Virtual World Investment Goes to Youth MarketPublished in Knowledge@Emory
The virtual world marketplace is an evolving one, with venture capital and other investment flowing into established and startup ventures in this relatively new technological space. According to Anandhi Bharadwaj, associate professor of information systems and operations management at Emory University’s Goizueta Business School, the money often follows the buzz in the technology field. “Certainly, there is excitement surrounding any hot development,” she says.
In the fourth quarter of 2007, venture capital, angel investors, and media firms injected $425 million into the space, according to data from Austin, Texas-based Virtual Worlds Management, a virtual worlds trade media company. The research report from Virtual Worlds Management also noted a slowdown in virtual worlds investment for the first quarter of 2008, with a mere $184 million invested during this period. Of that first quarter figure, $100 million went to 9You, a Shanghai, China-based online music and gaming distributor behind the soon-to-be unveiled GTown virtual world.
The data also noted that “youth-oriented virtual worlds” remained the focus of the investment during the first quarter of the year. The drop in investment money in the first quarter from the previous one may simply be an indication of the poor economic times, says Bharadwaj. Or, it could be a symptom of cash flowing into other hot new technologies, such as alternative energy.
However, Bharadwaj does admit that there is some uncertainty surrounding the path of the virtual worlds industry. “Many people are asking just how many companies can last, and just how long can they keep bringing people online to set up new accounts?” That uncertainty may have found its way over into the investment community, says Bharadwaj, adding that the true payday will come for those who are able to survive for the long haul and find the killer application that will stick and remain one or one of the few industry standard bearers.
For now, the space is a littered and diverse one. There are ventures geared to adults, such as the well-known and larger Second Life and the newer venture Lively from Google. Other virtual worlds are geared to the elementary school age set, including the virtual pet worlds popular on Club Penguin or Webkinz. And, teens are heading to Habbo Hotel and Gaia Online. (Considerable investment and interest has followed many of the youth-oriented sites, including a recent Time Warner, Sony, and venture capital injection into Gaia Online.)
Today, there are virtual world sites devoted to Tolkien fans (Lord of the Rings Online) and role-play fanatics (World of Warcraft). Think of a cartoon (Disney’s Toontown) or a cable TV show (MTV’s “The Hills”), and there is a virtual world in response. The industry is a segmented one, and the technology underlying it is still ever changing, with newer entrants coming into the field at a rapid pace.
While business, research, academic and marketing applications develop, the space remains dominated by its entertainment aspects. Companies like Toyota and Nike may explore the marketing and product applications of virtual worlds, but the social networking aspects of virtual worlds remains the moving driver, at least for the short-term. That initial push would seem to make sense, given the developments online with the growing popularity of social sites such as YouTube, Facebook, and MySpace.
Niniane Wang, engineering manager at Google, notes that “the Web is becoming a much more social environment.” Google’s own virtual world offering, Lively, lets users create persistent, virtual spaces on the web where they can express themselves and communicate with friends in what Wang describes as a “highly customizable way.” Lively rooms are embeddable on virtually any webpage, and users can also stream content, such as YouTube videos or photos from Picasa, directly into their Lively rooms.
Wayne Morse, director of Emory’s Center for Interactive Teaching, admits that the entertainment and social uses of virtual worlds are dominating the industry, but the educational and business applications are becoming clearer to academia and Corporate America. He notes that universities and schools, such as Goizueta, are especially interested in the space for its use in teaching and research. “There are a handful of schools with a presence in virtual communities,” he adds. “I look at it from a pedagogical point of view, and virtual worlds have a use in distance education and in a hybrid environment, where there is classroom teaching and an online presence.”
Morse notes that given the newness of the technology, “we’re all still trying to get our hands around it and understand how to extend the space into the business and academic world.” But the limited R&D budgets of universities and corporations may just push the development of the technology even further. Says Morse, “Laboratories are hard to come by and expensive, and virtual worlds can be used to extend or supplement the lab experience.” He adds that the ability to transport people to places across the globe can be cost prohibitive, but a company or a university might use virtual worlds to give a student or an employee a taste of another location or culture.
For the short term, Morse believes that a fair portion of the business and research applications will come from academia. He notes, “This is a technology that will have a unique learning curve on how to make it work. It requires a different mindset.” However, Morse adds that as today’s students grow up with the technology and eventually learn to take the virtual world experience as a given, many more new applications and uses will spring up and make the industry come of age.
Goizueta’s Bharadwaj adds that like any other new technology, those in and around the industry may have overestimated the short-term impact of virtual worlds. She believes that technological developments, especially long lasting ones, happen very slowly, and that the ultimate impact of the field may be underestimated. “It will be hard to predict when it will become mainstream,” she says. “Many people got into the market initially, and there is quite a bit of experimentation going on in the virtual worlds field, but it will take time for them to figure out how to use the technology effectively and how to leverage it for benefit.”The very natural evolutionary process of the industry will happen as companies age and respond to user desires, as well as develop the needed industry standards and best practices to deal with issues of governance, intellectual property and other public policy issues, says Bharadwaj. Eventually, other virtual world firms will drop off the landscape, and the ones that last will provide more eloquent responses to business, academia, and the user-at-large.