brinking - nabeel hyatt

Speaking at Virtual Goods Summit, and a discount code

If yesterdays post interested you, you're probably a sure-fire target for the Virtual Goods Summit which is coming up next week. Last year I moderated a panel (video available) on Why Virtual Goods Matter, and this year I'll be chatting about Music as a virtual good. Last year it was a great day where they managed to get together just about everyone who had direct experience selling virtual goods, I've got high hopes this year as well.

I hope you can join, and drop me a line if you want to chat. You can save 10% on the cost of registration by using the code "NABEEL" at checkout.

Conference Website: http://www.vgsummit2008.com
Registration: http://vgsummit2008-nabeel.eventbrite.com

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

Rock Band music sales close to early iPod music sales

If you care about music, and therefore whether that business will survive, there was some pretty amazing news from Rock Band this week that didn't get the attention it deserved. MTV mentioned that Rock Band had sold 6 million downloadable tracks in its first four months of sales. And while that roughly $10-20m in additional revenue is nothing that will alter parent company Viacom's stock, the finer numbers compare favorably to the early days of iPod.

First, let's keep in mind the state of the music business. People are pirating music like crazy, and consumers that were screaming about .99 cent DRM'd tracks six months ago are screaming about the high price of .89 cent non-DRM'd tracks today. If you want evidence at how much the music industry has changed in the last 24 months, just look at Rcrd Lbl, or the deals that Last.Fm and iMeem struck with the labels. The labels expect most of their money from those deals to come from a split of ad revenue. Which is to say they expect the incremental revenue of each track to hit zero pretty soon.

So on that backdrop, Rock Band is selling totally DRM'd tracks, locked to a single platform, at between $.99 and $2.99 each. And their attach rate considering all that is amazing. For comparison:

Five years ago on April 23rd, 2003 the iTunes Music Store launched:

• 200,000 songs in catalog (source)
• 977,000 iPods in market (source)
• 3.5m songs/Mo avg sales in first year (source, etc)

Four months (or so) ago Rock Band was released:

• 70 songs in catalog
• 1.1m Rock Band games' in market (as of January) (source)
• 1.5m/Mo avg sales in first four months (source)

The data isn't perfect: the Rock Band sales numbers are not up to date, we're not even talking Guitar Hero DLC, and the iPod had been on sale for over a year before the Music Store came online, giving it a big advantage. However, even with those caveats it is clear that people are willing to pay for more depth in their music experience, the same way they have shown a willingness to still pay for concerts. No, Rock Band isn't likely to be the next iPod, the early numbers are still off substantially from the iPod (see below). But selling active music experiences shows signs of being the growth opportunity for the industry. Which led one industry analyst to say:

"In 10 years people are going to look at idly listening to music the same way as we look at watching a TV show in black and white," said Geoff Keighley, co-chair of the Game Critics Awards that named Rock Band the best game of the industry's annual trade show in July.

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.]

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.

Cyworld doing $80m in virtual goods annually

CyWorld was just involved in a reverse merger with Empas to go public on the Korean stock market. With the merger SK Comms now holds the #3 search engine, #1 social network, and a myriad of other online properties -- making it somewhat like the Korean little brother to China's Tencent.

Anyway out of this comes some stats about CyWorld via Gamestudy:

• $80m annually in virtual good sales (43.5% of overall revenue)
• $19m annually in real good sales (10.5%)
• $47m annually in advertising revenue (25.6%)

Unfortunately their migration to the US doesn't seem to be going as well. The traffic patterns are an easy tell of someone doing ad spends to bump traffic and then getting massive churn.

Why Virtual Goods Matter: What's Driving User Adoption?

Charlie and Susan continue to add to the already impressive roster for the Virtual Goods Summit 2007 next Friday at Stanford. At this point it's becoming a veritable who's who, from Daniel James of Three Rings to John Vars of Dogster.

I'll be moderating a panel on why users even care about virtual goods in the first place.

Why Virtual Goods Matter: What's Driving User Adoption? (11:15 AM)
Virtual goods offerings continue to garner more momentum in the marketplace. Why do consumers want to spend their money on items that only exist in a virtual context? Is it even appropriate to make a distinction between what motivates people to invest in virtual goods as opposed to real-world goods? Join us for a conversation about what motivates people to invest their own time and money in digital goods and why virtual goods matter.
Nabeel Hyatt, Conduit Labs
Amy Jo Kim, Shufflebrain
Craig Sherman, Gaia Online
Byron Reeves, Stanford University
Daniel James, Three Rings

Much like Raph, I'm a late addition so you likely won't see my face on the website, but I will be there. (I've been added) It's a good thing I'm moderating too, since we haven't actually launched anything publicly at Conduit. This way I get to be the instigator and not have to evade questions about what we are up.

Read: Virtual Goods Summit 2007 to register, and see OKdork for a 15% discount.

PS - That means I'll miss the Boston OpenCoffee next week, but it will certainly still be happening. We've got a regular crew of 4-6 entrepreneurs and VCs coming in every week, and then another 2-15 mostly new folks that show up depending on the week.