agencies, the CMOs, if they haven't already embraced it, they're really receptive to talking with us and working with us. And they find they're getting really huge, measurable value."
Over half of Gaia's revenue still comes from virtual goods, but Hyrkin expects advertising to continue to grow--assuming, he jokes, the economy doesn't completely go up in smoke. The bigger question now is how to combine those two or whether that's even the right approach.
"On the branded virtual goods, the verdict is still out," he explained. "Part of it is that there's a disconnect between the brands and the sites they're working with. Many of the brands look at us and see that we're doing over a $1 million a month in virtual goods and say, 'Oh, great, let's sell our brands.' It's not about selling just another branded t-shirt. One of the things that makes our virtual goods work is the experience we create around them. And there needs to be flexibility through that whole approval process of who brings more value to the brand and the structures."
Part of that is the confusion over the fact that virtual goods can represent both a revenue stream of their own and another way of promoting the larger brand. Most brands lean towards the latter, says Hyrkin, but there's still a large question of whether selling goods or giving them away is more effective. That's a question Gaia is exploring through its partnership with Virtual Greats to distribute branded goods based on Snoop Dogg and The Incredible Hulk.
"I think it's what the brands think," he explained. "In terms of Virtual Greats and the other distributors, it's creating an experience to drive revenue around these unique pieces of entertainment. Figuring out the balance is kind of the fun of it all. Some brands really get it. I think Snoop and Marvel get it. But those guys, as they get more creative and are interested in experimenting with it, there's a huge amount of revenue here for everybody, but the verdict is out on what you do with those experiences. It's not just about here's a Snoop t-shirt, look cool. It's about the experience. That's for Gaia. There are other places where that's not the case, and it really is more about just putting it on your profile and having that as a part of your expression."
That drive towards the experience is part of what Hyrkin thinks sets Gaia apart. The company has been careful to position itself as "an online hangout" instead of "a virtual world" for some time. The idea, as CEO Craig Sherman explained to me this summer, is that Gaia operates like a mall: you go to simply hang out with your friends; the shopping, eating, and other activities come afterwards.
"For example, the Virtual Theatre is a great experience, but it doesn't exist for the purpose of being virtual. It exists for the purpose of providing entertainment," explained Hyrkin. "I think often a lot of the virtual worlds exist for the purpose of being really cool and showing the virtual world experience instead of just letting the users do what they want to be doing. It's about community. That's why millions of people are coming—and then the activities that they can interact with and build on top of that. I think many of other virtual worlds are about the stuff, and then they hope people will come. That's a hard way to run a business. Even if you have a really cool brand or really cool idea, starting it in the space is incredibly hard. Getting them to come back may be easier, but starting it is hard."
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