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Virtual Goods In a Nutshell
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Virtual Goods In a Nutshell


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  • Talk to the two points. \nGive a survey of the types of social games that are popular. \nDiscuss the demographics that social games appeal to. \n
  • Many naysayers doubt that social games can ever compete with AAA game content like Grand Theft Auto. But they don’t need to.\nThe media industry is built on the notion that different forms of content address very different user needs. Take short-form video (TV sitcoms) vs. feature length films. \nIn fact, there is a great example from video:\n350M views for Charlie bit my finger\n202M tickets for Gone with the Wind\n100M viewers for M*A*S*H finale\nToday, games have a similar breakdown\nTalk through the branches of only gaming. \nTalk through the advantages of short play sessions and how social game developers enforce that.\nDiscuss the dynamics of free to play and the core metrics.\n
  • Discuss each integration point and how developers are using them today:\nSocial graph - Friends lists, leaderboards, combat maps, etc.\nSocial messaging - Viral notifications for gifting, requesting help, requesting energy -- take the place of monetized transactions\nVirtual currency - Discuss challenges of microtransactions and doubts in 2007 re: whether they would work in the U.S. Discuss how games have migrated to using Facebook Credits as a currency vs. as a payment method. Discuss frictionless payments and how microtransactions are here to stay. \n
  • For the first time, Facebook platform allows developers to tap into the native elements of a social network: social graph, photos, etc.\nEarly apps and games were very simple, but achieved phenomenal growth\nFarmville marks a changing point in Facebook’s evolution, from a pure social network to a social entertainment destination. \n\n
  • This is a graph of social network connections by country. White areas indicate geographic areas with high interconnectivity. \n750 million people use Facebook to socialize. \nTalk about the example of Brazil vs. Orkut\nToday, 70% of those people are using apps and 50% are using games\nThat means, 375 million people are playing games on Facebook. By contrast, there are only 55 million Xboxes, 50 million PS3s, and 90 million wiis. That means that over 2 as many people play games on Facebook as consoles.\nFacebook was in its infancy when the current generation of consoles were released.\n
  • Social games are as integral to social networking as photos, wall posts, and likes. \nNearly 50% of Facebook’s revenue will come from games in the near future.\nZynga is one of Facebook’s largest advertisers. \n
  • This is all leading to phenomenal growth in social games.\nBy 2014, social games will be a $5.5B market, one of the fastest growing markets in the history of media. \n
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  • Pop Reality Quiz\nA $100 bottle of Diaka Vodka which is colorless, flavorless, and made from $2 in grain\nA $97,500 Piaget watch that contains a few ounces of precious metal and tells time (less accurately than your cell phone)\nA $100,000 piece of “virtual” real estate that can be traded on a highly liquid market and generates a 20% annual return (2x most stocks) \n
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  • So what does that mean for you? \nAs a marketer, you can’t afford to ignore social games... and you don’t want to. \nSocial games provide an unprecedented opportunity to increase loyalty and extend your reach. \nTalk to the advantages of social games.\n
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  • Second Life Liberation Front, shooting in front of store as a protest\n
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  • Transcript

    • 1. Virtual Goods in a NutshellA primer on the virtual goods market October 25, 2011 Marketing and Social Media Strategy Stanford University
    • 2. About meRavi Mehta // VP, Products // Viximo ‣ Head product management for Viximo, a global publisher of social games ‣ Formerly COO for a search engine marketing firm focused on lead generation for financial services clients ‣ Early member of Xbox team, managed online gaming and massively multiplayer initiatives for Microsoft ravimehta ‣ Founded a multimedia and game company in college @ravi_mehta
    • 3. The Virtual Goods IndustryVirtual Goods DefinedBranded Virtual Goods in ActionQ&A
    • 4. The Virtual Goods IndustryVirtual goods are used in a wide variety of applications to increaseengagement and monetization Social Sites Virtual Worlds MMOs Social Games Foursquare, Second Life, World of Warcraft, Farmville, Zoosk, Habbo Hotel, Entropia Universe The Sims Social, Causes, etc. IMVU, etc. EVE Online, etc. Cityville, etc.
    • 5. What are social games?A new form of entertainment designed for social mediaSocial games are games that are: 1) Short form content, designed to match the rhythm of how people use the social web 2) Natively woven into and distributed via social networks
    • 6. Form follows functionSocial games are the YouTube video of video games‣ Designed for the usage pattern of a typical social networker (multiple short visits each day) 15 minute average session length‣ Mass distribution, low/free pricing 3% average monetization rate
    • 7. Woven into the new WebSocial games leverage the unique traits of social networks Social Social Virtual Graph Messaging CurrencySocial games natively Social games drive viral Social games havetap into the social graph growth and continuous thrived on theto provide cooperative engagement by microtransaction, virtualand competitive leveraging the currency, and in-appgameplay. communication channels payment systems on social networks, such provided by social as wall posts and networks. requests.
    • 8. The Rise of FacebookThe launch of Facebook s application platform marks an inflection point inFacebook s growth U.S. Monthly Visitors to Facebook200,000160,000120,000 Mid 2009 Zynga launches Farmville June 2007 80,000 Facebook launches app platform 40,000 0 2005 2006 2007 2008 2009 2010 2011 Source:
    • 9. The World on FacebookToday, social games and apps are an inextricable part of the social lives ofhundreds of millions of users Of the 750 million users on Facebook, 70% regularly use apps 50% regularly play games
    • 10. Social media has changedSocial games are as integral to social media as likes, follows, wall posts, andphoto sharing Analysts predict that in the near future, 30% of Facebook s revenue will come from virtual goods sold in social games + 20% of Facebook s revenue will come from social game developers advertising their games = 50% of Facebook s revenue will come from social games
    • 11. The Virtual Goods RocketFueled by the growth of social and mobile games, virtual goods revenue willgrow to $8B by 2015 U.S. Virtual Goods Revenue (2010-2015E) Virtual Goods $8.0B Branded Virtual Goods $6.9B $318M $6.0B $5.1B $226M $4.1B $150M $3.1B $88M $41M $16M 2010 2011E 2012 2013E 2014E 2015E Source: Branded Virtual Goods Market Report
    • 12. The Virtual Goods IndustryVirtual Goods DefinedBranded Virtual Goods in ActionQ&A
    • 13. What is a virtual good ? As virtual goods evolve, they ll be used in nearly every form of interactive media and entertainment Virtual Achievements Avatar Virtual Gameplay Gifts & Badges Accoutrement Property EnhancersAn admirer sends a A local socialite A fashionista outfits An online mogul An urban farmer virtual gift with earns a badge in his avatar in buys real estate in buys seeds in Zoosk Foursquare Gaia Online Second Life Farmville
    • 14. Real vs. VirtualWhy do people spend money on stuff that isn t real ? A Stanford University research study has shown that people aren t wired to distinguish between real world stimuli and digital stimuli: ‣ Study participants showed the same tendency to smile back regardless of whether smiled at by a real person or a digital avatar. ‣ Study participants felt the same feelings of elation when receiving a physical gift and when receiving a virtual gift.
    • 15. Virtual Good Value DriversWhat value do people get form virtual goods?Functional Expressive Social Brand Value Value Value Value Why would some What is the worst Why does a $2.00 Why do some goods people pay $40.00 thing on the first day drink cost $10.00 at get more desirablefor a virtual good in of school? your favorite bar? even when price Farmville? increases?
    • 16. The Virtual Goods IndustryVirtual Goods DefinedBranded Virtual Goods in ActionQ&A
    • 17. What are branded virtual goods?The concert t-shirt of the online gaming world ‣ Incorporate brand identity via brand mark or design ‣ Priced at a premium to non-branded items ‣ Released in limited editions ‣ Perceived as having higher expressive and $8 $25 social value
    • 18. Two forms of virtual good brandingBranded virtual goods can either be an extension of a brand s marketing or anextension of its merchandising Branded Virtual Goods as Branded Virtual Goods as Advertising Merchandising ‣ The brand pays the social app for ‣ The brand and the social app work exposure to the app s audience together to monetize the social app s audience ‣ Virtual goods are generally provided to end users for free for a ‣ As with offline merchandising, only limited time works with certain types of brands ‣ Certain sites enable you to ‣ Requires significant overlap hypertarget the perfect audience between app s audience and for your content brand s fans ‣ Provides a much richer impression ‣ Can monetize much more highly than display advertising than generic virtual goods
    • 19. Why should you care?Chances are, your customers are spending more time playing games thanfollowing, liking, or clicking on your content Increase Customer Loyalty Extend Branch Reach ‣ Brand integrations into social ‣ Social games take social media games can be a key tool for outreach to a new level building stronger customer relationships ‣ Extend brand reach into a user s social lives and leisure activities ‣ Foster long-term, interactive customer relationships ‣ Hypertarget users based on rich, gameplay-based behavior data ‣ Build brand-centric communities ‣ Turbocharge word of mouth marketing through viral channels ‣ Nuture brand advocates and and earned media community leaders
    • 20. Branded Virtual Goods Strategy 101How to launch a successful branded virtual goods campaign Partnership Where am I going to sell? Strategy Product What am I going to sell? Strategy Distribution How am I going to sell? Strategy
    • 21. PartnershipStrategy American Apparel DKNY in Second Life in Stardoll Large Active audience was Active audience was 500K monthly and 2M monthly and Audience falling growing Targeted 60% male, mostly 95% female, mostly Users 25-45 users tweens and teens Relevant In-world retail store, Simultaneous release basic designs of real and virtualIntegration underwhelming fashions
    • 22. ProductStrategyContextually Limited Premium Relevant Edition Positioning‣ Makes sense within ‣ Tied to a particular ‣ Features high-end the context of the app event or milestone production values or games such as a new product release or holiday ‣ Premium pricing‣ Ideally has some relative to generic functional attributes ‣ Released in limited virtual goods (even if quantity and for the good doesn t cost limited time cash)
    • 23. DistributionStrategy Channel What sites will we sell on and how will we adapt our strategy for each site? Mix How will we build a compelling set of Portfolio products that offers something for everyone, Strategy but doesn t overwhelm users? How will users purchase or earn theMerchandising products? Will they buy for themselves or Strategy gift to others? Can they trade? How will the virtual goods be marketed to Promotional users of a site? What is the viral marketing Plan plan?
    • 24. Case Study: Snoop DoggHoodies, dew rags, and dobermans, oh my! Gaia Online WeeWorld up to 18x 3-5x more valuable in user-to-user price premium over trading than generic goods generic goods $200,000 revenue generated from branded virtual goods in first year
    • 25. The Virtual Goods IndustryVirtual Goods DefinedBranded Virtual Goods in ActionQ&A
    • 26. Q&AThank you! ravimehta @ravi_mehta