Virtual World Growth is Slowing Down. That’s Not a Bad Thing.

Gold Like most creations in the fast-growing tech industry, virtual worlds have enjoyed stellar growth and profitability figures over the past few years. Some virtual economies have even doubled in size year-over-year, feeding hype that virtual technology may soon replace many aspects of our lives.

But as one magazine reports, profitability is slowing and growth figures are relaxing. Should this lead to disillusionment about virtual worlds?

Of course not – as Pixels and Policy reports, virtual worlds are just moving into the next phase of a successful transformation from techie novelty to everyday reality.

Virtual Worlds Grow Up

Slowing growth figures for virtual economies may not be a bad thing. In fact, the transition of virtual world economies from a rapid-growth user base and in-world economy to more sustainable figures actually bodes well for the long-term existence of the Metaverse as a market player.

VentureBeat recently reported that investment houses are bullish on the long-term prospect of venture capital funding for online gaming, even as former names like Metaplace close down. Why are investment houses interested in platforms that are seeing their once meteoric growth figures (both in active accounts and revenue) slowly returning to Earth? Simple: Virtual worlds don't need a decade of rocket-speed growth to maintain productivity and spur innovation. One or two really good years are often enough to set up a game or virtual platform for long-term competitiveness.

Indeed, online gaming is reaching an age where venture capitalists like Greg Richardson of Elevation Partners aren't impressed by mind-boggling profit and user growth figures for first-year companies. Instead, they're concerned about the long-term, multi-year viability of a platform and how effectively the developer can scale their virtual world towards a growing world audience.

Look at Second Life, for example. Even if Linden Lab's crown jewel doesn't repeat its stunning growth figures from 2009, the fact that a seven year old free-to-join online world sees any user base growth, increased consumer activity or uptick in how often players are cashing in real-world currency for Linden Dollars should (and does) impress most business forecasters. There are examples both in free-to-join worlds like Second Life, and the more competitive, more costly subscription MMORPG industry.

Ultima Online, which fell from its perch as the dominant subscription MMORPG almost a decade ago, still retains a loyal user base of over 100,000 players as well as positive cash flow. Other worlds like EVE Online receive user enrollment spikes as new expansion packs are released, but still capture the imaginations of institutional investors due to developer CCP Games' stable influx of subscription payments and critical praise.

Viewing Transition as an Opportunity

Decreased subscription numbers and limited in-world economic growth may seem like a sign that a virtual environment has jumped the shark, but the economics is counterintuitive. Just as growth stock analysts look for new companies making outsized profits, long-term value investors pick out stocks that return a small but stable amount over time. Virtual worlds can be looked at in the same way, with long-lived worlds like Second Life successfully transitioning from huge-earning start-up to stable, established platform.

Inc. Magazine recently made the argument that social networking websites like Twitter and Facebook are replacing some of the hype previously generated by virtual worlds. But, Inc. says, virtual worlds are still a valuable resource for everything from an evening of fun to serious digital commerce. As virtual platforms evolve and age, the "wow" factor of each platform will either change and evolve or fall behind. World of Warcraft can't expect to make money if it sells four- and five-year-old gaming experiences.

Likewise, virtual world developers shouldn't fear a decline in active memberships or a bump in a previously flawless series of profitable quarters. Instead, they should consider whether their platform is making a transition from start-up to long-term player and adjust course accordingly. Innovation is the backbone of the industry, and as a platform ages, the services it can and should provide will differ accordingly.

Virtual worlds will likely look much different in 2020 than they do today, in 2010. But that needn't be a bad thing, so long as the evolution of the industry gets its cues from the demands and desires of consumers. Developers would do well to keep their ears to the virtual ground.