The Virtual Economy is one of the few places in Social Media where advertisers can see effective ROI
We all know the upside to Social Media – in terms of engagement it really delivers. But advertisers want to know the true worth of their campaigns in the cold hard terms of ROI and that’s harder to quantify. However, there’s a whole value chain already out there that gives you measurable ROI – it’s called the Virtual Economy. It’s big and it’s getting bigger but so far only a handful of savvy brands have begun to exploit the technology which can generate new leads, new customers and new revenue.
Wikipedia defines The Virtual Economy as “an emergent economy existing in a virtual persistent world, usually exchanging virtual goods in the context of an internet game”. I describe it simply as “the flow of money through apps”. An app broadly refers to a social game or community. In apps which are part of the Virtual Economy the majority of players participate for free, but a significant minority are prepared to pay with real money. Why? Well for example, to progress faster or to unlock exclusive digital assets. When millions of people use the app, this minority converts to big bucks.
Whilst the overall value of the Virtual Economy is hard to quantify, pundits estimate that the global value will be $6b in 2010, increasing to over $11b by 2013. Statistics suggest that the top game developers are generating as much as a staggering $3m per day and even first-year app developers are delivering impressive profit margins and are catching the eyes of major venture capitalists.
Social Media has changed the landscape of the games industry, with traditional giants like EA Games desperate to break into the space. Last year, EA bought the third biggest Facebook game developer, Playfish, for $275m on the same day that they laid off 1,500 employees of their own. There is a major difference in the business model here. A console game could take 3 years and $50m to develop, whereas a social game can be brought to market in just a few weeks. The crucial difference is that the development of a social game continues after its launch as the app is constantly improved in terms of user experience and to maximise profitability for the developer.
Very few people could have predicted that Facebook would become the biggest gaming portal in the world when it opened its platform in July 2007. One game on Facebook alone, Farmville, boasts over 80 million regular users and is still growing, making it the world’s biggest single media property with 1.4% of the planet now hooked on buying and selling virtual carrots and cows!
Social Media has opened gaming up to entirely new audiences; a recent survey determined that the average social gamer in the UK and the US is now a 43 year old woman. Bear in mind that the average console gamer is a 29 year old male. And it’s not just about games such as Farmville. There are apps for cat owners, for dating, some apps are virtual worlds or role playing games, but the common thread is that all of these can be integrated into the Virtual Economy. To put the scale of today’s landscape into historical perspective, the role playing game World of WarCraft took years to peak at 11m users, whereas it took Zynga, the largest social game developer, just 7 days to build 10m users for CafeWorld last year simply by cross-promoting it from their existing games.
Social games revolve around the ebb and flow of their virtual currency. For example, in CafeWorld the user runs a cafe and is given a daily allowance of currency simply for logging on. Virtual currency is spent buying food and other virtual goods such as stoves, tables and pot plants. A small amount of currency can be earned by serving up virtual dishes and through viral interactions with the user’s friends. But the game will end for the day after about 15 minutes of use unless the user is willing to convert their real cash to virtual currency. These millions of micro-payments bring serious money into the Virtual Economy.
Broadly 10% of app users contribute to the Virtual Economy. This can be through direct payments via credit card, PayPal or mobile phones. Other monetisation methods are tie-ins to third party marketing offers or market research surveys. A great example of the former is Love Film, who will pay about £10 worth of virtual currency to users who sign up to a two week trial of their product, representing a highly cost effective acquisition of a new customer.
Advertisers are also using the Virtual Economy to generate new customer leads and build marketing databases. Branded surveys can capture a lead for as little as 50p. Surveys range from a simple poll mechanic that captures an e-mail address through to a 20 minute market research survey complete with video and users comments – again the incentive for the user to participate is the promise of free virtual currency to spend in online apps.
So how does a brand create a presence in the Virtual Economy? The big app developers are not making advertiser branded applications for social media at the moment, as they are busy managing the growth of their existing business models. However, I predict that branded applications will start to dominate Social Media by 2013. Firstly as the space becomes more cluttered consumers will look to brands to define which are the latest, best and most reliable apps, and secondly because of the growth of social media on mobile, where branded apps such as SkySports & Orange Wednesday have already gained traction on the iPhone.
A quick and easy way to get into the Virtual Economy is to sponsor an existing app. For instance, by integrating into the gameplay of Zynga’s Mafia Wars, the DVD release of Public Enemies drove impressive 900m viral impressions in seven days for less than the cost of a single 30” spot in the X-Factor. Of course every time a user sees or interacts with your brand, it can be counted and tallied to calculate ROI for the sponsorship.
For me the most impressive and promising area of the Virtual Economy is Branded Virtual Goods. Quite simply a brand licences its name and artwork and the user pays to display this in various online environments such as games, virtual worlds or on their Facebook profile. Teenage girls using the virtual world WeeWorld are paying up to £3.50 to dress their Avatars in Jay-Z’s Rocawear clothing. Incredibly the user becomes a brand advocate whilst also generating revenue for the advertiser. All the brand has to do is approve the artwork for a digital image and manage the copyright. But it doesn’t end at clothing; the concept can be applied to many industries. There are opportunities for any fashion brand, sports team, alcoholic drink... you get the idea. Celebrities themselves are getting in on the act; you can already buy a virtual Paris Hilton Handbag, wear Avril Levigne’s hair or even get a kiss from Justin Timberlake...for the bargain price of £3.50! Each purchase can be counted and every impression can be measured. In terms of ROI it’s easy to measure the success of a Branded Virtual Goods campaign.
It’s fair to say that the Virtual Economy is one of the few places in Social Media where advertisers can see true, fast and effective ROI. It can drive immediate incremental revenues and still leave you with assets on the P&L sheet. If you get it right it can deliver advertising campaigns that actually pay for themselves or indeed make an immediate profit.
Ivan Ali-Khan
Co-Founder, Jellyworm
Twitter: jellywormlondon