The general consensus on those questions is often: copy is easy and has no merit; the original has little recourse; investors are aligned with entrepreneurs if those want to grow and sell fast. During the past few weeks, thanks to various research projects and encounters, I came to evolve to a richer viewpoint.

Is copycatting easy?

Quite frankly, if it was, everyone would do it, and companies would try and expand internationally a lot faster. You might have heard “execution is key”, I would like to add “…once you have adjusted the plan correctly”. Many copycats fail due to their sticking to a plan not suitable for their market. While starting with an idea proven somewhere else removes part of the risk, as a company in Europe specialized in “starting startups” explained to me, the culturization of startups and execution speed constitute most of the work.

Copycats are enemies

The world is often more complicated than when divided between good and bad guys. The “good guy” is often the “first bully” to reach prominence. Was YouTube the first online video site? Was Facebook the first social network? Pandora.tv in Korea was up 6 months before YouTube and Friendster was around since 2003. And there are surely other companies before them who tried and did not reach the same scale. So how do you get where YouTube or Facebook are? With visibility, scale and money.

In the US, the marketing machine is very well used by some startups, who get people excited around them when they barely have a few tens of thousands of users, or sometimes not even launched! This initial push gives them a lot of visibility for cheap, which in turn allows them to “own the mindshare” of the category they are creating, raise capital, and scale up. In a way, it is a form of self-fulfilling prophecy.

What the case of Groupon (a service offering “one deal a day” for group purchases) shows is that even when your model is easy to replicate and maybe thanks to this fact, you can expand faster thanks to copycats. In China, Europe, Japan, South Korea and more, dozens of copycats appeared earlier this year. Within a few months, leaders started to emerge. Some of them raised some funding – showing again how venture capital also fuels copy – and distanced the pack of those who did not.

Since Groupon is operating in the US and raised a lot more money, it was in a position to de-risk its international expansion at a reasonable cost by simply buying the copycats that were doing well. By doing so it acquired a capable team and saved lots of time. Maybe the price paid looks expensive, considering the local entrepreneurs took the idea and ran with it for less than a year, but if one considers the value not today but in just one or two years time, it is a very good deal with a much lower risk of failing than starting operations from scratch by hiring a hard-to-find local entrepreneurial-yet-salaried executive.

New deals for entrepreneurs: If you’re worth a million dollars

After meeting a handful of incubators and attending startup pitch sessions gathering hundreds of angel investors, it became clear that the world of financing for technology companies had evolved. While venture capital firms were calling the shots, the lower financial requirements of web companies has given a new scale to early stage investment: smaller amounts of money are offered by more people, and companies are aiming at reaching profitability faster than ever. At such stage, companies generally sell 5 to 10% of their capital at valuations generally in the 1 to 3 million dollars range.

Another interesting aspect of joining incubators and getting angels on board is the leverage of resources, knowledge and reputation it allows. Instead of a financier who will check on milestones, entrepreneurs can receive regular support from people who not only genuinely like what they do, but also have a useful expertise or human network to help the company develop. This is not making traditional venture capital irrelevant, but rather creates an early-stage filter for them, giving a better position to entrepreneurs when negotiating subsequent “growth” deals.

New deals for entrepreneurs: If you’re worth a billion dollars

At the other end of the spectrum, a relatively new investment company named has been offering a different deal: instead of going from rags to riches at a distant public offering, they are offering to entrepreneurs, and sometimes employees, to sell some of their shares before the elusive IPO. It is sometimes called a “partial exit”. Why is that attractive to entrepreneurs? Just like everyone, entrepreneurs worry about their personal finances: owning their house, paying off loans, ensuring their kids get a good education and ideally having enough money saved to not work again if they want to. Alleviating those concerns is beneficial to the company and its stakeholders as it allows them to focus more freely on growing the business.

Of course this type of deal is not for everyone: those investors are looking for a multi-billion dollar potential. Ideally in the tens, if not in the hundreds. Despite the large sum it would require to get a meaningful share, they see those deals as low-risk as they invest in clear leaders with fast growth at a valuation where there is little competition from other investors, while still having a huge potential. Maybe the company won’t multiply its valuation by ten, but if it doubles at least once it is already a good deal for them, and a welcome one for founders. It also allows those investors to focus on just a few very large deals. It happens so that Digital Sky Technologies (DST), the company which started offering those deals, is based in Russia. They invest worldwide. Interestingly, showing again how reasoning in terms of nationality is increasingly irrelevant, DST themselves received investment from China’s leading Internet company Tencent. For memory, the largest shareholder in Tencent is a large media holding from South Africa.

As was said to a TV anchor gone mad in the movie “Network” back in 1976:

“You are an old man who thinks in terms of nations and peoples. There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no third worlds. There is no West. There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars.”

This column was written for the magazine “China Electronics Business”

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+8* | Plus Eight Star cares about your digital looks, and shows you how Asia leads online styles. Follow us at @plus8star and @benjaminjoffe.

The Digital Ape

The behavior of humans has numerous parallels with animal behavior, from group behavior to conflict resolution or mating. In the late 60’s, Desmond Morris looked at our species from the point of view of a zoologist and wrote two important books on the topic: “The Naked Ape”, which makes parallels between our behaviors and our ape cousins, and “The Human Zoo” which explores how urban life lead us to exhibit behaviors that in the animal kingdom are specific to life in captivity. Basically, we are not only mammals at heart, but also showing signs of mental and physical distress like zoo animals.

How does this relate to the Internet? As the world goes increasingly populated, individual space diminishes; people are also getting increasingly connected and we are becoming part of new tribes that are larger, more symbolic while still requiring from us the ability to display emotions, show dominance, etc. You might not be an “alpha-male” (or female) offline – for males that generally means tall, square-jawed, muscular, deep-voiced, graduate from a top university and driver of a fast car – but stop worrying: online is not only going to give you another chance, it is rapidly going to be the most important field for numerous human activities. Including, of course, romance.

Welcome to the new era of evolution, where the naked ape escapes from his polluted cage and enters a new world. Without further ado, let us look into the exciting and highly abstract life of the digital ape.

Generating Digital Attraction

By now, many companies have learned how to advertise their services and present themselves well online. They have ideas on what they need to show in terms of who they are, what they do, customer references, quotes from famous media and spend more and more on online advertising – basically generating attraction and showing some “social proof”. For most of them, they are still trying to figure out how to handle the back-channel: reviews on third party services, forums talking about them. With the growth of the “instant web” – social networks, micro-blogging, Q&A services – it is turning into a pretty big PR headache and an important business risk.

What about us, individuals? Many of us caught into social networks or blogs gradually realize that managing our online reputation requires quite a bit of attention. Recently, I read that a job applicant created the “perfect Facebook page” to look more attractive to a prospective employer. And this is still a watered-down version of what is to come.

One interesting case to look at is online matchmaking and dating services. Most people would not mention they actually tried or use one, but there are already millions who registered and a sizable number who even got married. Having completed projects for leading online matchmaking companies, I got to learn about that scene, and realized their value in solving a real problem of society. People are busier than ever with long work hours and commute, they live far from their hometown and have to rebuild their social circle, which may or may not help them find the right partner. Adding to this the inherent difficulty of approaching strangers, the path looks a bit rocky.

Offline, if your social skills are not high, you might end up standing by a wall, holding your glass in front of your chest and wondering why those other guys or girls were born with much better skills. Of course, it can be fixed, but it is a different game from what is happening online.

Online, conversations are scalable, and you can use that to learn more rapidly. Just like professional online poker players are able to play up to 10 tables in parallel, you can handle numerous interactions and test what works best a lot faster.

Though the ethics of the method are debatable, one coach specialized in online dating suggested to his clients to use first a “reconnaissance” profile: build an imaginary profile mixing a picture of a girl with the profile of another and putting it online for a few days to see what kind of messages they would get. It not only helps the user understand better the dynamics of the service, but also provides useful feedback on what works best to get attention from a female user. In other words, it helps him learn “digital alpha-male” techniques in communication and building of his own profile from other unsuspecting male users. It is a kind of parasitic behavior but certainly provides an edge.

While you become increasingly successful at presenting yourself and interacting online, the slippery slope is losing track of the respect and consideration the persons you interact with deserve; becoming so systematic that you lose yourself and become a social robot. Instead of supporting your social life, those tools could take control of you, your identity and values.

The Future of Digital Attraction

As pictures, videos and text are recording many of our offline and online interactions and sharing it, often out of our control, the world is getting increasingly transparent. You could easily imagine a future where not only your colleagues, clients but also friends or former partners could provide feedback about who you are and how you behave. Various matchmaking sites already do psychological profiling with questionnaires or user-generated quizzes; since third-parties are always more trusted, you could imagine others filling those about you.

If you combine total transparency with feedback and rating mechanisms, we could be on the verge of a new cognitive revolution: just like the invention of writing helped us reflect deeper and spread ideas, the disappearance of what we know as “privacy” might lead us to higher levels of understanding of ourselves. My hope is that, if that is the path we are taking, the transition goes smoothly and that it leads not to more control, but to more tolerance as we get to know and accept the various quirks of our fellow digital apes.

What do you think? Comments are welcome on Twitter (see below) or by email benjamin [at] plus8star.com

This column was written for the magazine “China Electronics Business”

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+8* | Plus Eight Star cares about your digital looks, and shows you how Asia leads online styles. Follow us at @plus8star and @benjaminjoffe.

The Map is Not the Territory

In a previous column, I have talked about “the myths of innovation”, including the “lone inventor”, the “wiz kid” and the fact that the successes we see today have often evolved and changed since the initial idea. In another, I talked about the “5C’s of innovation”: Copy, Combination, Competition, Constraints and Country, which influence how services and products evolve and diverge from an initial idea due to the influence of their environment.

You might have heard this expression “the map is not the territory” – certainly valid when the Chinese explorer Zheng He possibly sailed up to America in the 15th Century. The meaning is that the name of an object, the word for an idea or the opinion about someone is not the same as the object, the idea or the person itself.

I found that deciding to call something “innovation” or someone “entrepreneur” has a lot to do with:
(1) who is talking (the speaker’s personal knowledge and bias)
(2) who else is saying that (this is also called “social proof”)

Now the questions to tackle are: When can you call something an “innovation”? When can you call someone an “entrepreneur”?

What is innovation?

1. First issue: Finding signal

I am in the business of selling ideas from Asia and I keep hearing that “China is not innovating”. Am I in the wrong business? In fact, we continually identify interesting service concepts, business models, marketing strategies in China, and explain them to our clients. We consider them to be “innovations”, so why is China’s image still so much about “copy”? The short answer is that the “signal” is hard to find when there is a lot of “noise”.

2. Second issue: unknown prior art and dual citizenship

Innovation does not have a nationality, and it is very possible for something to be invented more than once. I was told at school that Gutenberg invented the printing press in the 15th century, but I found out later that it had been around in China since the 11th. Didn’t Gutemberg invent it? I think he did, but he did not know somebody else did it too, earlier. Is the printing press “Chinese”? I am not sure about the nationality but I do hope that possible patents – there was none at the time – have expired!

3. Third issue: incremental innovations

Another issue with innovation is that if you make a tiny change to something, most people would not call it an innovation. But if you make one tiny change every day, then over a few years the result will be radically different from where you started. When did “innovation” happen then? The answer is probably: every day.

I believe this incremental aspect of innovation is what makes it difficult to understand what is innovative in China. If you use Western references to describe local services you will simply miss out on what is different, original and really important.

Call Taobao “China’s eBay” and you will fail to recognize that Taobao implemented many services that eBay doesn’t have (IM, ad exchange, service platform, micro-retail service) and a business model that destroyed eBay in China.

Call Tencent “China’s Facebook” and you will not see that not only Tencent is making about 3 times more revenue than Facebook, but that it is far more profitable and has a very different service offering. Also, Tencent’s customers are its users, while Facebook’s customers are still for 90% its advertisers. If Tencent started as a “ICQ of China” and Taobao as “eBay of China”, they are certainly very different now.

Did they innovate? They would probably not be where they are if they did not.

4. Fourth issue: innovation does not always turn into a business

Of course, not all innovations end up becoming billion dollar companies. Most innovations never turn into profitable businesses. Even great ideas can take years to find a suitable environment to prosper: group buying is becoming hot in the US with a site named Groupon. “Tuangou” group buying in China has been very popular for years, combining online gathering and online/offline purchases, even for large things like cars!

So if you want to find innovation: put aside what you think innovation “should be” and focus on understanding the differences and paying attention to emerging signs. Innovation is right there, every time something is done a bit differently that it used to.

What is an entrepreneur?

Earlier this month I came across another instance of s never-ending debate about entrepreneurs: do you have to be born an entrepreneur to become one? I will try and show that first, this question has a massive logic flaw and second, that just like innovation, entrepreneurs are everywhere. It is all a point of view.

So are you born an entrepreneur? Well the problem with this idea is it is too easy to self-prove: his/her grandfather was an entrepreneur / he has friends who are / he had the drive because he was bored with his previous job, etc. Basically, there is always something I can find to justify this. Convenient, isn’t it?

If even the most socially awkward can be trained…

To show how this idea makes little sense let me make a parallel with a TV show I watched recently. It is a reality TV series named “The Pickup Artist” where a group of men who have extreme difficulties finding a girlfriend – they can be shy, unfashionable, awkward – enroll on a training that will equip them with the skills to approach women confidently.

Some people are “naturals” – born with high social skills, while others are not and might want to do something about it. The instructors in the show are experts who, for some, make a living teaching those skills, and were initially awkward and shy themselves. Along the episodes, participants receiving instruction and techniques and are faced with increasingly difficult challenges (the winner walks away with the title of “Master Pickup Artist” and 50,000 USD).

…then why not entrepreneurs?

The show demonstrates quite effectively that you can take pretty much anyone who is willing to change and help him do that. I would say that the same applies to entrepreneurs. The media only remembers big successes and dramatic failures (see “people love heroes” in my previous column), but most entrepreneurs are not there for the big media splash.

They are in it because they want something to change.

They are not satisfied with the present; they see an opportunity (they often overestimate it) and decide to do something about it. There is something glamorous about being called an entrepreneur – maybe something like being an adventurer of the 21st century. Would “Social Entrepreneurs” be the equivalent of “enlightened philosophers” of the 18th century? Being called an entrepreneur is also a convenient “license to fail” – and at least it was romantic to try. This actually leads us to another important point: what is failure? And what is success?

Failure and Success

Again it is largely a matter of perception. Each culture has its “models” and each person has its own set of values. While success is often described with a dollar value, many creators are more interested in creation and change than in fame and wealth, which come as pleasant side effects, at least while they last.

In a sense, Western companies have both succeeded and failed in China: Facebook has no presence but local evolutions are doing well. MSN and eBay failed but Tencent and Alibaba took their concept and changed it to succeed. I know of numerous small startups with creative approaches, concepts and sometimes technologies, but most of them lack the market-building capabilities, and almost all have little interest in getting known outside of China. Some are doing very well and keeping under the radar intentionally. Some have failed but have had the ride of their life. All have earned experience.

So which ones think of themselves as successes, which ones think of themselves as failures? Their peers and society at large might have an opinion, but eventually, it’s up to them to decide what they make of it. And as the song goes “You come from nothing – you’re going back to nothing. What have you lost? Nothing!”

Note: This is a guest column written for the Chinese business magazine “China Electronic Business”, invested by Jack Ma of Alibaba, and IT news site Interfax. Syndication inquiries are welcome!

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+8* | Plus Eight Star explains to its friends and lucky clients why so many good ideas from Asia are overlooked, and how to leverage them. We’re also on Twitter @plus8star

Can you make millions on Facebook? Can you make millions on iPhone? Despite the enthusiasm, it might not be so easy. Here are some surprises gathered from a recent trip to Silicon Valley organized by the Mobile Internet Great Wall Club, including insights from a surprisingly successful low-key service.

Making millions with iPhone games?

By now you have probably seen a game on an iPhone. You might even have friends who consider starting a mobile gaming company. Should you quit your job and join them? Should you invest in their venture? Here is some information to give you perspective on what is depicted in many places like a new gold rush.

Though Apple does not publish app store sales numbers, the “most official” figure I came across so far is $750 mln since start . This is spread across over 3 billion downloads of 130,000 applications serving 34 million iPhones. Apple keeping 30% this is about $500 mln left for developers to share via a single sales channel: the App Store.

I know several mobile developers who released iPhone applications but most seem unable to reach profitability, even for developers getting well over 500,000 downloads, as most are free. Life is tough for them and most are developing applications for corporate clients, which pays better.

I started to wonder if the quality of games made a difference. For instance, one 3D jet fighter game named F.A.S.T. by the company SGN seemed to do well. This was until I met an independent developer who had developed… another 3D jet fighter game in 3 months just by himself. He explained that after the initial spike on the iPhone store, revenue dried out and that he was now making more money selling the entire source code for $100 each time. Is it a commodity?

During a recent trip to San Francisco meeting the top-selling iPhone game developer, the myth that a developing a great game is enough do well took another blow, but also provided valuable insights.
The company Tapulous sells the most popular game on iPhone, a music game named “Tap Tap Revenge”, in the wake of older music games such as Rock Star and the venerable Dance Dance Revolution. Their sales represent a few million dollars per month. A great number for a 20-people operation but a small one by Internet business standards, and this is the best-selling game on iPhone!

Here is some of what I learned talking with them:

First, they benefited from the best timing. They were ready when the iPhone platform launched and got tons of free marketing from Apple who was eager to promote its platform with attractive content. Today, with over 100,000 applications available, a new application gets on the store and enjoys a short peak due to the increased visibility at launch, then vanishes quietly in the sea of apps.

Second, their greatest asset is their distribution: over 25 million applications were downloaded since start, which makes it possible to push any new content with reasonable chances – and surely more than a developer only relying on the initial push from the application launch. This is very much in agreement with the difficulties faced by small developers who don’t realize this marketing issue.

Last, the two founders of the company are not game industry guys! They even see this as an advantage when operating on a disruptive platform with evolving business models.

Making millions on Facebook?

Despite the success of some, it is still far from easy. I mentioned in a previous column the cut-throat competition which leads successful games to be copied in a matter of weeks – I counted at least 6 farming games on Facebook and the largest one today was not the first to launch.

In this context, the content seems to be almost a commodity compared to the ability to reach users and the skills in operating and measuring ROI. It looks like innovation is more concentrated within those two aspects than in original content. If you plan of starting today, the bar is definitely a lot higher than a year or two ago!

Another interesting learning from meeting with Facebook directly is the fact that they show no immediate intention to increase significantly their own virtual goods and mobile revenue. This is all the more surprising as, coming from Asia, virtual goods and mobile seem the way to go. As a quick reminder, Tencent is making 90% of its revenue from users vs. 10% from ads and in Japan three social networks are listed on the stock market, two of them making well over $100 mln from mobile virtual goods.

While Facebook was explaining that their main focus is growth and reach, it was a surprise to me and the group of Chinese and Japanese mobile executives who were attending the meeting. What kind of company decides not to catch low-hanging fruits? Facebook is not a non-profit and their main revenue source is already a rather interruptive form: advertising – more so than virtual goods which would turn users into real customers instead of eyeballs retailed to advertisers.

Finding a Fortune in Fortune Telling

The most flashy service is not necessarily the most profitable. While iPhone’s Tap Tap Revenge blasts music and colors, a much lower-key service with much less users if generating a lot more profit across the ocean. What could it be?

One of the companies part of this visit to Silicon Valley was a rather unusual mobile content provider. To introduce it, let’s start with a question: do you sometimes read your horoscope? When asked if they were reading theirs, only one member of the audience gathered at Stanford University raised her hand. Would there be no market for such service? Was it a gender or age bias? Are Stanford MBAs too rational? Did the audience have to look rational in front of others? This is left to speculation.

As a side note, I received the same response when asking Berkeley MBA students about their usage of online dating, but got half of them vote positively after I introduced an original matchmaking service from China and asked if it would work in the US too.

The reason for asking about horoscopes was because one of the speakers at that event was the President of a company providing mobile horoscopes. At that point most people smile. This company named Zappallas made close to $120 mln in 2009 with only 2.5 million paying subscribers in Japan. Even more interestingly, their President explained that they figured horoscopes were one of the three categories of daily information users don’t get tired of, the other two being news and weather forecast.

The difference with horoscopes is that users volunteer accurate personal information to get their horoscope, which helped the company build incredibly refined databases. Those can be used to cross-promote content or products for their mobile commerce service. Luckily, “stars are aligned” and their user base – mostly women between 20 and 35 – happen to have, in addition to interest in their fortune, a large disposable income.

People Love Heroes

While several companies are having amazing success with either Facebook or iPhone applications, the success story we read is generally setting aside many important points in order to build a heroic image of fantastic and visionary entrepreneurs. The reality is often much less of a straight story. Inversely, a few less glamorous services are quietly doing extremely well.

Why would a company who succeeds easily take time to talk to the media? It would only attract competitors! It seems to me that two categories of companies have a special position: the first are large ones who talk to scare off and distract competitors from the real difficulties, the second are small newcomers who are surprised by their success and give out, without realizing it, valuable know-how. Unfortunately you won’t find in mainstream media companies surprised by their failure, who would give out a more accurate picture of the challenges. Next time you read a “success story”, you might give a second thought about what they share and why.

Note: This is a guest column written for the Chinese business magazine “China Electronic Business”, invested by Jack Ma of Alibaba, and IT news site Interfax. Syndication inquiries are welcome!

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Want to know more about the Asian companies and services mentioned? Contact us at info@plus8star.com.
You can also follow us on Twitter @plus8star

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In last month’s column, I mentioned our estimate of 7 billion USD for 2009 of the Asian virtual goods market, which includes most online games, social networks and virtual worlds in China, Japan and South Korea. The US market was barely 1 billion USD and my point was to explain how the video game industry is transitioning. This month’s column will not deal with numbers and markets. Rather, it is my attempt to explain, by way of comparisons, the fundamental human drives behind the consumption of digital goods.

If you consider virtual goods (their basic form are “avatars” and game power-ups) a mystery, the purpose of this column is to take you out of this predicament that could simply kill your company if you head, say, a gaming company or a social network, for missing out on an important concept of our times.

We have three mysteries to solve:

1. Is “virtual” real?
2. Can we “own” something virtual?
3. What are we really paying for?

Please make a quick note of what you think of people paying for avatars and game power-ups. We will use it later on.

Is “virtual” real?

I have read countless variations on “only idiots would pay real money for a new hairstyle of an online avatar”. When I first encountered this phenomenon in South Korea in the early 2000, I thought: “that sounds crazy, but it looks like millions are doing it, so there must be something to understand”. Years of research on numerous social networks and virtual worlds later, my understanding improved.

First, I realized the terms we use to describe this frame our thinking. Today, “virtual” is commonly used as an opposite for “real”. This is more important than you might think as the correct opposite of “real” is “imaginary”. I’ll try and explain how virtual goods are not only very real but also that you have been buying them for years. Let the journey begin!

Would you call music on iTunes virtual?
We can probably agree on “digital” as it is clearly not “imaginary”.

Would you call a blog, a picture on Flickr or a YouTube video “virtual”?
You probably get the idea.

I believe the proper term to use would be “digital” rather than “virtual”, as it helps avoid the confusion due to the vagueness of “virtual” and keeps the latter in the drawer with all those terms that one thinks he knows but cannot explain.

The difference between buying a two-dimensional or three-dimensional digital object is not a whole lot different from buying a song on iTunes. Those objects might be digital but they exist as much as an iTunes song. Hence, virtual does not mean “that don’t exist” despite having no physical embodiment.
If we have established that “virtual” is “real”, we still have to solve two problems that are quite difficult to grasp: what is it we “own” when paying for digital goods and why many accept to pay for them.

Can we own digital objects?

One common point raised is that people pay real money to buy digital things that they don’t “own”. I heard claims that when we buy a CD or a DVD, we own it, while we cannot own a new avatar hairstyle or a weapon in a video game in the same sense. This sense ownership of cultural products – physical or digital – is largely an illusion.

If, like me, you don’t read the disclaimers when playing a DVD, you might think you “own” it in the sense you can do as you please with it. The reality is that you can’t. While you own the physical object, you don’t have 360 degrees rights to its content: in most cases, you are not allowed to share it publicly or copy it. Considering the cost of sharing and copying in digital form is zero, this is an understandable restriction from the seller’s point of view but is also a very strong restriction of your ownership.

What is the difference then between buying a CD or DVD limited to personal use and paying for background music on your personal webpage, like Cyworld has been offering for years in Korea and Tencent offers in China on its QZone service?

What about pay-per-view video?

The main difference is that you don’t have a token object – which might have its own artistic qualities – to make you feel comfortable with the fact that you paid for the same content. When looking at homo sapiens from a zoologist point of view, it is actually not surprising that humans feel more comfortable with objects. I think this explains the popularity of touch interfaces too – they are simply more “natural”. If all this sounds very logical, now let’s now look into our contradictions.

My virtual holidays

If you go skiing for a day and don’t have your own equipment, would you rent cheap or expensive equipment? After you are done skiing, what will you own? You won’t own the equipment, the snow or the resort. You might “own” some bruises or a broken leg (I hope not). You will “own” memories that you might store under a physical or digital form (photos, videos), while the ones in your head will gradually be altered over time. In short, you have paid for something that you don’t “own” in a physical sense.

From holiday to sport to study to watching a movie in a cinema, any “experience” fall into the “virtual” (non-physical) category, and many are not free.

You might pay with your time, your money or both. In such cases you might like a physical object to symbolize or act as a reminder of the time or money invested, but it will be “worth” very little in terms of bill of materials compared to the value of the experience itself. More, it sounds perfectly reasonable to pay for having a good time and pay more for a better time thanks to better equipment. Better golf clubs, better running shoes, better resort by the beach.

Is it unreasonable to pay to have fun in a video game? Video games used to be arcade machines in which you had to put a quarter of a dollar to play. Is it unreasonable to pay more to get better “digital equipment”? I saw recently the movie “Avatar” (an interesting name in this context) and the novelty of 3D lead me to pay more for the experience.

In a similar way, you might buy nice-looking clothes or sports gear. They don’t improve your performance but make you feel better by looking better. Why would it be different online where the only visual cues are your name, an icon and sometimes a 2D or 3D avatar? If I had a way to make you look 50% more professional or 50% more attractive when you use email, wouldn’t you buy it?

Now we might be getting somewhere: people already pay for experiences, i.e. non physical things, for fun, for work, for looking better. It seems like what people pay for online is also for fun, for work (though not much yet) or looking better. Calling again the zoologist, he might argue that our specie is especially interested in fun, food and reproduction, in which case we could think of work and looking better as means towards those ends.

Real money vs. Virtual currencies

Since we’re dealing with this topic, I might as well cover virtual currencies and “real” money.
There are two main types of virtual currencies used online so far: “points” that you get with activity and “cash” that you pay for. Depending on the service, they can be used to pay for separate things or combined in various ways.

Generally, “points” reward activity and engagement into the service. They are comparable to loyalty points. “Cash” is the way how the company behind the service makes money and are comparable to prepaid credit for your mobile, your Skype account or transportation card.

So virtual currencies are new names for old concepts used in a variety of consumer goods and services. This is why we hear now increasingly that virtual goods are consumer goods.

Several governments worry about virtual currencies. So far the main concern is about the use of a service’s currency outside the service (convertibility to “real” money). For instance: paying for a massage with QQ points (I heard this was possible in some places in Shenzhen). This is a problem for several reasons among which are money laundering (money transfers are hard to trace in virtual currencies and without real names) and disguised gambling (illegal). I believe the most important reason is that each company operating a virtual currency is actually printing money.

If you consider that money is “anything that is generally accepted within a community to pay for goods or services” then a “virtual currency” that is widely used online might start to get accepted also offline just as well, provided it can be spent in enough ways to make it attractive. The fact that it is “digital” is almost secondary as most of our money already moves in digital form to pay for salaries, rent, loans, utilities and many large and small purchases (the fact we use a plastic card for those payments does not change the money’s digital form).

So virtual currencies can become like real ones but are real ones more “real”? It’s up to your assessment. My opinion is that governments print money when they need it pretty much the same way Tencent prints QQ money. There is moderation in doing so, as printing money should be somewhat related to the increase in value created in a country to prevent inflation, but some governments seem to be fairly liberal with that too.

While I don’t think alternate currencies will overtake “official” currencies (though I heard of some large companies in Africa whose vouchers were more “official” and accepted than the local money) and as far-fetched as it might sound, there is surely a lot to learn about currency management from well-run digital economies!

By now, it is likely you have a better idea of the motivations behind virtual goods in social settings such as virtual worlds and social networks, as well as in games for fun and looks. Do you remember the note you wrote down earlier? What do you think now?

Your ideas are welcome at benjamin@plus8star.com. Our presentation on “Virtual Goods in Asia” is available on www.slideshare.net/plus8star.

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