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Rueben Steiger, CEO of Virtual world ad agency specialist Millions of Us, gave a talk during GDC and Gamasutra had a recap. He says the reason that virtual worlds have had initial success is due to the lack of rules and openness, the user defines the fun, not a game designer. However, hybrids with more traditional game mechanics are “probably a lot more mass market friendly.”
I think he’s right, casual users will appreciate the openess that a virtual world can offer, but they want to be told what to do. They want goals and missions. They don’t want to always have to make their own fun. Second Life is a good example of being too open and not offering enough goal oriented content. SL has yet to reach mass market adoption and have even seen their growth plateau recently.
I thought I’d take another stab at estimating the market size for virtual goods. The size of the market can be determined using the following formula:
Virtual goods market = Potential users x Yearly user spend x Penetration
Below I’ve gone through each variable and made estimates for 2006, 2007 and 2012.
The easiest figure to use for this would be the total number social network users, as Bear Sterns released a research report (in 08/07) that had projected and historical figures. Generally social networks and virtual worlds will be where users buy virtual goods and most likely if you’re a virtual world user, you’re also a social networking user, so there is no need to double count. There could be other sites that will offer virtual goods, but they’ll most likely be “social media” related, and it’s not clear exactly what BS has defined as “social networks”, so its best to make it simplified and just use their numbers.
2006 = 382m
2007 = 573m
2012 = 914m
Andrew Chen has a good post on his blog recapping the Virtual Goods Summit during June of 2007. One of his take aways was that only 5-15% of users will ever buy virtual goods (Darren Herman commented that he thinks this % will actually increase over time). Unlike potential users, there isn’t a source for penetration figures. In 2006, we know that the market was roughly $1.5bn (this has been often quoted but I’m not sure of the original source, I assume its from the Virtual goods summit), if we assume penetration of 7%, it results in yearly user spend of $54, which might make sense. I’ve assumed an increase on 1% a year as virtual commerce gains acceptance.
2006 = 7%
2007 = 8%
2012 = 13%
Yearly user spend
As mentioned in Penetration, in 2006 we’re assuming the average yearly user spend was $54 or $4.5/month. This is lower than the big virtual worlds (Maple Story: $7, Habbo Hotel: $15-20) but considering Facebook charges only $1 for virtual items than $4.5 might be right. Also, Club Penguin charges users $6/month which validates that some users are willing to spend that amount every month. I’ve assumed small yearly increases.
Yearly user spend:
2006 = $4.5 x 12 = 54
2007 = $5 x 12 = $60
2012 = $7.3 x 12 = $87
Virtual goods market estimates
Using the variables above, the market estimates are:
2006 = $1.5bn
2007 = $2.7bn (90% growth
2012 = $10.3bn (07-12 CAGR: 30%)
Also posted at citypixel.com