brinking - nabeel hyatt

Are online games going to kill themselves at retail?

Yesterday Raph Koster posted the photo on the right of a full rack of Target gift cards for online games, from Puzzle Pirates to Zwinky. That led Jeremy Liew to talk about the power of gift cards to allow young players who do not have credit cards to pay for virtual goods. And while I share Jeremy's enthusiasm that gift cards are an excellent monetization method, I am also worried about what it means for the next wave of online gaming startups.

It's no secret that monetization is one of the areas where virtual worlds and gaming can teach a thing or two to the web folks. From Maplestory gift cards to Rock Band tracks, consumers have shown they are willing and able to pay for digital gaming content. Even if the techniques are unique, including everything from virtual goods, gifting, dual-currency (time & cash) based economies, and level-based subscriptions, the culture is one of paying for playing. Which is good for those of us trying to keep the lights on.

Despite this willingness, virtual goods still have the penny gap. It is never easy to get someone, especially a teenager, to type in a credit card online. Which is why walking down a Target or CVS nowadays means easily finding cards hawking virtual 8bit furniture from Habbo, virtual DKNY gear from Stardoll, or a new sword for Nexon's Maple Story.

RE-INTRODUCING THE RETAIL PROBLEM

In all, there are now over 25 digital content cards being sold at retail. I've been tracking this and that's over double what it was six months ago. That means that at least a dozen online communities, and probably a dozen more in the next six months, are going to be submitting themselves to the vagaries of the retail shelf-space business. That's a business the online web folks have little to no experience in, and one that a lot of traditional gaming vets were excited to get out of.

This is creating a funnel problem that every creator or player should be a little worried about. It means that anyone can create an online game, but there is going to be scarcity around who can make money at it. Big media companies, communities that are already at critical mass, and big-hype start-ups get shelf space - while the next big thing in a garage doesn't get a shot in hell at monetizing.

In was a long hard slog at Ambient Devices getting our products into everywhere from Radioshack to the Museum of Modern Art store. It was even harder keeping them there despite strong sales as the hot new thing came out. That background will serve Conduit well when the time comes, but I'm still worried about what it will do the overall market. The last thing any of us wants to see is for monetization to be only held to the precious few so that everyone else is forced to go to completely free. That could collapse the market for everyone.

THE TARGET: THE ONLINE GIFT CARD?

How do you allow for monetization through retail to help with the credit card problem, but without introducing the shelf space problem that could hurt everyone? Perhaps there needs to be a standard

Real life, what would Metacritic say?

Game design is being applied to all manner of online life these days, from former game designers Catarina Fake and Stewart Butterfield designing Flickr, to Amy Jo Kim's talk on bringing the mechanics to the web, to Eric Marcoullier's MyBlogLog, to Jane McGonigal's great keynote at SXSW this year about how games are better than real life.

So with that in mind, and tongue firmly in cheek, Boing Boing tagged a piece from Metafilter that reviewed real life as a MMORPG. Remember being told to put down mario bros and go play Outside?

In terms of the traditional target age content metrics, Outside is remarkably high in sex, violence and challenges to traditional values, despite the strong child-focussed marketing it receives. Many would go so far as to say that for a child to develop the ability to cope with Outside is essential, as long as the harm incurred is not too debilitating. Children injured playing Outside are usually comforted by parents, and soon encouraged to go Outside again; this leads to the conclusion that somehow Outside has escaped any and all of the usual moralizing that surrounds the videogaming industry. One might say that Outside gets a free pass from the Jack Thompsons of this world...

Other players choose to focus on accumulation of personal abilities, the variety of which greatly exceeds the capacity of any individual to accumulate; again, the game requires players to engage in years of grinding to achieve any notable standard with a skill or ability. Players are issued abilities and characteristics largely at random, and it is entirely possible for a player to be nerfed beyond any reasonable expectation of being able to play the game, or to be buffed to the point where anything he or she does is markedly easier. Unfortunately over time, player abilities tend to degrade, unless significant effort is made to keep skills up. This reviewer cannot emphasise this enough: Outside requires a huge time investment to build up player abilities, exceeding any other massively multiplayer game on the market by some three orders of magnitude.

Players are encouraged to focus on social interaction, which can be engaged in in a variety of ways. In fact it's extraordinarily difficult to solo anything whatsoever in Outside, apart from basic skill and knowledge accumulation quests. One of the major forms of social interaction in the game is based largely around the addition of new players to Outside, and is both complex and, in comparison to the storyline-driven romance quests of, say, Baldur's Gate or Mass Effect, they are immensely difficult. Dedicated players of Outside, however, report that the romance quests are among the most rewarding the game has to offer.

(from Boing Boing)

 

Snapshots of GDC '08 & the presentation on social gaming

Facebook/Social gaming talk was packed.. bubbleicious.

After the jump is the presentation from the packed Social Gaming panel at the Game Developers Summit. It's full of good stats thanks to working with a great set of panelists. I also spoke on a panel on Friday, and Adam was nice enough to liveblog, Raising Venture Financing for your Startup.

And lastly, just as I've done previously, some of the memorably moments from the past week: 

Joking about their success in selling Reindeer poop last holiday season.

"If people say shit don't sell, then just make a virtual version." -- Sulka Haro (Sulake/Habbo)

On creating new MMOs.

"No IPs, they saddle a company down. We look at our company as being perfect for creating new products. We don't want to saddle ourselves with up to five+ years with someone else's ideas." -- Min Ho Kim (Nexon).

On why sharded communities may never get proper economies.

"Our free-market economy only worked when we went over approximately 50,000 players." -- Eyjolfur Gudmundsson (CCP/Eve Online)

On how to simultaneously reduce flaming and monetize it.

"We charge $1 for a shout that everyone, on every server, can see what you say. Then we charge $2 to reply back, and $4 to reply again. It becomes one big game of revenge." -- Alex Xu (Giant) for their Chinese MMO, ZT Online. Yeah.. the guys that are IPOing.

(Presentation from Monday's talk is after the jump.)

What's wrong with Facebook games?

Matt Mihaly has a good post up talking about whether casual or hardcore games are more successful on Facebook. And while he took a stab at what types of games are going to work, I thought I'd step back a bit and just see how games are fairing on Facebook overall. Even with the limited stats provided by Facebook, we can start to get a picture of what works and doesn't work on Facebook.

I'll have to admit that the first pass on statistics surprised me. Of the top 100 most active Facebook applications, games do not do statistically better than the average application. Games only have a marginally higher percentage of active daily users (8.57%) than the overall average (8.01%). And if you expand the criteria to include all apps that use game-like mechanics, (such as Superpoke), the average is still in the same range (7.71%). It's a wash.

 

These numbers do not jive with the incredible popularity of games on the general Internet (as I have talked about before), so what's going on here?

Well, digging a little deeper, many of the Facebook games are simple single-player games whose only social mechanic is that they post your score for your friends to see. Jetman and Tower Blox are two such examples. What happens if we just count the games that are specifically multiplayer, and therefore fit the social nature of Facebook better?

Ahh, that's more like it. Multiplayer social games such as Warbook and Scrabulous average 11.4% active daily users, a good 30% higher than the average top Facebook app (8.01%).  I'm sure if we could actually get engagement, attention, and retention metrics we'd see the same trend. This combined with the relatively high percentage of games represented in the top 25 applications (7 games) would suggest that there is simply a lack of quality, socially-focused games on Facebook.

With an average install base of 2.7m users for top Facebook games, this is a massive new distribution channel that makes the curated Xbox Live Arcade look like a backwater. I'll be chatting a bunch more on the topic at GDC in February where I'll be leading a panel discussion on Facebook and the new web of Social Gaming. I've grabbed  TJ Murphy (Warbook/SGN) and Mark Pincus (Texas Hold'Em) and it should be a one stop shop of what works, what doesn't, and the size of the opportunity presented by social online gaming. Should be fun.

Oh, and while you're at it, on Monday we publicly released our first Facebook app (more of a toy than a game really) -- Make Me.

 

 

See you at Virtual Worlds, Widget Summit, Web 2.0, and more

October is definitely the month for conferences I'm leaving today for San Francisco and I'll be at a couple of events, so here's a little update on this month.

Virtual Worlds 2007 - Oct 10-11, San Jose, CA. Thursday, 3:00pm - 4:00pm

Web-based Virtual Worlds
This session of leading web-based virtual worlds experts will discuss the finer points of developing web-based virtual worlds. Attendees will gain valuable insight into best practices, techniques and technologies for implementing web-based virtual worlds. Find out why web-based virtual worlds are here to stay and how the technology roadmap will develop over time.

- Daniel James, CEO, Three Rings
- Nabeel Hyatt, Founder & CEO, Conduit Labs
- Teemu Huuhtanen, President N.A., Sulake
- Toshitaka Jiku, EVP and CTO, 3Di Inc.

also I'll be in San Francisco next week at the Widget Summit and Web 2.0 Summit (Summit is the new conference, apparently). Then later in the month I'll be doing an event that is hosted by Scott Kirsner of the Boston Globe.

How are Blogs Changing the Way Technology is Covered?

Entrepreneurs, CEOs, VCs, journalists, and PR professionals are increasingly cranking out blogs, podcasts, and video dispatches. How does this change the way the tech sector gets covered? What does it mean for CEOs trying to get their stories out, PR firms trying to get coverage for their clients, VC firms touting their investments, journalists trying to cover important news, and customers tracking the market? (Not to mention the relationships between all of these players.)

We'll bring together representatives from all four camps for a wide-ranging conversation (definitely *not* a panel) about the way blogs are changing the game in the tech world.

- Don Dodge, Director of Business Development, Microsoft
- Jimmy Guterman, Editor of Release 2.0, O'Reilly Radar
- Barbara Heffner, partner at CHEN PR 
- Nabeel Hyatt, CEO at Conduit Labs
- Scott Kirsner, Boston Globe "Innovation Economy" columnist
- Bijan Sabet, venture capitalist at Spark Capital

there are only a few place left for this, and you can RSVP here. Hope to see you at one of these spots.
 

NY Times writes about Virtual Goods and misses the entire industry

The NY Times did a piece on virtual goods, only it's actually just another damn piece about Second Life. I posted before about why Second Life gets so much coverage, but this is really going far past that point. This is a piece focused on the buying and selling of virtual items, yet there is no mention of Maplestory, Habbo, or even Facebook and Hot or Not. For the press to remain ignorant of this being an industry and not simply a single product is now journalistic irresponsibility and they should be ashamed.

This is a member of the mainstream press that has not even managed to type "virtual goods" into Google. If they did, they would see the first three stories currently point to:

1) Sony getting into the game.
2) Susan Wu's article on Techcrunch about Virtual Goods being the next big business model for the web.
3) A link to the friggin' Virtual Goods conference, which would have mentioned all the above companies and many more.

Instead we get a completely miopic puff piece about one person selling crap on Second Life. No context of how this might effect the reader as they navigate their digital lives. No background on the history of virtual transactions, their popularity in Asia, or the fact that the #2 prepaid content card in Target behind iTunes is the Nexon card. Not even a brief mention of the RMT market, despite the fact that there was piece on it in the (much better quality) NY Times Magazine a few weeks ago.

This is not a love affair with Second Life, this is journalism that is abdicating its responsibility to inform the public. This is the same as talking about the future of Blackberry's stock and neglecting to mention the iPhone or Google Phone. Or talking about the social networking phenomena and only focusing on one teenager on MySpace without even hinting that their might be an entire industry of competitors. Just to be clear, this was an article in the New York Times Business section.

This is lazyness that borders on a lie.

[Note: The original title of this article was, "Idiots at NY Times write about virtual goods and miss the entire industry." After calming down a bit I felt that the use of idiots warranted a personal attack, which wasn't really my intent. I have left the rest of the article exactly as it was, as I think it accurately captures how viscerally I feel about this issue.]

That's a lot of ramen.

Here at Conduit Labs we're announcing the closing of our $5.5m Series A round with Charles River Ventures and Prism VentureWorks. We're also using this occasion to launch the Conduit Labs blog and begin the dialog with everyone, so drop by and say hi. In the future we plan to give a pretty open and honest look at building this startup, everything from what fundraising was like to the technical hurdles we've hit dealing with Flash, and most anything else you guys are interested in chatting about.

The opening post is: How we started Conduit Labs

Virtual Goods Summit Video

Video from the recent Virtual Goods Summit is up, so if you weren't able to make it you can catch up now. I'm so glad Charles did this, since I had to miss the afternoon panels, and I can clearly see I was in need of a haircut.

Above is the panel I moderated: Why Virtual Goods Matter . Another panel chock full of great facts was the first one, Virtual Goods Success Stories, where Susan Wu of CRV does a great run down of the industry, and you get good stats from Habbo, Nexon, Neopets, and Tencent.

Rest of the videos here.

Club Pengiun to Disney for up to $700m, prepare for the casual mmo onslaught

Club Penguin, a casual MMO start-up that was rumored to be on the blocks to Sony for $500m, has sold to Disney for $350m, with an additional $350m on the table based on performance. The deal with Sony broke off in June, and Disney makes a much more natural acquirer in any case.

If you're keeping track at home

• Club Penguin is an amazing consumer web community, with a solid revenue model, that took zero VC money and features nobody from the Valley.
• They are doing about $50m in revenue, have a much better retention rate than Webkinz, and zero advertising (which apparently is going to continue).
• And, just as I thought, the press is quoting a 2005 founding date, when readers know this is no overnight success story.

This should also serve as the irresistible siren call to VCs that will likely make 2008 the year of online gaming. I'm seeing a ridiculous number of business plans built around virtual worlds, virtual goods, and online games, and I'm not even a VC. This will help push even more VCs into funding, and in 6-18 months there will be a avalanche of new ideas in this space. If you thought just making an online multiplayer world, or virtual goods play, is enough to stand out then you might as well be releasing a new user generated video site.

Ah, one more thing.. Myspace went for $700m as well, in a deal that felt big at the time but then felt underpriced a few years later. I wonder who Facebook will be?

Neilson's new web metric likely to hurt Google, help Gaming

Today Neilsen/Netratings announced that they are ceasing to use the Page View and will instead be using the Attention metric I've been talking about. When the measurement of the web migrated from hits to pageviews, there were a whole raft of winners and losers in the online world. In many ways we are how we are measured; it effects the way press and public perceive us, and our ability to attract partners, advertisers, and employees.

So, when how we are measured changes, it's hard to underestimate the disruptiveness. As quoted at Read/Write Web, AP gives some insights:

"Ranking top sites by total minutes instead of page views gives Time Warner Inc.'s AOL a boost, largely because time spent on its popular instant-messaging software now gets counted. AOL ranks first in the United States with 25 billion minutes based on May data, ahead of Yahoo's 20 billion. By page views, AOL would have been sixth.

Google, meanwhile, drops to fifth in time spent, primarily because its search engine is focused on giving visitors quick answers and links for going elsewhere. By page views, Google ranks third."

Tomorrow Compete.com will be releasingCompete released their latest Attention 200 listing, and they were nice enough to give me a sneak peak. Comparing that to the list of top page view sites from Comscore and others you can see there are going to be clear winners and losers from this shake up.

Looking at page views versus attention from Compete.com it looks like search (including deeper experiences like general social networking (MySpace, Facebook), games (Pogo, Runescape), and vertical social networks (DeviantArt, Flickr) get a huge boost in this new world of the web.

(thx for the heads up Jason).