This was, quite fittingly, the last thing I did at the Virtual Worlds Expo, due to travel arrangements, though there were three more sessions after this. This one was in the Business Strategy and Investment track.
This was a full panel moderated by Mark Wallace, a blogger at 3pointd.com and featuring Corey Bridges, co-founder of Multiverse; Chris Klaus, founder and CEO of Kaneva; Stephen Lawler, general manager of Microsoft's Virtual Earth; Mike Wilson of Makena, Hui Xu, founder and CEO of HiPiHi (speaking through an interpreter); and Raph Koster, president of Areae.
The moderator began with a question: What needs are not being filled by the virtual worlds platforms today?
Corey: Web integration....integration with Flash, streaming media, the sort of thing we take for granted on the Web....having the same kind of connectivity and functionality in virtual worlds that we would expect on any website. We will see a lot of integration with social networks...social networking integration over the next year will propel virtual worlds into the mainstream, when until it's been video games that have propelled virtual worlds adoption.
Raph: Virtual worlds today work like Prodigy or AOL in the early 90s....we are seeing the biggest shift in the virtual worlds technology architecture that we've seen in the last 30 years...peer-to-peer growth, seeing stuff living straight on the Web...we're seeing a whole bunch of exploration...we're out to do something really radical and make it work like the Web top to bottom. It will be interesting to see what approaches shake out over the next few years. I don't think there's one approach.
Mark: What's interesting to think about is what is it going to take before we see some of these things converge, before we see interoperability?
Corey: A common client, accessibility from one client on the users machine. Consumers are going to demand that more and more.
Chris: For virtual worlds we are experimenting very heavily with social networking as a key component. There's the story of someone who goes into Everquest every night but hates the game. She's there because that's where her friends are. Virtual worlds are the content of connecting with your friends and doing things together. We can learn a lot from the social networks. The closer you bring your real friends in, the better. Two areas for improvement are usability and the mobile space. Think about when do you access the Internet -- my phone's always with me, but I don't take my laptop when I go out. Mobile longterm is a core component of these virtual worlds.
Mike: Looking at gaming...there's compelling content in MMOGs like Everquest and World of Warcraft....if you want to look for a compelling model to follow for getting people into virtual worlds and using them, look at games....also in terms of platforms, with games we started with PCs and moved to Flash and mobile....virtual worlds will move the same.
Mark: How open will your social network be? Will Google kill everything? Do you see virtual worlds running into this same debate?
Mike: We should find ways to expose your virtual identity to virtual worlds and we are doing that with there.com. I think people are overestimating -- I may not want to share everything, to let everyone know that I am a girl, etc. It's fine to talk about shared ID, bit when it's your ID, it's different.
Corey: It's about control, you control how you share your identity, what you give out. There will always be some worlds where you role-play and want to be someone else. People are going to end up having multiple avatars.
Raph: Mainstream is comfortable with multiple IDs -- they think it's fun, especially younger people. It's not a question of openness....identity is a closing kind of word and not an opening kind of word....it's a Prodigy kind of question, not a Web kind of question...on the Web we see many IDs, some federated on keychain systems.
Stephen: Not specifically coming from gaming and entertainment, for something to go broadly mainstream is relative to the number your looking at...280 million people are using IM, 400 million people are using Live ID...even the numbers that we think are large as very small. In order to bring this out to the masses we think about the Web going 3D, like going from ASCII to DOS to Windows...going to a familiar 3D world on a human scale that we use every day. It's important for advertising, 3D search, where you can explore and you have the context...social search. It's going to be an exciting transition.
Raph: 3D is a red herring.
Corey: I agree with you but there's a part you're missing.
Mark: Let's save that path...broaden the perspective...when talking about making virtual worlds more like the Web, we talk about it from a very Western-centric point of view -- the ID Federation is illegal in Europe. How do users in the East consider these issues of identity management?
Hui Xu (through interpreter): This is the first time I come to this conference and I see very few Chinese or people from other races. It's my wish to see greater representation of cultures and people from all over the world. We should let people from everywhere come together in the space. The greatest excitement comes from users interacting with small proportions of foreign users....15% of HiPiHi traffic is coming from overseas...we've created a rich experience for all users. About ID and interoperability: He believes in human rights, the rights of users within virtual worlds...commonness should be left to user communities. It extends to the content issue... how we should manage content is up in the air, the management structures and frameworks should engage in open dialogue with users in virtual worlds, not just developers. An inclination toward interoperability is more toward having a 3rd-party exchange, a platform for virtual worlds in existence today...there needs to be a common standard, a dedicated provider that looks at each virtual world and specializes in making sure these virtual worlds should start talking. The guiding philosophy is returning power and convenience to the users so they can manage their content and lifestyles across virtual worlds. Broadband penetration is increasing in many countries around the world, in South American and the Middle East...I don't know whether browser-based worlds or clients will be the future in these areas.
Mark: What about the evolution of the business model...we've recently seen business models that began in the East gain traction in the US and Europe. Will we converge on one business model or remain fractured?
Corey: Everyone thought the Time Warner sub-based model would be the model for the Web, but it's ad and web-based. We will see a lot of ad-subsidized worlds.
Chris: Virtual worlds offer a unique opportunity, we will see more and more of the worlds being opened up in a free trial or free overall, and to upgrade you have to buy things....virtual worlds offer the opportunity to buy real estate, clothes, etc...we are seeing worlds with subscription models for those who want to have a VIP level...there's growing demand for people to buy something tangible. Like gift cards -- kids are now handing out gift cards to each other at birthday parties. A huge percentage of iTunes revenue comes from gift cards that you see in retail outlets. So I see huge tie-in with retail....look at a blended model, retail, subscription, combined models.
Stephen: Local search advertising model -- $15 billion moving into digital community over 5 years....offering in-game advertising. A transactional model.
Mike: I see four rivers of revenue -- subscription, in-game currency micropayments, sponsorships, and links to e-commerce or white labeling. We do not yet understand how to charge for advertising in virtual worlds. And the world can trigger advertising based on what's said and done. How do i charge for that ad impression? How do you study it and tell advertisers how to use it the best?
Chris: It's CPA, cost per action....
Stephen: CPA is what we are looking at....if there's multiple advertising value-add, how do you value that once they click? how does it build up to action?
Hui Xu (through interpreter): We see real a mirror between virtual worlds economics and real world economics...the first wave in virtual worlds economics has been about sales....land sales, etc. The 2nd and 3rd waves are coming -- 2nd wave is about production in the real world, and in virtual worlds. The 2nd wave is also about goods creation, how can we go about providing an infrastructure for virtual goods.The 3rd wave about services. New sevice models in the real world have reached mature stage, but services are very nascent in virtual economies. In China, a big market in 2nd wave -- trading of emoticons, wallpapers, etc in qq IM services. We are seeing innovation in Japan in the services industry, banking in mobile phones, CyWorld in korea .... in Asia users are used to purchasing goods over the Internet and digital platforms like mobile phone.
Mark: My cousins from Queens fly around in Microsoft's Virtual Earth for fun in the evenings. What do you think about mirror worlds and their role in entertainment?
Stephen: MS Virtual Earth is ranked in top 10 websites to waste your time on, a nice backwards compliment, along with MySpace and Facebook....what kind of utility do they provide? The media has gone from newspapers, to radio, to tv...and we wanted all the same things, sports, what happened, local news, international news. We took a huge step back to the newspaper when we went to the Internet so now we can move back up when you take a combination of video-rich real-world interactivity.
Mike: It's interesting, I can imagine watching on the evening news, a bank robbery occurring...and we can get reenactments now from bloggers, but what is the authoritative version.
Raph: These are blind spots -- the assumption that this may not be the same industry. There is no segmentation between entertainment and serious purposes. We are in the bookstore business, not the fiction aisle or non-fiction aisle business. Media accrete, they do not replace. The idea that the entire Web will be stuffed into 3D is ridiculous. What's going to happen is a diversity of interfaces and using the appropriate interface for what needs/wants to be done. Blogging in 3D is dumb. The place we're going to move to will be representation-agnostic, will show up in different ways depending on the user need. The value in virtual worlds resides in servers....the clients are windows and we will have a lot of windows, including running around slaying dagons in downtown Palo Alto using your cell phone....3D as the holy grail is a red herring. Right now even today when we look at the largest user environment in user numbers and concurrency, 2D websites are on the list... 3D is hard for kids, hard for older people.
Stephen: 3D going to scale out way beyond gaming, but won't replace every UI out there. The point is it's going to be big. All the studies we have seen is that the reason people like 3D shopipng is people can visually make correlations. 3D is difficult to navigate, but yet more intuitive. People have investment in real world 3D, while they don't in forms like spreadsheets. Interiors are best represented in 3D, so are urban corridors. There's no 2D representation of this room than would represent it. Yet the brain can parse 3D in a very intelligent manner. When you scale in to 2half-D, bird's eye view, it gets easier.
Raph: It's about what the user wants and needs. There are a ton of useful apps in 3D, but let's not forget all the other devices and mechanisms out there.
Audience question: The Wii brought a new kind of controller that expanded the game audience to more casual users....do you foresee any similar type of new interface for virtual worlds?
Stephen: Microsoft is constantly looking at different mechanisms.
Chris: Some of our designers use a 3D mouse to develop some of the content....we are a software creator....so until a Wii for the PC becomes more prominent we won't be able to drive it....it needs to be hardware and software working together. We will see more integration between more natural human movement...the Wii is a precursor to what's coming. If you could buy a mocap for $200 and run around in the worlds I think we'd have a big hit tomorrow.
Corey: Multiverse is built to take into account different input devices. I've seen prototypes using Wii interfaces in Multiverse, and different output devices as well, like heads-up rigs. If a platform is built well it will take these things into account so it will be ready when the application is appropriate for it.
Chris: You'll get a more human connection when you are able to use a mocap.
Audience: How rich an experience does the mobile user want?
Raph: It's application dependent. There are virtual worlds apps where someone just wants an auction update, not necessarily to see the avatars. Mobile is a bit of a tangled mess, different standards, a huge variety of handsets. It will take awhile to sort that stuff out, and you have to structure your platform to be as agnostic as possible.
Chris: We will see mobile evolve. The market share is not there for a lot of the really high-end apps, but there are a lot of low-end apps that would be valuable for our community, and should make those available first.
Stephen: We're not trying to reproduce 3D on the small screen at all....we need things like, how can I help myself navigate where I'm going, is there anything available at a better price nearby, etc.
Audience question: Is it like the Las Vegas monorail story -- for virtual worlds that have a lot of users, open standards will be like an exit, while for smaller ones it will be like an entrance. So bigger ones will not adopt open standards.
Mike: If open standards succeed....if someone tries to jail their users, they'll get out anyway and may not come back. There's never really a barrier for anyone to leave a world.
Corey: This is a growing new medium, and there's room for everyone to move around....everyone should embrace those open standards. That's what the users are going to want, that's what we've seen on the Web....walled gardens are not tenable, consumers are smart enough and know they can put pressure. Anyone who's smart is building that in right from the beginning. People who are not are cutting themselves off from growth.
Mike: It worked pretty well for eBay.
Chris: Standards is a pretty broad term....there's a lot of great languages and standards out there (python, etc). Being able to move avatar from one world to another is not a big Kaneva user request. If it becomes one, we will need to do it. You have to recreate your account on eBay, Amazon, etc., and I don't see a lot of demand for that to be different.
Audience question: How do virtual worlds overcome human language differences?
Raph: The first world to do that was in 1998 through machine translation)...there wasn't a lot of demand for it. Reducing the balkanization of virtual worlds and bringing cultures together are one of the things that viritual worlds can accomplish. But people pull apart. International warfare happens a lot in virtual worlds.
Hui Xu (through interpreter): HiPiHi is currently in Mandarin Chinese...when foreigners enter the world, there is a volunteer team that's self-organizing, that welcome foreigners into the world and provides translation. There's no quick fix. Big companies like Google are trying to fix that problem. The focus now is on what we can do, which is to enable the user communities to be welcoming to people from different cultures. Chinese HiPiHi users are beginning to learn English and vice versa, which we think is of value.