STEEP Analysis Virtual Worlds for App Phones and Tablets

Media Management 2304 Spring Term 2011

STEEP Analysis Virtual Worlds for App Phones and Tablets Group 2a: Christine Alff, Niklas Hgerklo, Martina Kettner, Aline Rauh Mller

Executive summaryThe purpose of this presentation is to examine the industry of virtual worlds for mobile devices.The development and growth of portable communication devices such as smartphones and tablets has led to new opportunities and new demands for both companies and consumers. Technological advances and a change in social habits have moved the virtual world industry forward in terms of communication, availability and graphics. The market for apps, smartphones and applets are widely spread in US, Europe and Asia. Most of the virtual worlds users are people between 10-15 years and many of them are also users of these devices. But technological improvements also open up for new types of virtual worlds and new user groups. Social networking sites and marketplaces are key worlds in these new virtual trends.Virtual worlds are often offered to a worldwide public and therefore deals with a lot of regulatory and regional issues and differences. An economic system in such an environment must deal with these factors and must also offer highly developed payment solutions specifically suited for mobile devices. Technical solutions necessary are often made by third party providers and the virtual world companies main focus is on concept development and business models.Conclusions shows that rivalry among existing competitors are very low but threat of new entrants and substitute companies are high due tosocial and technological forces, which also have a major impact on the industry in general. User focus and awareness must be prioritized to succeed in this industry.Introduction Virtual WorldsVirtual worlds are persistent, avatar-based social spaces that provide players or participants with the ability to engage in long-term, joint coordinated action. In these spaces, cultures and meanings emerge from a complex set of interactions among the participants, rather than as part of a predefined story or narrative arc. (Brown & Thomas, 2009)Impact of Virtual Worlds $3.9 billion globally in revenue from subscription fees, in-game virtual goods sales, and third-party marketing by late 2011 (Kzero, 2010)The number of users registered for virtual world sites broke the 1 billion mark during the third quarter of 2010 (Kzero, 2010)

Kzero, 2010: Virtual Worlds: 2011 and beyond. http://www.readwriteweb.com/archives/number_of_virtual_world_users_breaks_the_1_billion.php; retrieved 3rd of February 2011 IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusionThe App IndustryAnkeny, 2010IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

Future TrendsPopularity of mobile social networking applications -> social networking by far biggest app categoryHighest retention among social network appsPositive competition among app storesMobile operators have rather failed in the attempt to market and distribute applications -> collaboration with e.g. GetjarMobile Advertising via appsParticipation of internet players in the mobile space, emergence of app stores and cross-industry servicesForecast Feb 2010: money transfer applications, location-based services and mobile search will reign as the top mobile application by 2012Predicition: browers will be available on 80% of all mobiles by 2012, whereas 2009 it was still 60%Each of these companies: own application stores (App store, Ovi store, Blackberry App world)Independent players such as GetJar targeting all operating systems Examples of Virtual Worlds Pocket MetaverseSecond Life on iPhone and iPad

Bobba barVirtual bar for mobile phones

3 D Talk by ICYou (upcoming)Smartphone multiplatform

http://www.pocketmetaverse.com; http://www.virtway.com; http://www.icyou.se/;http://www.bobba.com/IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

Why do people go to virtual worlds? Sense of being with others, share interests, engage in the play of imagination Do the impossible: transcend time, loose self-boundaries, identity shifting Live, explore, interact, form relationships, and build communities as in real life

Brown & Thomas, 2009; John & Sular, 1999; Richard & Velaro 2008 ; Watters & Audrey, 2010.IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusionBehaviorThe users graphical experience play a minor role compared to having funCurrent users need interaction, they want to feel a part of it and not only receive information. Co-creation plays a more important roleCultural differences ask for customization. Acting local enables gain of market share inside national marketsE.g.: Muxlim Pal,the first virtual world aimed at the Muslim community in Western countries

Stefan Lampinen and Malin Strman (Guest Lectures); Digital Trends, 2008.IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

Technical development and trendsDownloadable ClientBrowserSmartphone / Tablets Avatar Reality is restructuring in order to concentrate on bringing Blue Mars to portable touch screen devices like the iPhone and iPad. With over 50 million new tablet devices projected to reach consumers this year along with tens of millions of iPhones and iPod Touch devices, the market for Blue Mars Mobile is a massive opportunity.

Jim Sink, CEO Blue Mars, 14 January 2011TrendsMany virtual world providers looking into mobile market.Doubts about profitability. IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusionFrom 2D to 3DSocial networks looking into virtual worlds?Outsourcing of Graphics / Platform / Voice Communication / Payment mechanismBetter graphics Smartphones/ Tablets

Smartphone Penetration

By the end of 2013, half of the cell phones in the US (150 million devices) will be smartphones. (Source App Time) Tablet Penetration

Estimations that more than 81.3 million tablets will be sold in 2012, up from the estimated 15.7 million units sold worldwide in 2010

Mainly driven by the iPad

iPad currently represents 85% of tablet sales in 2010, expected to lead to the category, however at decreasing market shareHighly developed from a technological perspective (screen resolution, processor, graphics card, platform)The more developed 3D VWs --> increased system requirements

del Rey, 2010; Mashable, 2010.IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

EconomicalFund Raising: During the development time there is no income stream and there is high investment cost. Thus the business might depend on external investors

Sources of Revenue: Find a balanceAdvertisement and cooperation with companiesUser money flow (subscription, percentage on transactions)

Own virtual currency implications: How and whencan users acquire the currency? What it canbe used for? What are the money sinks to avoid inflation? Unclaimed property laws, regulations on taxationPillsbury Law, 2010. Overview of Legal Issues with Virtual Currencies. http://www.virtualworldlaw.com/Virtual%20Currency.pdfIntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

Environment

Power consumption increases with increasingly complex 3D worlds and constant internet connection.

This is especially important for handhelds where as little as 1 watt increase in power could increase the temperature by 13 celsius in the handheld.Eco city in Second life. Trends are showing that consumers demands environmental friendly products, this is one example where ecological awareness is incorporated in VW. Meeting in a virtual world instead of the real world saves carbon footprints.

Geography is one of the main drawbacks of real world events, it is not always possible to attend due to other commitments or time restraints.IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusionhttp://gamerlimit.com/2009/04/the-environmental-sustainability-of-the-games-industry/

Environment

Cloud processing creates a need for high speed internet connection which is not available in all parts of the worldCloud processing not as environmental friendly as previously thought. More energy efficient when producing the virtual world but you have to consider the transport too, adding that to the equation cloud gaming is actually less energy efficent than an actual application when the workload is high.CloudApplication60% to 90% of total power consumption is power for transport at high usage levels

IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusionhttp://www.physorg.com/news205737760.html

Political/ Legal Influence Property RightsPersonality RightsTax System Political InfluenceBonifield & Tomas, 2008; Gnther, 2010IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

Property Rights Increased Real money trade (RMT) -> Intellectual Property as the trailblazer of virtual world law? property interests are clearly going to be the most important arena for the initial development of virtual world law. This is the area of law where most disputes are arising, and it will be so for some time to come (Lastowska & Hunter, p. 96) Legal status of online assets remains unresolved in Europe, the US and the rest of the world -> property rights over digital items have not yet been determined European Network and Information Security Agency (ENISA)VW provider legally link the online and the real-life world by their EULA-> self-regulation -> Virtual worlds typically publish the terms of use governing participants activitiesVW providers unwillingness to recognize players rights to in- game assets due to liability issues Political/ Legal Influence Personality Rights Publicity rights: individuals rights to control commercial use of his or her name, image Privacy rights: individuals rights to be free from unsanctioned intrusion and having ones personality publicly represented without authorisation Bonifield & Tomas, 2008; Virtual Worlds & Video Games, n.d.IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

Tax SystemVirtual Currency can be cashed out for real money, to buy real world goods, traded for other currency -> what about the taxesVarious countries have imposed or are considering imposition of a tax on gains from virtual goods and virtual currency transactionsE.g. China has imposed a 20% tax on such transactionsUS: a congressional study is under waySpecific guidance on various tax issues, such as when a gain is realized/recognized and what reporting obligations exist and by which entities, remains to be provided.STEEP/PorterBargaining Power of suppliersBargaining power of buyersThreat of new entrantsThreat of substitute products or servicesRivalry among existing competitorsSocial-HighHighHighMediumTechnologyMediumHigh HighHighLow EnvironmentalLow-HighHighLow EconomicHighHighMediumHighLow Political--HighHigh-ConclusionMediumHighHighHighLow IntroductionSocialTechnologyEconomicEnvironmentPoliticalConclusion

socio-culturalBargaining power of suppliers: -bargaining power of buyers: high - as people get more educated and have more offers they become more and more demandingthreat of new entrants: high more and more people will join VWsthreat of substitute products: high - many apps competing for user's timerivalry among existing competitors: medium - they tend to believe there is space for everyoneEconomicalbargaing power of supplies: high (artists, companies that advertize there) -> need it for their revenue (% fee on each transaction)bargaining power of buyers: high (if they find things expensive, they can have a paralel market)threat of new entrants: medium (its expensive to develop and its uncertain whether its going to be successful, you might need a previous virtual world on pc, third party providers have to be reached)threat of substitute products: high (so many other free options)rivalry among existing competitors: low, there are few of them and they see each other and happy friends-political:bargaining power of suppliers: -barganing power of buyers: -threat of new entrants: high, no law making it hard to open a new businessthreat of substitute products: highrivalry among existing competitors:environmental:bargaining power of suppliers: lowbarganing power of buyers: - people do not care if their apps is environmentally friendlythreat of new entrants: high (no environmental issues that have an impact on new entrants -> so it is stillthreat of substitute products: highrivalry among existing competitors: low (environmental impact is zero)ReferencesAnkeny, J., 2010, The App store thats never closed Entrepreneur, p. 21-27Apple, 2011, http://www.apple.com/itunes/10-billion-app-countdown/ retrieved 30th of January 2011Bennett, A., 2009, The environmental sustainability of the games industry http://gamerlimit.com/2009/04/the-environmental-sustainability-of-the-games-industry/ retrieved 3rd of February 2011Bonifield, C. & Tomas, A., 2008, Intellectual Property Issues for marketers in the virtual world. Brand Management Vol. 16, 8. pp. 571-581Digital Trends, 2008, A Muslim Virtual World Arrives. http://www.digitaltrends.com/computing/a-muslim-virtual-world-arrives/ retrieved 2nd of February 2011Gnther, P. (2010). Virtual goods and regulatory insights fromt the European perspective. Virtual Economy Research Network. Retrieved from http://virtual-economy.org/blog/virtual_goods_and regulatory_i on February 6th, 2011Joffe, B., 2009, Virtual worlds in Asia: Trends and Ecpectations http://www.slideshare.net/plus8star/virtual-worlds-in-asia-1144427 retrieved 31st of January 2011KZero, 2009, Virtual worlds: 2010 and beyond http://www.slideshare.net/nicmitham/virtual-worlds-2010-2098472?from=ss_embed retrieved 31st of January 2011KZero, 2010,Virtual Worlds: 2011 and beyond http://www.readwriteweb.com/archives/number_of_virtual_world_users_breaks_the_1_billion.php; retrieved 3rd of February 2011Mashable, 2010, Tablet Sales expected to quadruple in 2012. retrieved from http://mashable.com/2010/12/09/tablet-sales-2012/ on February 3rd 2011Pillsbury, 2010, Overview of issues with virtual currencies http://www.virtualworldlaw.com/Virtual%20Currency.pdf retrieved 31st of January 2011del Rey, J., 2010, APP Time. Inc December 2010/ January 2011, p. 116-123Suler, J., 1999, Cyberspace as a Dream World http://users.rider.edu/~suler/psycyber/cybdream.html retrieved 3rd of February 2011Terdiman, D., 2008, Commerce drives virtual world http://www.wired.com/gaming/gamingreviews/news/2003/08/59941retreived retrieved February 2nd 2011Terdiman, D., 2009, Virtual world designer Metaplace to shutter http://news.cnet.com/8301-13772_3-10420089-52.html retrevied February 1st 2011Thomas,D., Brown, J.S. ,2009. Why Virtual Worlds Matter. http://www.johnseelybrown.com/needvirtualworlds.pdf retrieved 4th of February, 2010Velayo, R., 2008, Studying Virtual Worlds: What is in for Psychology? http://psqtest.typepad.com/blogPostPDFs/200816002_psq_53-51_StudyingVirtualWorlds.pdf retrieved 2nd of February 2011Watters, A., 2010, Number of Virtual World Users Breaks 1 Billion. http://www.readwriteweb.com/archives/number_of_virtual_world_users_breaks_the_1_billion.php retrieved 2nd of February 2011Zyga, L., 2010, How energy-efficient is cloud computing http://www.physorg.com/news205737760.html retrieved 1st of February 2011Other sourcesInterview ICYou, Stockholm 2011-01-31Guest lecture Stefan Lampinen, Stockholm, 2011-02-02Guest lecture Malin Strman, Stockholm, 2011-02-02