1. The report is about Virtual Worlds, but what is a virtual world?
Frankly, we don’t really know. What used to be a clear category (a virtual world is… Second Life!) is now increasingly overlapping with online games, especially MMOs (“3D virtual worlds with a purpose”) and social networks (“asynchronous virtual worlds with no graphics?”).

2. Virtual goods are not only in virtual worlds
The report focused on 2D and 3D non-gaming & non-business virtual worlds. Some services are given as comparisons and got noticed: Cyworld in Korea, Mobile Game Town and Gree in Japan. From our point of view, none of those are virtual worlds, but all three make the majority of their revenue from virtual – we prefer the term “digital” – goods.

3. What is the size of the virtual goods market in Asia?
An article last December suggested the US market for virtual goods to be around 200 million USD. We hereby claim that Asia’s virtual goods market might be above 5 billion USD. Here is why:

• In China, most online games monetize with digital goods (subscription, packaged software and advertising bring very little revenue)
• China’s online game market was estimated at over 3 billion USD in 2008. Several Chinese online game companies are listed on NASDAQ and NYSE: Changyou listed last week for over a billion USD (with 200 million revenue and 100 million profit – so the multiple is not crazy), others are Shanda, Perfect World, Netease, Giant Interactive. All of them have profit margins between 30% and 70%. Even drug dealing does not profit that much.
• Tencent, China’s largest IM+Avatar+SNS service brought it revenue of 1 billion USD in 2008, 90% from digital goods. The update of our ever-popular “Inside QQ” report is on its way – over 200 pages covering Tencent and China’s Internet at large with a special discount for purchasing now (-10% and a free update with the new version)
• Korea has an estimated 1 billion USD online game market, with similar conditions. This does not count Cyworld.
• Japan’s online game market is not so strong on digital goods, but two mobile social networks, Mobile Game Town and Gree, bring in quite a bit (250 and 60 million USD in 2008 respectively for the the SNS business only), with over 80% of their revenue coming from digital goods.

All this adds up to:
3 + 0.9×1 + 1 + 0.8x(250+60) = 5 billion USD and a bit more.
This is 25 times the US market.

4. Is this a surprise?
Not for us :-) but it might be for many as:

• Virtual goods is a nascent revenue model in markets with strong packaged software and console legacy
• Asian Online games are not well accounted for in Western reports (we call it the “English-speaking LAN” bias)

5. Will this transfer to other markets?
Some think it won’t. We think it will. Our years of research and the gradual transfer we observed lead us to be quite sure that the fundamental human drives behind the success of those services are the same East and West. In addition, there are now enough examples with 2D and 3D worlds in the West (Habbo, Stardoll, Club Penguin, IMVU etc.) to validate this idea. Simply check the parallel economy of World of Warcraft, the “gifting” and various virtual goods in Facebook or even the in-world transactions in Second Life and you’ll get an idea or where all this is going. Funny enough, the main sellers of virtual goods in the very Western WoW and SL are reported to be from Asia ;-)

:: Commercial | +8* – Plus Eight Star is the leading cross-market strategic consultancy on Asia’s Mobile & Internet innovations. More about us here and in PDF ::

A week ago we posted the presentation that highlights most of the research; it had very little text in it. Now we just received clearance to share the full research document – 30 pages covering key virtual worlds with a focus on Asia. The document is bilingual English/Chinese, which is a great opportunity to update your Mandarin with cutting edge vocabulary.

So here it is for free after filling out the following form. We hope you will enjoy it and look forward to your feedback!

To summarize the summary:

• The 2D web of virtual worlds is doing well, while the 3D web is recovering from the “Second Life Aftershock“
• Regulation is going to be very complex as 2D and 3D environments allow the conduct of various “activities” from creation and remix of content to commerce, gambling and more. Of course, Internet is global which makes things VERY hard to regulate.
• Most “digital immigrants” do not understand that the term “virtual” simply means “digital” and that there is no special magic there. Great post here on this topic by Bill Gurley at Benchmark Capital
• Our hopeful conclusion promoted awareness campaigns about the risks associated with digital identities and the celebration of the benefits of what is becoming a “digital third place”.

The presentation is hereunder without the 60 minutes talk but the full report should be made available soon.

The turnout and talks were great thanks to the hard work of its organizer, Lee S Dryburgh. It was a mix of telecom, design, web stuff and thoughts about the future of communication (who said “Technology, Entertainment, Design“?) so probably the name was well deserved ^_^

As a newcomer to the SF scene, I focused on what seem to be the hottest topics: iPhone and Facebook to show how Asia had actually proven both models way earlier.

• i-mode almost 10 years before iPhone
• Cyworld and QQ years before Facebook (which is still “financially unproven”)
• DeNA and GREE way ahead in monetizing mobile SNS

They make so much profits it’s like dealing drugs! (actually, even better than drugs if you believe Freakonomics)

Tencent (QQ) is publishing its 2008 numbers within a couple of weeks and should have profits in the 500 million USD range. Remember MySpace was bought in 2005 for 580 million USD (“he’s nuts!”). Well, Tencent could buy one MySpace a year simply based on cash flow. Xie xie.

I also presented some examples of “yet to come” things such as “Broadcasting Jockeys” in Korea and mobile novels in Japan, on which I exchanged profusely recently with a CNN correspondent (who wrote the following article).

Also, it was fun to call the US a “developing market” when looking at the penetration of 3G and the speed of broadband compared to Japan and Korea (one attendee twittered about relocating to Asia).

Now for your enjoyment, the slideshow (without the 20 minutes speech).

– Benjamin