Those concerned with 'virtual worlds' — as opposed to 'games' — spend a lot of time contemplating the role of virtual worlds in a wider market; over at Terra Nova, Bruce Damer looks at the potential future of virtual worlds, which could be a lot bigger than most people imagine. Some potential answers to keep the industry growing? Piggybacking off platforms that are currently growing at a rapid clip, making sure virtual worlds are 'worth' something — perhaps some as of yet undiscovered little platform will be the key:

As we can see from the history of computing, it is often the case of “the small gobbling up the big, and everything else”. Trivially small, lightweight yet rapidly replicating platforms often grow up to become all-encompassing solutions. DOS grew up to become Windows and along the way the PC triumphed over the time-shared mainframe, minicomputer and workstation. Could it be that there is some small world platform out there that is destined to become the standard? Dick Gabriel of Sun Microsystems has written much wisdom and books on this phenomenon (http://www.dreamsongs.com/Books.html) in which he posits that one of several ways to create a virally spreading success is to hitch your wagon to something that is already growing. Does this mean that a small world embedded in Facebook or some other social network(s) is the answer?

It's an interesting article that pulls examples from other (formerly) 'new media'; the rise and sustainability of virtual worlds is an interesting problem. I suspect even the 'big ones' will be trucking along pretty quietly — not unlike a lot of the popular free to play MMOs from abroad.

Virtually Eternal: A Positive Pathway to a Healthy and Sustainable Virtual Worlds Industry? [Terra Nova]

Gamasutra has an interesting look up at the MMO free to play/micro-transaction vs. traditional subscription model up - talking with SOE's John Smedley, Three Rings' Daniel James and EA Mythic's Mark Jacobs. Unsurprisingly, there are differences in opinion on the utility of the micro-transaction model, with some participants in the discussion coming down on the side of the traditional subscription model:

"You know, everyone thinks it's just so cool to say that the subscription model is passé, that it's dead," notes Mark Jacobs, general manager and VP. "They love to talk about their new models and how they are going to revolutionize the MMOG world. But MMOG publishers are spending a lot more on their games than anyone thought they'd be spending five years ago."

"If your game doesn't have the production values of a leading-edge game, if they are two-dimensional and not three, if they have lower system specs, okay."

"But if you're investing as much time and money as we are on our MMOGs, if you need to pay for the servers and the customer support, if you want to make a real profit on your game, subscriptions are the only way to go."

Snap! Certainly, there are times when the subscription model works well, and times when it doesn't - Chinese players are increasingly moving away from WoW in favor of the domestically produced micro-transaction games. I can't foresee subscriptions ever going away, but companies are increasingly seeing the benefits of the micro-transactions.

MMOG Business Models: Cancel That Subscription! [Gamasutra]

... Gartner's analysis isn't nearly as dire as its headline. Gartner notes that throughout the process lessons have been learned, many of the attempts were relatively low-cost experiments, and there's still plenty of opportunity. "Businesses have learned some hard lessons," Steve Prentice, vice president and fellow at Gartner, said in a statement. "They need to realise that virtual worlds mark the transition from web pages to web places and a successful virtual presence starts with people, not physics. Realistic graphics and physical behaviour count for little unless the presence is valued by and engaging to a large audience."

The end of the report also has a reasonably sunny prediction: "By 2012, Gartner estimates that 70 per cent of organisations will have established their own private virtual worlds and predicts that these internal worlds will have greater success due to lower expectations, clearer objectives and better constraints." That could be a good thing or a bad thing depending on your perspective.

90% of Corporate Virtual World Efforts Fail in 18 Months (Chalk It Up to Experimentation?) [Virtual Worlds News]

This untapped potential of games upsets the very foundation of advertising as we know it. Instead of surrounding us with images that reflect lives unlived, games can allow us to try out hypothetical lives with new products, people and ideas. To realise this potential, advertisers of both goods and viewpoints must stop blindly inserting their billboards into games or creating feeble copies of the cornerstones of videogame pop culture. Instead, they must start simulating the products, public policy positions, charitable interventions and other worldly ideas in new games - games worthy of our attention.

I'm not sure I want to see advergames all over the place, but if we have to put up with in-game advertising, a little more sophistication would be welcomed.

Advertisers have yet to unlock the power of play [The Guardian]

Games that don't recognize that key fact have what we call a "false depth economy"; a situation in which currency is rapidly devalued until it becomes irrelevant - or possibly even aggravating - to gameplay. Remember putting rupees back into chests in The Legend of Zelda: Twilight Princess? Or ignoring the store in Star Fox Adventures entirely after the first few hours? These are both bright examples of what happens when the economy doesn't work as planned.

I can't argue that good games haven't fallen to this problem before but succeeded nonetheless. Nobody is going to throw down Twilight Princess in disgust over rupee returns. But I can assure you that it's a design problem that every designer wishes they could take back and fix, and one that every player will write down as a negative about their overall experience with a game.

He lays out three principles that ought to be followed — it's a quick article and worth a read if you're interested in game design.

Single Player Economist [Moogle.net via GameSetWatch]

As with Habbo Hotel, Virtual Magic Kingdom was developed by Finnish studio Sulake and shared many similarities with the social networking site. Players with registered accounts are able to decorate their personal rooms, earn and spend in-game credits, and participate in a variety of online events and activities with their customized avatars, all in a "safe, non-threatening environment."

Disney Closes Gates To Virtual Magic Kingdom [Worlds In Motion]

If anti-gold farming initiatives were effective, gold prices should go up as the cost of business increases for gold farmers. (NOTE: This assumes that demand is fairly constant. If game companies could actually convince their players not to buy gold, than prices would drop with a glut of gold on the market and no one to buy it. I've not been able to get volume data from any gold sellers, but my sense is that their customers are not going away.)

The Gold Farming War - Who's winning? [PlayNoEvil]

"The Canadians have driven a tank over the French Citroen and have now parked on our lawn," Paul Jackson, head of the industry organization representing British games studios, complained to the Financial Times earlier this week. "It is becoming very challenging to keep core development studios here."

Games Market in China Grew 60% to $1.66 Billion in 2007, Expected to Exceed $3 Billion in 2010, According to Pearl Research

SAN FRANCISCO—(BUSINESS WIRE)—Pearl Research forecasts the online games market in China will exceed $3 billion in 2010. The market grew more than 60% to reach $1.66 billion in 2007. These findings are contained in Pearl Research's exclusive 130-page "Games Market in China" study.

Allison Luong, Managing Director of Pearl Research said, "The year 2007 exceeded expectations with the market growing more than 60%, driven by compelling and diverse content, free-to-play games, and rising demand for leisure and technology products. Chinese-themed and advanced casual games are expected to drive revenues in 2008 and beyond."

"A key trend to track in 2008 is rising average-revenue-per-user (ARPU). Certain online games are reaching $7 to $12 a month in average-revenue-per-user, significantly higher than past averages of $5 or less per month. I believe there is still room for average-revenue-per-user to grow, as game operators enhance monetization efforts from free-to-play games," said Allison Luong.

Pearl Research's key findings:

China's most popular online game, Netease's "Fantasy Westward Journey" has 1.66 million peak concurrent users, followed by Giant's "Zhengtu Online" with 1.52 million peak concurrent users. Successful MMORPGs can be highly profitable. Game operator Giant Interactive generated the majority of its $209 million revenues from one title, "Zhengtu Online."

Game operators in China experienced strong revenue growth in 2007. The biggest gainers were game operators Shanda (up 49% to $338 million), Giant (up 274% to $209 million), The9 (up 30% to $175 million) and Perfect World (up 593% to $95 million). Coinciding with this revenue growth was a wave of initial public offerings (IPOs) by game operators Giant, Perfect World, NetDragon and KingSoft.

The study also contains highlights from Pearl Research's Phoenix Generation research initiative, consisting of more than 200 one-on-one, personalized interviews conducted with Chinese youth. One key finding is that games are a social phenomenon, with gamers often playing casual games to connect with friends and flirt with others. Gamers cite cheating and account thefts as a top reason for abandoning a game and seek out game operators with a reliable reputation.

Pearl Research's "Games Market in China" study provides an in-depth analysis of the Chinese games market. The report contains 2006 to 2011 forecasts; inhibitors and drivers to growth; deep marketplace analysis; profiles of key market players; and strategic conclusions. Please call (+1) 415-738-7660 or email research (at) pearlresearch.com to inquire about this report.

Wu began by discussing the recent Bragg v. Linden Labs court case — in brief, a legal battle between a Second Life user and the world's parent company over land that Bragg apparently improperly acquired, resulting in a ban from the world by Linden. That case, Wu says, was a landmark in that it demonstrated that virtual property rights have tangible value in the court system ....

"What are the prevailing customs that should apply?" Wu asked. "Is it the country where the company is based? Is it the country where the customer lives? We don't even know what the basic virtual property rights are that we should be concerned with."

These sorts of issues will get nailed down eventually (maybe?), it's a serious balancing act in a lot of ways. And once you mix in the reasonably global nature of many MMOs? Well ....

Human and Property Rights in Virtual Worlds [Worlds In Motion]

Crook points out some growth challenges to free to play, though he notes these are definitely not deal-breakers for the business model. First, there are virtual property challenges. "At some point that's going to be decided by the courts. Hopefully we're out ahead of it," Crook said, pointing out Eric Bethke's forward-thinking endeavor to create an avatar bill of rights. Second, there are differing broadband speeds. And rising development costs will become an issue now with the advent of Electronic Arts' highly-polished Battlefield Heroes. Larger-scale F2P products are going to raise the quality bar, Crook says.

The talk clocks in at a little over half an hour, but if you're interested in the free to play model, it's definitely worth taking a look at.

The Slidecast from my F2P GDC Presentation [Free To Play]
Adrian Crook Talks Free To Play [Worlds In Motion]

The question we might ask is: why would this matter? Other than for tax purposes or interpreting the language of wagers, do we really need to place those beads neatly in one of two boxes: money or esteem?

If you can exhange Quest gold for an Amazon gift card, then it is money. But if it also "show[s] everyone how active and helpful you've been on Askville" then it is also something else—a token of esteem. So, like many status markers out there that people might pursue ..., Quest gold belongs in both boxes at once. Prizes have valences in market, reputation, and ludic economies.

I am far from an economist, but the spread of RMT and other in-game economic developments, as well as 'ludic' transactions in non-game settings, is interesting to ponder - will the application work outside of games? Do people buy into it? An interesting piece that's worth a read through (and some clicking on the links if you have time).

World of Answercraft [Terra Nova]

The U.S. computer and video game industry's annual growth rate from 2003 to 2006 outpaced the US. economy's growth by 13 percent, according to a new study released today by the Entertainment Software Association.

The industry as a whole employees more than 24,000 people with an average salary of $92,300 in 2006, according to the Video Games in the 21st Century: Economic Contributions of the U.S. Entertainment Software Industry study.

"Computer and video game companies play an ever increasing role in our nation's growing economy," said Michael Gallagher, CEO of the ESA, which represents U.S. computer and video game publishers. "These companies and their colleagues across the nation are making entertainment software one of the fastest growing industries in the United States."

The report goes on to list a potpourri of interesting factoids:
The computer and video game industry's value added to U.S. Gross Domestic Product (GDP) in 2006 was $3.8 billion.
In 2003-04 and 2005-06, the industry's contribution to real growth exceeded its share of GDP by more than four to one.
The entertainment software industry directly and indirectly employs more than 80,000 people in 31 states; and, U.S. industry employees received total compensation of $2.2 billion.

Wait, the average salary is $92,000? Full release after the jump.

U.S. Video Game Industry's Growth Outpaces National Economy

New Study Details Industry's Contributions to State Jobs and GDP

NOVEMBER 27, 2007 - WASHINGTON, DC -The US computer and video game industry's annual growth rate from 2003 to 2006 exceeded 17% according to a ground-breaking study released today by the Entertainment Software Association (ESA). This far outpaces the US economy as a whole which only grew at 4.0% during this same period. According to the study, Video Games in the 21st Century: Economic Contributions of the U.S. Entertainment Software Industry, the US entertainment software industry directly employs more than 24,000 individuals and indirectly supports, with an average salary of $92,300 in 2006. The economic impact report was conducted by Economists Incorporated for the Entertainment Software Association (ESA).

"Computer and video game companies play an ever increasing role in our nation's growing economy," said Michael Gallagher, CEO of the ESA, which represents U.S. computer and video game publishers. "These companies and their colleagues across the nation are making entertainment software one of the fastest growing industries in the United States."

Video Games in the 21st Century, is the first economic study to outline the specific contributions of the entertainment software industry on the U.S. economy. The report concluded that:

The computer and video game industry's value added to U.S. Gross Domestic Product (GDP) in 2006 was $3.8 billion.
In 2003-04 and 2005-06, the industry's contribution to real growth exceeded its share of GDP by more than four to one.
The entertainment software industry directly and indirectly employs more than 80,000 people in 31 states; and, U.S. industry employees received total compensation of $2.2 billion.

The report states that California is the largest employer of computer and video game personnel in the nation, accounting for approximately 40 percent of total industry employment nationwide. These companies provided over $1.8 million in direct and indirect compensation to Californians last year. California's computer and video game industry grew by 12.3 percent last year, nearly three times faster than the state's overall growth, and added $1.7 billion to the state economy.

Other specific state findings include:

Virginia's computer and video game industry grew by 552 percent in 2006, more than 172 times as fast as the commonwealth's overall growth;

Washington state ranked second nationally in computer and video game personnel in 2006, with 9,284 direct and indirect employees at more than 59 facilities across the state; and,

New York's entertainment software companies directly and indirectly employ 4,415 individuals at more than 25 facilities across the state.

Thie series is open to anyone who wants to hear from—and engage with—academics, industry leaders, regulators and influential virtual-world residents ....

... Events are only the grain of sand in the oyster. We hope to get pearls from constructing a way for people interested in metanomics to engage with the speaker and with each other in serious discusion before and after the session, and create an archive that future can serve as essential reading for future metanomicists (ok, that word doesn't work so well. Metanomists?).

We plan to accomplish this by having suggested readings before each session, inviting readers to suggest readings of their own, as well as questions for speakers. After each session, we will post archives of the event, along with post-event analyses.

It'll be taking place in everyone's favorite virtual world, Second Life, but will be available to everyone whether you want to venture into Second Life or not.

Metanomics blog [via Terra Nova]

Journal of Electronic Commerce Research (JECR): Special Issue on Virtual Worlds

CALL FOR PAPERS
Special Issue on Virtual Worlds
Submissions due: November 1, 2007
Scheduled Publication date: August 2008

Overview:
The emergence of virtual worlds and Web 3.D change the way of doing business. Web 3.D is the synonym for Internet-based virtual worlds, where people can create own 3-D *virtual* personalities. Virtual Worlds such as Second Life and others are undergoing an evolution similar to that of the Internet in the mid nineties and might impact profoundly the way people cooperate, communicate, collaborate, and conduct business. The recent entering of companies such as Toyota, American Apparel, Nissan, or Adidas indicate the upcoming role of this platform for the next generation of conducting electronic business. This call for papers is intended to cover a wide range of business and research topics that fall within the broad description of activities, challenges, opportunities, applications, innovations and implications associated with Virtual Worlds as the emerging new online business landscape.

Purpose of the Special Issue:
The purpose of this special issue is to encourage discussion and communication of important research issues that underpin Virtual Worlds as an important aspect of e-commerce and to showcase interesting and significant research work in this critical area. Specifically this issues is focusing on business and legal issues of doing business in Virtual Worlds. Of particular relevance to the described focus are papers about business models, marketing, promotion, pricing, customer integration, consumer behavior, legal, cultural and cross-cultural research. The issue, however, will not be restricted to these topics; rather, it welcomes reports of theoretical or empirical research that examines pertinent business issues related to Virtual Worlds e-commerce. This special issue will be of interest to researchers, governments, small and large businesses, marketing and PR companies among others.

List of possible topics are:
* Product Development and Testing in Virtual Worlds
* Image, Branding, Advertising in Virtual Worlds
* Marketing in Virtual World
* Avatar-based Marketing
* Promotion of Virtual Goods in Virtual Worlds
* Pricing of Virtual Goods in Virtual Worlds
* Selling, Cross-Selling Real and Virtual Worlds
* Business Planning for Non-profits in Virtual Worlds
* Fundraising and Virtual Worlds
* Convergence of Real and Virtual Worlds
* Customer Integration and Virtual Worlds
* Technology, Business, Strategy in Virtual Worlds
* Financial Systems, Investments, Currency Exchange Real and Virtual Worlds
* Emerging Media Presence in Virtual Worlds
* Consumer Behavior, Consumer Acceptance and Virtual Worlds
* Trust, Cross-Cultural Studies and Virtual Worlds
* Intellectual Property, Copyright, Trademarks and Virtual Worlds

Submission of Manustcript:
JECR publishes original empirical research, theoretical and methodological articles, evaluative and integrative reviews, field research, business surveys, and application papers of interest to a general readership. A submission based on a paper appearing elsewhere (such as conference proceedings or newsletters) must have major value-added extensions to the earlier version. For conference papers, it should have at least 30% new material. The submitted manuscripts should follow the format as suggested in the Submission Guideline found in the journal website: http://www.csulb.edu/journals/jecr/s_guide.htm. Of particular note is that the manuscript should be prepared in Microsoft Word format. The names, affiliations, and contact information (i.e., phone, fax, email addresses) of all authors should be provided only on the cover page. The submitted paper will undergo a double-blind review. Contributing authors may be asked to serve as reviewers for the special issue. Authors may submit completed manuscripts electronically at any time prior to November 1st 2007 deadline. Manuscripts and questions send to mfetscherin@rollins.edu.

Guest Editor
Marc Fetscherin, Ph.D.
Rollins College
International Business Department
Winter Park, 32789, FL, USA
e-mail: mfetscherin@rollins.edu
Tel: +1 407 691 1759
Fax: +1 407 646 1566

Important Dates:
Deadline for Submission: November 1, 2007
Paper acceptance/rejection: January 15, 2008
Revised paper submission: March 15, 2008
Final acceptance following revisions: May 15, 2008
Publication Date: August 2008

To download the CFP, please visit this website:
http://www.csulb.edu/web/journals/jecr/issues/20083/cfp.pdf

... The real thing publishers look at when deciding what to develop for is simply user base plus tie ratio—that is, how many boxes each manufacturer ships, and how many titles the average user buys for that box. This, and not a putative cost advantage for Wii over other platforms, is what's working in Wii's favor at the moment—it's selling better than its competitors .... I expect there will be a flood of third-party games for Wii, that the advantage PS 2 and Xbox had over GameCube in this regard will not be true for the current generation: the tie ratios will look much more similar.

It's a short but interesting look at the potential costs and factors going into developing a game and a successful console overall.

Analyzing the Analysts

Boing Boing points to this amazing use of RollerCoaster Tycoon to chart the price of homes in the U.S. from 1890 to present day. Now someone needs to make one charting the stock market, but quick! Brian Crecente

Rollercoaster version of the graph of US home prices adjusted for inflation [Kottke, via BoingBoing]

The Congressional Joint Economic Committee — a group of taxmen, economists and autocrats — have admitted that tax law has fallen "way behind" the march of MMOG progress and are now seriously looking into the issue of taxing virtual assets and incomes.

There's a good argument to be made for taxing virtual economies, of course. Second Life has over $500,000 dollars worth of in-game transactions a day, mostly in furry prostitution. Fair enough to tax virtual economies when it's possible to cash-in and cash-out of your virtual holdings.

But I'm going to tell you this: the second the Murky, Omnipresent Man cuts VAT off the top of the Helm of Fire I just bought off the Undercity Auction House is the day I motherfucking snap. Imagine a dozen law offers lying in pulsing, quivering wrecks of mutilated flesh at my feat as I stare at the sun and laugh and laugh and laugh. And when the Feds bullets tear through my flesh, turning my internal organs into slurry, my last words will be "Is that the best you pansies can do?" before the inferno-like hate dims from my eyes and my grip loosens on the throat of Dan MIller, senior economist for the JEC. Florian Eckhardt

US Congress launches probe into virtual economies [Reuters]

iSuppli Corp. specializes in tearing apart gadgets and seeing what they're worth in parts and labor. They recently stripped down a Game Boy Micro, which retails for about $100. The results? The Micro's actual cost is $44 with the portable's screen being the most expensive component. Hopefully, Nintendo will use the rest of that money to buy Mario some new duds. Cat's been wearing those same blue overalls for years.

They Also Dissect a Nano [G4TV]

Walkering tries to clear up the oft-cited Edward Castronova figure that the per capita GDP of Norrath (in Everquest) was $2,266 in real money. Insane and totally off-base. Walkering undresses the stat and pares it down to a much more swallowable $390.92. Can someone check and see how much my WoW account is worth?

Newsflash: Investigators Probe Accounting Errors in Norrath GDP [Walkering]

Mike "Nooch" Antonucci wrote up an interesting piece over at the Mercury News about the Xbox 360's chances in what is expected to be a slow holiday season. His argument is that the surging cost of gas prices, a slow economy and a general lack of interest in the 360 (that's with the normal community, not us gamers) is going to deliver a gut-punch to 360 sales.

Then a few days later, after receiving a lot of reader comments disagreeing with him, Antonucci wrote up a brief response, basically reiterating his stance. It all boils down to this: Is the Xbox 360 worth $300 to $400 to have right now, or are you going to wait for the inevitable price drop next year when the PS3 hits? I still haven't really made up my mind, though I'm leaning toward the wait-for-the-price-drop school of thought.

Part 2: Xbox 360, holiday games, gas prices and the American mood [Dean and Nooch on Gaming]