Three Trends To Follow in the Virtual Goods Space

Virtual goods have been all over the digital media space of late – more than usual. We can certainly confirm a big uptick in the interest we’ve received here at Doubloon about how to use market data to make better virtual goods pricing and marketing decisions. We’ve come a long way from the original indications that virtual goods are a viable way to grow revenues and engagement back in 2007. Today, indications that the hot item next Christmas may not even have a physical form at all and that governments are placing restrictions on minors buying virtual goods. If that’s not mainstream, I don’t know what is.

Amongst all the coverage, three key trends seem to stand out:

One stream of revenue among many

Who do we think of when we think of virtual goods? Mostly, Playdom, Crowdstar, and Zynga, whose Farmville raked in $145M in 2009. But there’s a much larger player in the virtual goods space who has kept a low profile. Thanks to its approximately 10 million Xbox Live Gold level subscribers, Microsoft has earned an estimated $625 million in virtual goods. Live subscribers typically buy shiny new gear for their avatars with all that virtual coinage. Microsoft isn’t the only player in the space betting big on virtual goods: competitors PlayStation and Nintendo are as well, with Nintendo also requesting dollars for Nintendo Points, while Playstation only accepts real world money (also a viable model if done correctly – some Doubloon customers do the same).

This multiple stream of revenue model isn’t new – think about your experience at movie theaters. Bought the movie ticket for you and your date? Great, how about some popcorn, a drink or milk duds too? The premium console guys have done a terrific job of realizing that multiple streams of revenue, including virtual goods transactions, are a great way to mitigate risk.

And just wait until virtual goods includes buying tokens to see a movie online. It’s already here – and Microsoft has been inking lots of content deals of late.

Motion Controls Tip the Scales Further

There’s ultimately two reasons why players buy virtual goods – to obtain a game play advantage, or because of a sense of ownership of one’s avatar in- game (and the associated social benefits). Now consider how that sense of ownership is strengthened by the big story at this year’s E3 gaming conference:

Nintendo’s strategy has been to differentiate the Wii platform with motion detection, proving the uptake in the casual games market rather convincingly. Sony now followed suit with Move, and Microsoft upped the ante by removing the hand held controller altogether with Kinect. Touch-based tablet computers removed mouse the abstraction layer and opened up computing to people like my mom. The logic here thus is simple: if motion controlled games do the same, you’ve got a bigger market. And bigger market plus a stronger sense of avatar ownership should lead to a marked uptick in virtual goods sales. We’ll be blogging about this far more on this in future months as we continue to track market movement in the motion controlled era.

Small time no longer

Virtual goods have been historically a great way to build a big player base by removing barriers to entry (such as subscriptions). The trick was to balance out revenues and eek out a solid profit stream by making virtual goods games simple and low cost to develop. That’s beginning to change and social games are beginning to think about player crafted items, and player to player transactions. In other words, something coming close to real virtual goods economies. Per coverage on news blog Techcrunch (emphasis added):

“Zynga spent more money developing FrontierVille than any other game so far. It lets players interact with their friends’ game boards, increasing the social aspect of the game beyond simply buying someone a virtual gift…. Pincus believes there is a huge opportunity in pumping up the social aspects across all of his games. In Farmville, for instance, Zynga recently turned on a new farmer’s market feature where players can sell their produce. Up next will be craft fairs, which will allow different players to specialize in different skills such as wine making or energy production.

In other words, Farmville and other Zynga games will behave more like virtual economies, with trade centered around specialization. And where there is trade and markets there are more social interactions, just like in the real world.”

Or put another way, some publishers are racing to develop the next ebay of virtual goods. One of the reason our clients are excited about our company’s platform is that the capabilities for smaller publishers are already baked in and ready to publish.

One Startup’s Toolbox

We’re five months in since my joining Doubloon, which has been one of the most rewarding professional experiences of my life. Particularly fun is the ability to work with a handful of rock stars who can pivot quickly, adjust product design, and build a game changer while having a great time doing it.

Having the right tools to support rapid change is important when you’re running a fast moving start up. I’ve spent a bunch of time trying to put together the right “toolbox” for our start up, and have shared it below in the hopes this will help all you would be starter uppers out there.  In putting this together, we generally followed a few principles, so you might want to reality check to see if these apply to you. We like free better than paid for obvious reasons.  Since we’re located in three geographic areas, web accessible is a must. We’re always on the go so we favor mobile access apps too. We strive to “underdo” the competition by focusing on easy to use, key benefits in our own product and favor products with the same simple design philosophy in mind.

That said, here’s the Doubloon toolbox:

Marketing

Ud.com – Checks domain names and popular social networks for reserved name availability with one click. Nice.

Flowtown – Email marketing which ties in social media information to keep contacts up to date. Because who has time to keep those contacts updated when the social networks are in effect the most reliable CRM system out there? We’re just starting to use flowtown, but I’ve been quite impressed thus far.

Knowledge Management and Idea Vetting

Evernote – awesome app when we’re rambling off ideas and concepts and want to refer to them later on your laptop, home computer, or mobile device later. The best part is that the mobile and web interfaces sync via the web seamlessly – no weird syncing mobile to client app nonsense.  I probably shouldn’t admit this on the web, but frankly it’s hard to believe Evernote is free.

Ask500people.com – A crowdsourcing web application not just limited to applications, but logos, themes, marketing concepts, etc. A great alternative is survey.io.

Product Management

Basecamp - We like basecamp for managing product development sprints and document templates for the same reason we hope our customers like us : powerful and simple.

Balsamiq.com – If you haven’t tried balsamiq for quick interface mockups, you don’t know what you’re missing. Bonus: XML based outputs allow for quick sharing via even instant messenger.

Development and QA

Litmusapp.com – Really slick cross browser testing – Litmus gives you screenshots of a url within one browser window.

Redmine – Solid, bread and butter functionality ticketing system which prioritizes simplicity over large feature set (see a pattern here?). Needs to be installed, but like everything else on this list, it’s a web app.

Github – Self explanatory here; github has become the new Linkedin.

Sales

Linkedin – speaking of Linkedin, I’ll simply leave you with one thought: I see Linkedin as the world’s largest CRM system.

Highrise – The second of 37 signals’ products on our list, mostly since their design philosophy is pretty similar to our own.  Deal management on Highrise is way simpler than other systems (even free ones), and the iPhone app is indispensable for quick look ups while traveling to conferences, client meetings, etc.

Financials

Quickbooks – You’d be surprised how many “large” companies use Quickbooks, and why not? For $150, it does the job and does it well. One thing worth noting: the  $9.95 /month basic option is far, far less featured that the boxed product. The $34.95/month premium option is far better, but you’re paying about $400 a year versus a $150 boxed product which does the same thing. Accounting isn’t a group sport, so skip the online and pick up a CD.

Email, Calendar

Google apps – This one’s a no-brainer. Solid and priced for startups. You can even host your own applications.

Blogging

WordPress – There’s a number of terrific options in the blogging space, but wordpress seems to us the best combination of open source,  zero dollar pricetag, functionality, simplicity, and power. We host our own but a wordpress hosted site is a great option for very young startups.

iPad’s Competition Crossroads Illustrated

I usually don’t blog about gadgets (even my iphone based posts are usually about lines at the apple store on release day or poor mobile tower coverage and whatnot). However, I’m a sucker for competitive strategy games (chess anyone?) and infographics. So when Section Design combined the two for publication in Courrier Japon Magazine in Tokyo, I couldn’t help blog about it. according to the creator, the goal is to “illustrate the introduction of the iPad and how many devices in different markets are now finding themselves in direction competition to the power of the iPad and the Apps Store.” Original post here.

The 2010 Corporate Darwin Award Goes to …. BP

I’m pissed off.

Specifically at the oilpocalypse happening in the Gulf of Mexico, just like any red blooded American. So partly due to build awareness of the underlying structural issue and partly to amuse myself, I’m proposing we create the Corporate Darwin Awards and nominate BP due to outstanding and exemplary stupidity.

I should explain what I mean when I refer ot that structural underlying problem. We’ve all heard the Tragedy of the Commons before, probably in high school or something.  But the bigger existential threat to modern capitalism is the failure of our modern economy (and legal system) to account for revenues internalized to a company leading to costs externalized to society. It’s happening in the Gulf, at Goldman Sachs, and at health care insurers too.  Primates in business suits press for revenues and push costs off on countries or societies. Can’t recover from deep well oil drilling? Well, suck it America – we’ll keep on drilling.

Besides it’s almost too easy  to heckle and ridicule these guys. It’s almost too easy when BP’s CEO says he’d like his life to return to normal.  Because nothing touches the heartstrings of Gulf victims like his concern for.. himself.

Maybe he can ask the Shamwow guy to come in and clean up the oil?

The kicker is that BP’s actions in the Gulf may have just wrecked BP itself as a going concern. Let’s do a little bit of math here. First, from the UK Guardian: ” under US law, BP is liable for $1,100 in civil penalties for each spilt barrel of oil and gas, to be paid to the US federal and affected state governments. If BP is found to have acted with gross negligence – and there is no evidence so far that it has – this fine would rise to $4,300 for each barrel”  The article goes on to cite some scientist estimates that 115,000 barrels of oil per day are spewing into the Gulf.

So let’s see we’re on day 45 of the spill, and realistically we’ll spend the next 4 months drilling relief wells to ease the pressure of spilt oil. That would be 115,000 barrels times 165 days times $4,300 per barrel for a grand total of… $81.5 billion. Oh yeah and that doesn’t count the billions on cleanup, private party liability, and royalties on oil leases.  BP’s market cap right now? $118 billion.

Congrats to BP for winning the 2010 Corporate Darwin !