The virtual world industry can be a very contradictory one, where trail-blazing developers often allow vision and possibility to run ahead of market feasibility. Raph Koster's Metaplace project partnered with the virtual education firm 3D Squared to promote higher standards of hands-on technology education nationwide, but fell victim to a lack of profitability in the short-term. I even applauded Metaplace for its innovative approach to embedded virtual world spaces just hours before Koster publicly announced Metaplace's scheduled closure.
Now a similar fate has befallen There.com, which recently announced its scheduled closure after twelve years as an interesting playground for fun and research. This stands in sharp contrast to the success of social media developers like Playfish and Zynga, the latter of whom is on track for a highly-anticipated public stock offering and its most profitable year to date.
I've seen a few articles about how the closures of hyped worlds like Metaplace and There.com portend the end of the virtual world "hype cycle," with aging platforms like Second Life and new entrants like Blue Mars facing an uphill fight in a bad economy. The Escapist even reports on how advertisers are running from the current virtual world business darling, Playstation Home.
But this is unnecessarily negtive. One need only take a look at the booming market for social media games to see that the current trend is not so much the end of virtual worlds as a transition towards innovative new ways of delivering content.
Towards Low-Overhead, Mass-Appeal Products
To use a real-world situation as an example, the move away from heavy trucks and SUV's that has so frustrated American carmakers doesn't signal the death of the SUV as a viable car, nor does it mean the end of American carmakers. It merely indicates that American car buyers are shifting their tastes to something more befitting the external economic situation. The same goes for graphical virtual worlds. Metaplace's end was upsetting, as it marked the temporary closure of a promising start-up platform.
The closure of There.com, on the other hand, could lead some virtual world watchers to wonder about the stability of the genre as a whole. After all, There.com survived the tech bubble and the failures of dozens of other graphical virtual world platforms. But, like the American automotive industry and indeed all other businesses, success is primarily the result of economic factors including consumer taste. As the out-again in-again Apple can attest, consumer taste is fickle, and it can lead to major changes in the industry.
I made the point in my interview on Tonight Live with Paisley Beebe that graphical virtual environments and Facebook-style social media games aren't in direct competition, as players are likely to play in an online world as well as in a social media game like FarmVille in the same way a consumer might read both a periodical and a novel at the same time.
What's interesting is that the market for casual social media games is growing much quicker than graphical virtual worlds due in large part to their ease of use and embedded-in-browser nature. Gary P. Hayes' social media counter shows a fascinating visualization of the statistics, with some comparison to those of Second Life. It's not surprising, then, that as a whole social media developers are doing better than graphical virtual world developers.
Digital Media Wire reported that one of There.com's main reasons for throwing in the towel was the stark fact that revenue declined as a result of the recent global recession. However, during one of the worst months of the recession, November 2009, expenditures on microtransactions related to casual social media gaming rose across the board.
In fact, in the same time where services like Metaplace struggled to maintain existing users, Zynga's Farmville and Café World added over 15 million active users, many of them providing credit card information for the microtransactions that serve as social gaming's lifeblood. The number of active, paying members of social media games is huge compared to even the most successful subscription-based MMORPGs. From the outside, this shift of consumer taste appears insurmountable for traditional virtual world developers.
By early 2010, Zynga had a valuation nearing $1 billion even as There.com and Metaplace found themselves unable to draw in paying customers. This should make it clear that virtual worlds and online gaming as a whole aren't in jeopardy – consumers are merely reacting to a new and engaging form of social gaming that offers similar benefits to graphical virtual worlds for substantially less consumer effort. I'll explain.
Playing Social Media Games vs. Entering Graphical Virtual Worlds
One doesn't often stop and think about the difference in cost between social media games like Mafia Wars and graphical environments like Metaplace or Second Life. I'm not speaking just of dollars and cents, but also of a player's time and effort. This could be a major reason why so many players are moving away from established graphical virtual worlds and towards social gaming.
A prospective Farmville player doesn't need to download a bulky client and go through a complex registration process, often involving age verification software. In fact, thanks to its integration into Facebook's account system, the game already knows enough about you to set up a default avatar and request connections to your friends. Social gaming takes advantage of the valuable information you've already provided the host service to accelerate your entry into the game. But more importantly, it gains more by offering less.
Gaining more by offering less is a counterintuitive but successful business strategy. To take another automotive example: Several years ago Honda discovered that it could actually produce its cars more profitably by giving consumers fewer customization options compared to American automakers, where a bevy of specialized features meant fewer cars could be pre-built for consumers. This extended the supply chain of American automakers and rendered them more susceptible to shortages of specialized parts. Apple follows this model. Now social media games operate in much the same way.
Instead of offering full-service avatar customization like most graphical virtual worlds, social media games bank on the fact that most players won't spend too much time worrying about making a photorealistic avatar. Emphasis in social gaming is – unsurprisingly – on the social aspects of gameplay. Developers have successfully argued that players are more interested in sharing their creations with friends than in making a complex avatar, and that those players are willing to pay a premium to one-up their friends. Farmville's simplistic graphics are a shock for most virtual world players, but this is a key to their success. Why? Expenses.
Social media games can be produced with notoriously little overhead. Little to no money needs to be invested in physics engines, proprietary content creation systems, or between-sim travel. This also means that they need not staff as many technical support or debugging experts, and players need not have computers capable of handling graphics-heavy regions. This both cuts down costs for social gaming developers while maximizing the pool of potential customers. For players interested in a social experience with minimal "learning curve," this is a magic formula.
Some social media games bost over 50 million active users, and even if the majority of these players don't spend real-world money on virtual-world goods, developers have less to lose as their initial cost investment per-player is less. If Metaplace, for example, spent $5 per player on all aspects of building, launching and sustaining their virtual environment, social media games spend only a fraction of that. This not only means that social media games can profit more from players who do end up paying, it also means that they can survive lean times longer than higher-cost gr
Learning Lessons from Current Trends
This isn't to say that the pendulum won't swing back – the current hype for all things social media may well tone down just as the hype cycle for ever more photorealistic graphical virtual worlds died down. In the meantime, this provides a unique opportunity for graphical virtual platforms to learn from some of the most successful social media developers in an attempt to further hybridize the platform. Large-scale virtual worlds aren't going away, but they won't come out of the cold unchanged, either.
Now that social gaming has proven that players will pay even if graphics aren't photorealistic, virtual world developers are free to innovate in other, less costly ways. This includes expanding the potential pool of virtual world residents through emerging methods like embedded-in-browser worlds, scaled-down mobile platforms like those currently under-utilized by platforms like Second Life, and less dependence on high-learning-curve, proprietary content creation systems.
Virtual worlds need to be prepared to take advantage of changing consumer tastes, and this means absorbing some of the lessons social gaming is currently teaching. Metaplace may well come back in a different form, but it can expect no better success than its previous incarnation unless it internalizes new concepts of cost-effectiveness and marketing to consumers. This market shift will leave some casualties, as There.com evidences, but the shift need not feed pointless and damaging hype that virtual worlds are somehow "over."
Moreso than most industries, the virtual gaming sector is one of constant evolution. Today's struggling virtual developers would be best served not by looking at virtual platforms and social media gaming as two individual industries in competition, but as offshoots of the same progenitor, with valuable lessons and models for future success.