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The Evolution of Virtual Worlds, Part Four. Branded Virtual Reality

This is the fourth article in our series exploring the evolution of virtual worlds. The first post laid out the foundations of popular virtual worlds moving from 2.5D into 3D environments, what we call VW1.0 and 2.0. Part two explores a key growth area for the virtual worlds sector away from the gaming genre – Social Virtual Reality. Our previous post (part three) explained the power and popularity of ‘building stuff’ in virtual worlds, a concept called User Generated Spaces.

In this post, we move away from sandbox environments and socialising and focus on how companies will leverage virtual worlds to create Branded Virtual Reality experiences.

Brands in Second Life

The idea of brands using virtual worlds is not a new one. From an older demographic perspective many brands have dipped their toes into virtual worlds. This activity was activated primarily by the popularity of Second Life from 2007 – 2009 with over 100 brands launching campaigns. In many cases brands created islands in Second Life and in the vast majority of cases these destinations struggled to generate visitors. Why? Because the residents of Second Life tended to hang-out on the main islands and didn’t want to teleport away from ‘the masses’ and check-out an empty branded island.

l'oreal kitchen_001

We adopted a different approach with our campaign for L’Oreal Paris in Second Life. Instead of creating an island and dragging users from the mainland to an island, instead we partnered with existing retailers of virtual goods with shops on the mainland and asked them to stock the products we created.

These products were virtual goods in the form of ‘skins’ based on real-world cosmetics. We also utlised a popular location in Second Life called the Greenies Kitchen – a supersized room allowing visitors to explore a massively scaled kitchen. Inside the kitchen we placed an enlarged handbag containing photorealistic replicas of L’Oreal products. The virtual ‘skins’ were also distributed when users clicked on the products.

The key point to make here is that brands have to create experiences in virtual worlds that the users actually want to engage with. And, if a brand can provide a virtual world user with a product (i.e. a virtual good) that enhances their experience then all the better. The idea that ‘if you build it they will come’ is not necessarily true.

Existing Branded Virtual Worlds

Shifting to a younger demographic, the kids and tween sectors have adopted virtual worlds in their millions. As shown in the graphic below from the KZero Universe Chart, VWs such as Moshi Monsters, Monkey Quest, Moviestar Planet and Poptropica command significant online audiences.

This is turn has facilitated offline revenue streams in the form of merchandising, movies and other forms of branded entertainment.

kzero universe q2 2014 seg2

The way that branded virtual worlds resonate with this age range presents a interesting opportunity to brand owners when the virtual reality market penetrates this demographic.

Branded Virtual Reality

From an experience perspective, the current state of the virtual reality market is being driven by independent developers, enthusiasts and in a small number of cases, larger studios creating games in liaison with headset manufacturers.

Brands haven’t completely ignored the emerging popularity of virtual reality though. As this presentation shows, some companies and IP’s have already dabbled with VR demos. Expect to see more of these types of applications used for expos, product launches and the like.

But once the number of headset owners starts to ramp-up (from early 2015 onwards) with products such as the Oculus Rift (CV1), Sony Project Morpheus and others coming to market, this will be the catalyst for brands to enter the VR space. Here are some examples of how this will happen….

Gaming Brand Extension

3176836171_5aa0b21e9f_o For some brands, virtual reality fits very nicely into their existing brand values. A great example is Red Bull. Red Bull works hard to extend their brand into categories and experiences outside of their actual product, with Red Bull Racing being a perfect example.

This company already ‘has previous’ in the virtual space with a gaming experience inside Playstation Home and it’s easy to envisage this type of VR application being created. But this isn’t just a gaming opportunity for Red Bull – imagine experiencing a real-life real-time Red Bull race streamed from a stereoscopic 3D camera (from a company such as Jaunt ).

Music, Movies and TV

Wider product opportunities are also presented to brands over and above VR gaming. Take the music category for example. Music is already a powerful experience in virtual worlds and becomes even more compelling with virtual reality. Branded VR experiences from musicians and bands would allow fans to get even closer to their favourite artists with concepts such as virtual concerts. So, record labels should examine VR as closely as they currently user social media channels.

Movies and TV is another branded virtual reality opportunity. Re-creating sets and places from iconic movie-sets and TV shows has already proven to be popular in VR. Unofficial (i.e. not endorsed or created by the IP owner) examples of this concept include Jerry’s Place, the bridge from the Starship Enterprise , the ‘Trench Run‘ from Star Wars and the Bat Cave. On an official basis, a Game of Thrones VR experience was also created recently.

Screen Shot 2014-06-14 at 14.44.00

Proving this genre is coming our way, recent reports indicate movie companies are already exploring the use of virtual reality in movies. Maybe soon you will be able to be Iron Man.

Character-Driven VR

Younger users of VR headsets (expected to be a part of the market from mid 2015 onwards) are a valuable piece of the future marketplace. Just as we’ve seen branded virtual worlds already prove popular and more recent developments linking on and off line product (Skylanders and Disney Infinity), we should expect VR environments driven by stories and characters.

These types of experiences will allow the players to be part of a narrative-led VR world, immersed alongside their favourite characters and stories. This could be part exploratory, allowing the players to roam around their favourite worlds as well as have RPG-elements enabling them to quest and play as these characters.

In Summary

Being placed inside a virtual reality environment on your own is compelling but when you’re sharing this ‘virtual space’ with others it becomes a completely different experience.

As the virtual reality market gathers pace, the essence and attributes associated with virtual worlds will be a key driver for adoption and this take-up will take place in several different areas.

Social Virtual Reality – interacting with your friends in a social setting is an area Facebook will be looking to exploit. User Generated Spaces – being able to build your own worlds and explore them with friends is another sweetspot. And not to left behind, as we’ve indicated in this article, Brands and IP owners will also want to leverage the presence of virtual reality. Exciting times!

Further information:

The Evolution of Virtual Worlds, Part Three. User Generated Spaces

We’re already up to part three in our series exploring how virtual reality will drive the future direction of the virtual worlds sector. Part one laid out the foundations of the market and part two explored Social Virtual Reality. Also, here’s a Slideshare presentation. In this article we’re diving in (literally) to User Generated Spaces.

Starting with a definition:

User Generated Spaces are virtual environments created by individuals for their personal use and enjoyment, accessed and explored using virtual reality.

This is a sector that is already massive in the browser, driven greatly by UGC VWs such as Second Life, IMVU and Minecraft. Interestingly, UGC activities in virtual worlds is popular across all age ranges. Minecraft has a user sweetspot in the tween and early teen bracket, IMVU appeals to late teens and the average age of a Second Life resident is late thirties.

Platforms and applications that have UGC functionality as a core mechanic are very engaging places due to two key activities, namely Crafting and Sharing.

‘Creating stuff’ takes time. People take great pleasure in crafting objects and environments which leads to session lengths measured in hours as opposed to minutes. And the output (i.e. what they create) is limited only by imagination. A quick Google image search using ‘Second Life’ or ‘Minecraft’ demonstrates the breadth of creation in existing virtual worlds. This includes real-world buildings and places right through to re-creations of movie sets. Basically, UGC allows people to create things they’re already interested in, as well as imagineer. Continue reading →

The Evolution of Virtual Worlds, Part One.

This is the first in a series of four posts exploring how virtual reality will drive the future evolution and direction of virtual worlds towards Social Virtual Reality – what we’re calling ‘Virtual Worlds 3.0′.

It’s important to lay-out in the first instance how we got to today, moving through VW1.0 and 2.0. Using the definition of ‘a real-time multi-user virtual environment that can not be altered by the user’, VW1.0 was heavily driven by the KT&T (Kids, Tweens and Teen) market, with registered account growth from this segment reaching 1bn in 2013 and an active user base in excess of 250m account globally. (Note that we’re focussing more on social VWs rather than game-based MMORPGs and the like).

The graphic below (the KZero Universe chart) visualises the tween and teen segment of the virtual worlds marketplace.

kzero universe q2 2014 seg2

Many of these virtual worlds have amassed multi-million registered account bases by creating immersive environments based around activities such as socialisation, avatar dress-up, multi-player experiences questing and exploration. And, in many ways these virtual worlds have proved popular because they offere ‘visual social networking’ (via avatars) before the concept of mainstream social networking as we know it today. They offer users the ability to be in the same ‘place’ at the same time as other people, albeit with in most cases a 2.5D perspective, viewed via web-browser.

Screen Shot 2014-05-12 at 14.18.45In addition to existing IP branded platforms such as Playstation Home, Build-a-Bearville, Barbie World and Fusion Fall being popular, brand-new IPs such as Moshi Monsters, Club Penguin and Poptropica demonstrated the appetite for younger users to explore in and engage with virtual worlds.

Importantly, a key differentiator between this stage of the market (VW1.0) and the next, was the fact that users had no or little control over the environment – the virtual world could not be modified by them. In other words, User Generated Content (UGC) was not possible, which leads us to VW2.0.

We classify the second evolutionary stage of the virtual worlds market as VW 2.0, defined as a ‘A VW that allows the user to create/modify their environment’. By this of course we mean UGC….

Interestingly, some UGC-based virtual worlds actually existed before some of the more popular VW 1.0 platforms, with Second Life being the most prominent one. But, it was not until Minecraft became a global phenomenon that the concept of creating ‘virtual stuff’ hit the headlines and continues to do so. The advent of UGC worlds such as Minecraft, Roblox and Stardoll pushed global registered accounts up to 1.3bn and active users to 350m. Continue reading →

Legends of Oz Branded Virtual Goods in Blocksworld

Branded virtual goods (BVG’s) are a great way for brands and IPs to connect with target audiences playing games. Typically, virtual goods inside games and virtual worlds based on real-world brands are at least 5x more popular than non-branded equivalents.

We’re one of the pioneers in the BVG arena, having developed campaigns for brands such as L’Oreal Paris inside Second Life and Dancing with the Stars/ Strictly Come Dancing inside Stardoll.

Screen Shot 2014-02-07 at 09.44.23The latest campaign we’ve forged is between upcoming Legends of Oz movie and popular 3D building game , from Linden Lab (creators of Second Life). Blocksworld has over 1m downloads from the App Store and over 400,000 user-generated worlds have been created.

With the new branded virtual goods set, players will be able to create and play with content and characters from the upcoming animated feature film, slated for release on May 9, 2014.

Screen Shot 2014-02-07 at 09.37.26

The Legends of Oz set will include: Continue reading →

Lessons in Launching Virtual Worlds. Mistake #3: We’re Going With a Monthly Subscription

This is number three in our series explaining common mistakes made by companies launching virtual worlds.

In the first post we discussed the need for market (or rather user acquisition) budget and the target market range was explored in the second post.

Now the focus switches towards the monetization strategy – the pricing method that users will be encouraged to use.

Most virtual worlds targeting the KT&T marketplace opt for a monthly subscription pricing method – charge users a fixed monthly fee and provide them with enhanced/premium features. These premium items take the form of access to special areas, bundles of virtual goods, additional features and the like.

Worryingly, the pricing decision for a lot of virtual worlds and MMOs in the sector isn’t a decision at all. Instead, worlds just opt for a monthly subscription based on the following thinking:

  • If it works for Club Penguin then it will work for us
  • It provides parents with peace of mind – no unexpected charges
  • Having a recurring monthly subscription is less hassle

You get the picture.

And in principle the arguments above are sound. And indeed, virtual worlds such as Moshi Monsters, Jumpstart, Club Penguin and Wizard 101 all have monthly subscriptions. But, these worlds have become ‘brands’ in the space helped a great deal by spending sizable amounts on user acquisition (see mistake number 1).

However, there’s a much bigger picture that many virtual worlds completely miss.

Firstly, switching costs.

What many virtual worlds do not realize is that users who are most likely to be monetized are already being monetized somewhere else, i.e. a competitor virtual world. In this instance, the new virtual world has to shift the user’s attention away from their existing world and move them to their world. It’s important to bear in mind that the propensity for KT&T to have monthly subscriptions in more than one world is virtually zero, due to the issue of switching costs and an unwillingness for parents to be paying for two at the same time.

Another issue is brand awareness and reputation.

When a new virtual world launches, brand awareness and more importantly brand reputation is zero. Nobody knows and nobody cares. Yet worlds think parents will willingly pull out their credit cards and commit to a monthly subscription. If only it was that easy.

A far better pricing strategy is using microtransactions (MTX) at lower price points than a typically monthly subscription (which, surprise surprise is usually $5.95). Allowing users to purchase a virtual currency (which can be used to buy all the elements that a typical monthly subscription offers in smaller chunks) makes the payment decision much easier for parents.

Not only is the paying amount lower (read: cheaper) but also less riskier than a monthly subscription. This neatly side-steps the concern parents have that their child will get bored playing in world X and move onto to another one (whilst still paying for the first).

Implementing lower -priced MTX has an additional benefit of widening the paying user catchment. In other words, for a lot of users, paying $6ish a month is simply not an option. Whereas paying as low as $1 for a ‘taste of the good life’ is much easier to swallow. You just have to look at the app market for evidence of this. By lowering the paying entry threshold you can go after those users that haven’t been monetized by other worlds.

The bottom line is that pushing users over the monetization line is about showing KT&T whats on the other side of the fence. If you have a great VW then users will want to stay as paying users – give them a really low hurdle to jump over, then focus on raising it once they’re over it.

As a closing PS, another point missed by many virtual worlds is that by having a monthly subscription – a take it or leave it fixed price for premium content, you’re actually setting the upper limit of what users can pay. This means that the really engaged paying power users that reside within KT&T worlds can’t get anymore out of their world over and above the monthly subscription level and benefits. This is a poor longer-term strategy.

PPS: KT&T virtual worlds and MMOs with virtual currency based MTX convert three times as many users as subscription-only worlds and have a monthly ARRPU on average 20% higher.

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How Minecraft Gave Virtual Worlds a Second Life

A blog post from New World Notes today announced that Minecraft is now the popular game on XBOX Live. And in fact it’s more popular than Call of Duty. That’s kinda cool.

Minecraft has been an incredible success in a very short period of time by offering users the ability to create. Millions of users (we’ll call them that for now) are spending long periods of time crafting (creating) digital objects. Why? Just because they can. It’s Lego 2.0 with added zest.

The secret sauce is the interaction with these objects, other users and the environment. New digital worlds are being created and entire ecosystems of interaction are taking place.

What has really assisted in the growth of Minecraft is the passionate audience of fans behind it. And, in particular the videos of user creations and activities inside the world. This ‘Machinima’ enjoys multi-million views in really short periods of time. In turn, virality grows off the back of widespread exploitation of social graphs.

It’s interesting to see the different ways that users play / engage with Minecraft. Some re-create real world places – these are known as mirror worlds. Others create race tracks, space stations and even environments from other games such as World of Warcraft. Pop culture is also prevalent. Combining this and the viral element, here’s a video on YouTube that was released four day ago. It’s just about to hit 5m views. Not bad.

Minecraft is enjoying explosive growth and 2012 has seen them move from circa 28m registered accounts right up to 45m. This is the largest proportional increase in the entire sector, including the kids, tween and teen markets. The Universe chart extract below shows the Q1 2012 position (we’ll be releasing Q3 numbers soon).


Minecraft has become a global brand in around two years and the great thing is that due to the nature of the platform (user generated content), the community is in total control of its destiny – where it goes from here.

But hang on a minute.

Haven’t we been here before with Second Life?

Millions of users. Media awareness. Content creation. Communities.

All of these elements were (and still are) in Second Life. This has been the case for many years. The funny thing is that Second Life is still a great business. It’s just that the media got bored and moved on. People think that Second Life has closed, just because no-one really writes about it anymore. But the community didn’t get that memo and still enjoy being inside Second Life.

But is was never cool in a way that could be interpreted by a wide age range. Who, in turn could tell their friends. Maybe the avatars looked too real, and at the same time too weird. Maybe it was the brands that swept in and mainly left a bad-taste in users mouths. We were fortunate to create one of the best performing campaigns in Second Life, with our L’Oreal Paris campaign. Or perhaps it was the age limit of having to be at least 17 to register for Second Life. Sure, these was a ‘Teen Grid’ for slightly younger users but that’s not cool. You always wanted to go to your older brothers party.

Minecraft has a user base that spans a wide age range. We estimate the average user age to be 14 but that hides a spread from eight right through to 98. Minecraft is UGC (user generated content) for the masses. So, the users are kids, tweens, teens and adults.  The power-house of user base growth has come from the teenage market, with YouTube boosting K-Factors and brand awareness and other community-led channels such as Facebook have made virtual worlds cool again. In fact, the Minecraft Facebook fan page has just reached 5m fans.

Shown below is a google trends chart comparing Second Life and Minecraft.

Minecraft is the red line and totally over-shadows Second Life in blue, which is remarkable because the media  interest in Second Life was intense in 2007 – 2008. It’s just that Minecraft has become more popular by an order of magnitudes.

The bottom line here is that fundemantally. giving the people the power to create whilst socializing is one of the most compelling features of virtual worlds. It may even be the most important aspect. Second Life provided one of the first platforms for people to do this. But the growth of Second Life was ultimately hampered by some brick walls. The younger audience has propelled usage of UGC and Minecraft and  and in many cases it serves as the ‘graduation destination’ for the millions of kids and tweens that migrate from the highly successful younger virtual worlds such as Moshi Monsters, Club Penguin, Stardoll and others.

This sector is in good hands and promises much. As consumers and businesses, we will continue to use virtual content creation and engage with virtual social networks. Drawing from a previous point and closing this article, the ability to create and share will be the driving force in the future of the sector and virtual worlds like Minecraft give us glimpse into where we are heading. Albeit currently in large pixel format……but that’s cool.

Further information:

Golden Triangle Slideshare presentation

Our latest report, The Golden Triangle is now available on Slideshare.

This report explains and positions the opportunities available to IP owners in the toys/games and tv/movie sectors with respect to virtual world integration. The full high-res report can be ordered here

The Golden Triangle

View more presentations from KZero Worldswide


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KZero Reports



What Lady Gaga should have done….

Lot’s of newsflow in the last couple of days about Lady Gaga gaining an injunction against Mind Candy, owners of Moshi Monsters.

Moshi developed a character called Lady Goo Goo and placed songs onto YouTube, with plans to release a song on iTunes via their new music division Moshi Music. Here’s the news report.

Unofficial re-creations of brands inside virtual worlds are nothing new. Back in 2008 we identified this trend – primarily inside Second Life with residents (as opposed to Linden Lab) creating and in a lot of cases actually selling these virtual goods. Furthermore, the concept of users re-creating music videos as machinima is another interesting topic.

This case is slightly different because it’s the virtual world company itself creating the unofficial brand as opposed to the users – but it seems the Moshi users really love the character.

In response to the trend of unofficial brands and virtual goods, we developed the ‘5 Rules of Virtual Brand Management’ back in 2008. It’s a set of principles that brand owners should consider before taking action. Perhaps Lady Gaga should have read this first. The full report can be ordered here and shown below is a quick summary presentation.

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KZero Reports


New KZero report: Toys, Media and Virtual Worlds – Creating the Golden Triangle

We’ve just released our latest report called ‘Toys, Media and Virtual Worlds – Creating the Golden Triangle’.

The report, in presentation format, aims to provide professionals in the toys, games, TV and movie sectors with guidance and insight into the key opportunities and strategies available in the virtual worlds sector.

Importantly, it also recommends how to align all three elements into a cohesive community building and revenue generating platform.

Areas covered include branded virtual goods inclusion, community and awareness building, research and development, character development and many others.

Also included in the report are examples of projects deployed to date. The free report can be requested here.


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KZero Reports

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