On Friday I spent some time at the 2007 Virtual Goods Summit at Stanford. This is an area I am spending considerable time looking for investment opportunities, and it was very timely that such well attended conference took place. The conference confirmed some of my theories, and gave me some new ideas as well. Here are some of my thoughts, going gradual from the absurd to the thoughtful.
First of all, I hadn't realized that Second Life was actually an adult web site. You can have avatar sex at the site, and there are even USB devices you can plug in your computer to get extra stimulation. This was news to me. You can see why this sounds somewhat absurd. How hard is the real world alternative for goodness sake? Are we to believe that there are people out there so incapable to find a real world solution to their needs that they prefer to to sign up for second life, learn the avatar moves to the act, get the usb powered toys, find somebody who has the same and then get it on. This really sounds absurd, and I'll leave it at that.
Secondly, I hadn't realized that the virtual worlds are very similar to the real one. Certain concepts, prevalent in our real world, is also abundant in virtual worlds. Such concepts mentioned across a number of panels were: "fraud", "inflation in the economy", "organized crime" and "fake money". They are all real issues in virtual worlds. But they will be dealt with I have no doubt.
Virtual worlds are more popular outside the US, especially in Asia. This was confirmed across the panels, but it is gaining fast in the US. Why Asia? I don't know the real answer, but one of my good friends, Ashley, once offered me the following answer: "Of course men in China spend a lot of time in virtual worlds. Think about their real life. They work at a job they don't like, breathe polluted air and live in a tiny apartment married to a woman they didn't choose. Wouldn't you want a virtual world?" Again, I don't know if this is true, but it is probably half true.
Now to more interesting observations. My first glimpse to virtual worlds were MUDs (multiple user domains), and Sherry Turkle, has a great book named Life On the Screen that talks about them. More research has been done on the subject, going from psychology to biology. Byron Reeves, professor at Stanford University made a very interesting comment: "The human brain did not evolve to differentiate real vs. virtual." The same neurons that fire when an avatar smiles at your or when a real person smiles at you. Your brain has the same dopamine responses when you get rewarded with virtual currency and when you get rewarded in the real world. These observations I think are critical, because it says that sky is the limit, in terms of engagement by people when it comes to virtual worlds. The more immersive, better the games are, the more people will be hooked on them.
There were very interesting statistics given on the state of virtual worlds, like Entropia Universe, Gaia, 3Rings and Habbo. All point to long engagement periods, and active users. The trick with all of them is to get the engagement started, once it does, users stay. But one thing that is very clear is that there is no clear winner in any demographic segment. It's wide open spaces, with lots of room for an upstart to make its mark. That's what we VC's like, and that's why I was there