Continuing in the series of exploratory articles about the virtual world phenomenon, I will now explore the opportunities in that market. I would contend that this space is just a natural evolution of the Internet model and that this phenomenon may represent, in the long run, the next step evolution in the web. So, without further ado, here’s my list:
- Access (aka Subscriptions)
- Hosting (aka Real Estate)
- Platform (aka Client/Server)
- Event Planning
- Professional Services
- Trade platforms
I will now go an and elaborate on each of those points. They are divided into three broad categories: opportunities for virtual world vendors, for users, and what I would call secondary markets.
Opportunities For Virtual World Vendors
I would generally group the opportunities for virtual world vendors into three broad category: access, hosting, and tools.
Access (aka subscriptions)
At the current time, this is the opportunity that most of the existing players have been mining the most. The basic model is simple: sell monthly or hourly subscription services to users. This is really no different than the business that AOL, Compuserve, and early ISPs were into, charging a fee to access an environment. Much like those early players in the Internet space were providing easy to use tools to access the net, the subscription model is charging an entry fee into a virtual world. This is the predominant source of revenue for virtual worlds but, as trade is becoming more common, some of the virtual worlds are starting to drop the subscription requirement. For example, There.com and SecondLife now offer free accounts, which come with a more limited set of capabilities.
Hosting (aka Real Estate)
Some worlds have also started going into the hosting business, allowing users to essentially buy a portion of a server, through real-estate transactions. SecondLife is the world with the most developed type of economics around that model, charging a Land Use Fee, which can be equated to a hosting plan charge on the web. The model is based on access to a shared server, scaling up all the way to having a dedicated server (or sim, as they call it.)
Platform (aka Client/Server)
I would argue that the model for virtual world is basically similar to the model of web-browser and web-server or application server. I would not be surprised to see a virtual world provider unbundling the service from their own server and starting to provide corporations or other entities with the ability to customize their own client and host their own server. In this model, the virtual world provider would essentially repeat the strategy initially take by Netscape in the early 90s, selling both client and servers.
As the space grows, I also foresee some need for consolidation relating to this space, in order to ensure that the underlying code becomes the industry standard. Because of how close their approach is in looking at that space, I’d foresee SecondLife and There.com to be the first to entertain such thoughts. SecondLife already provides a rich syntactic language for programming purpose. There.com provides tools for creating virtual goods. Both of them could benefit from such a merger and their combined effort could become the dominant provider in the space.
Opportunities for users
There also exists a number of opportunities for denizens of virtual worlds. Most of those opportunities seem to center around the fact that there are places for people to meet and interact in an environment that is much richer than other electronic collaboration platforms.
As such, the initial opportunity for individuals and companies in virtual worlds is around the area of collaboration. Business Week recently reported that Rivers Run Red saved $175,000 last year by holding meetings in SecondLife. This is no small amount of money for a small business and, in this age of increasing security checklines at airports adding to the length of travel, virtual worlds may be the best collaboration platform yet. At the current time, no company has focused on that angle but there is an opportunity for a company that would focus virtual worlds away from the gaming aspect and start offering a corporate virtual world where companies could hold virtual offices.
Increasingly music stars are moving in that space. Suzanne Vega and Duran Duran recently made announcements relating to their entry in the space. The BBC, MTV, and Fox have already held events in virtual spaces. Technical conferences have had virtual world components. Major League Baseball has dipped its toe in the field. Organizing events, preparing the space, publicizing, booking and training speakers are all jobs that require some level of expertise and there are dollars associated with providing that expertise.
Educational organization, from Harvard to the New Media Campus, have created virtual training grounds to explore development in those spaces. There are also opportunities around teaching classes in building virtual assets. In SecondLife, on most night, you can find people teaching how to create and program the basic building blocks available in the space. One can envision people getting paid for this type of work further down the line.
SecondLife has created an eco-system where professional journalists, DJs, ad agencies, and other types of services (some of the more risque ones involving the sex trade) are interacting on a daily basis. Once again, economies are being created around this space, mirroring traditional world equivalents in the virtual realm.
Another interesting area, in terms of opportunities is in the realm of creating new digital goods and selling them in the virtual space. There are already a number of people (claims of 3,000 entrepreneurs each making at least $20,000 a year in SecondLife have been widespread) who are making a living at this. Most goods from the real world can have a digital equivalent and companies like American Apparel have noticed the space, offering virtual equivalent of their goods, having sub-contracted the development of those goods to a third party.
Secondary Markets creating new opportunities
Another set of opportunities exist outside of the virtual worlds themselves, which should prove that the space is developing but here to stay.
Virtual Worlds are generally closed spaces. Some, like SecondLife, have started opening up to the wider net. For example, users can now visit Amazon.com in SecondLife, thanks to the Amazon API and SecondLife’s ability to call on it from inside its virtual world. Those opportunities represent a new space and integration houses with expertise in both the virtual world and the wider web will be well positioned to take advantage of those opportunities. If my belief that a next generation browser will arise out of the virtual world space is correct, those integration houses could be well positioned to be the next big powerhouses in online marketing.
Another portion of the secondary market is surrounding the thin link between the trade that happens in those virtual worlds and real dollars. Companies or individuals who manage to create a platform that offers a way to trade from one of the virtual worlds into another might find themselves as the new middle-men in a space that is bound to grow economically and profit from making a small percentage on every inter-virtual world transaction.