Great Facebook application review

November 21, 2008

The great blog Inside Social Games has put up a glowing review of Citypixel Spaces – our brand new Facebook application. Here are a few great lines from it…

“Citypixel – 8 Bits of Awesomeness”

“Part The Sims, part Lego, pure awesomeness”

Read the whole review here. Also, be sure to Digg the article here.


Citypixel.com launches Facebook app

November 13, 2008

After a long period in development, the virtual world citypixel.com has launched its Facebook application. Check it out here.

The Facebook application allows users to…
– Show off their virtual spaces to all of their Facebook friends
– Invite their Facebook friends to become citypixel.com users
– Interact with their friend’s apartments by rating them and visiting with their avatar
– Buy and send virtual gifts to their friends
– Through paypal, buy extra ‘pixels’ (virtual currency)

Citypixel.com has 30k users and the FBA already has 400 users, so we’ll see what happens.


How open is too open

February 28, 2008

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.


Virtual goods market size

February 18, 2008

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.

Potential users
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.

Potential users:
2006 = 382m
2007 = 573m
2012 = 914m

Penetration
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.

Penetration:
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


Virtual world biz model – Advertising CPMs

February 8, 2008

CP adsIn my last post I looked at some of the assumptions behind estimated virtual good revenue for a virtual world. Next I’m going to look at traditional advertising revenue, ie. simple banner ads. This is excluding the more interesting and exciting possibilities of interactive marketing campaigns and branding.

The cost of advertising is often measured using CPM, or cost per mille. For banner advertising, this is the cost per thousand impressions. The CPMs for Internet advertising are much lower then other medium, to put it in perspective, in 2006, Internet advertising had a CPM of $3.50 while Network TV had $21.75, Magazines $16.60 and Newspapers $18.69. Below are some Internet CPM forecasts from JPM Morgan.

JPM stats

In-game advertising 
According to in-game advertising network IGA CEO Justin Townsend, virtual networks are too small for these kind of ads

these are mainly creatively-driven environments and frankly not open to advertising. And if they are, it’s hard to get one set of advertising standards defined through all the different virtual world companies. If you wanted to provide ads into virtual worlds, it would be one-off bespoke, as opposed to aggregating ten virtual worlds together and providing a decent amount of reach to consumers.”

This is true for the most part, but as the industry develops and ad sizes are standardised, this will change. To determine what sort of CPMs virtual worlds might get you need to look at its closest comparable. Current in-game CPMs might be one comparable, I’ve heard some reports of CPMs at $20, and Sony’s new game Pain is offering advertising at a CPM of $30. I think the current in-game CPM rates are probably higher than what you’d expect in a virtual world as there is more control over ad placement and where the users attention is directed. Also, currently the investory level for in-gaming is low, once more and more games include advertising, and potentially virtual worlds, I would expect CPMs to fall.

Social network CPMs 
Another comparable might be social networks, the similiarity being the access to detailed user infomation and that people are using them to interact with other people, but in the case of virtual worlds, in a much more immersive way. These are lower than the average online CPMs (JPMorgan estimates $3.31 in ’07), Techdirt explains why,

Ads work on Google because people are looking for information. They do a search, and if the advertisement shows information that helps with the query, that makes everyone happy. However, when it comes to a social network, usage is quite different. People aren’t looking for information about products — they’re looking to communicate with friends. In that environment, ads are seen as an intrusion — which is the exact opposite of ads in a search world.

Reports vary quite a bit on actual social network CPMs, here is a round up: Facebook (according to Bear Sterns research, $0.88 blended CPM, but prime CPM up to $10), MySpace ($0.10$3.00), Flux ($1.50), Friendster ($0.04).

Virtual world CPMs 
Will future virtual world CPMs be somewhere in between? In-game CPMs are high right now, but as it becomes more common, there isn’t going to be enough demand, and CPMs will fall. Unlike online advertising, in-game advertising isn’t going to attract the same array of verticals. If using for forecasts, I would be conservative and assume that virtual world CPMs will be closer to social networks.

Also posted at Citypixel’s blog.


Virtual world biz model – Virtual commerce

February 5, 2008

While social networks are focusing their business models on advertising, virtual commerce are driving the business models of virtual worlds, ex. Habbo Hotel (90% of revenue), Tencent (65%), Cyworld (43.5%) and Nexon (85%). Statistics on the current market size of virtual goods are hard to come by, but one stat puts the amount that people spend on virtual items at over $1.5bn/year.

Use cases
Jeremy Liew has a great post on the use cases for digital goods; (i) increased functionality (ii) self expression and (iii) communication. The virtual goods in citypixel.com are mostly about self expression, allowing users to personalize their apartments and other spaces.

Citypixel items

The ability to buy a car with virtual currency has introduced virtual goods that increase functionality into the world.

Citypixel car

Ultimately, to maximise the monetisation potential of the virtual world and to provide users with the greatest number of options, all 3 use cases should be provided.

Current adoption rates
Finding statistics on the current level of user adoption of virtual commerce is very difficult. Social networks and virtual worlds are using private companies and don’t have to release these figures. To get a sense of what the average number of transactions per user might be for social networks and virtual worlds, you have to really scrounge the Internet looking for numbers.

The most readily available statistic for these sites is registered users, “active users” or “unique users a month” would have been preferred but there are varying definitions and not always released. I then tried to find how many virtual transactions each social network or virtual world has a month – this was quite difficult and I was only able to find numbers for a few, and they are a bit sketchy. See the table below for my findings:

Virtual items stats

The market for virtual commerce is at its infancy so these low numbers aren’t very surprising. What is surprising is how successful Neopets has been in this area – apparently they have consistently ranked as one of the Internet’s stickiest sites, which would explain alot.

Transaction size
I tried to find the average dollar amount of a typical virtual transactions, but this was even more difficult. The average transaction size on Xbox Live is $2.78, with users spending on average $1.46/month. Maple Story transactions are on average $2.67 with users spending $0.02/month. Facebook charges $1 for each virtual gift. According to Wikipedia, Habbo hotel users who participate in virtual commerce spend $15-20 a month, no idea what average user amounts are though. I’d be interested if anyone has anymore info on how much users are spending on virtual goods