For this panel and despite the difficulty in representing fairly “Asia”, I did my best to get speakers from all key geographies: Japan, Korea, China and South-East Asia. The result was a quality of shared knowledge rarely seen on a topic that is already mainstream in Asia, but still avant-garde in the Western world:

“Asia: Digital Life, Real Billions”

Panelists:

Naoki Aoyaki, Senior Vice President, Business Development & CFO, GREE > GREE is a mobile SNS making over US$500 million revenue this year with only 22 million users, in Japan only!

Yiqun Bo, Vice-President & Co-Founder, Great Wall Club > Organizers of the “LeWeb of Asia” in China, and a recognized expert on mobile and web in China.

Steven Goh, CEO, Mig33 > Largest mobile SNS in SE Asia with 40 million registered users.

Chang Kim, ex-CEO of TNC, Product Manager, Google Blogger > Entrepreneur & expert blogger who was first to sell a company to Google in Asia.

Jimmy Kim, CEO, Nexonova > Nexon has 15 years experience with online gaming in Korea and overseas, and is on track for $1 billion revenue this year. No need to say more!

Takuya Miyata, Senior Vice President, Global Business, mixi > Closest SNS to Facebook in Japan. Miyata-san is also a serial entrepreneur.

Video of the entire panel for your enjoyment (45 minutes with Q&A):

I would like to start by thanking the organizers and all participants to this event. After all the hype virtual worlds and Second Life went through, I see this as a sign that we might be past the “disillusionment” and are ready to move forward. Whether SL will be the platform for that in the future is yet to see, and I hope to learn from you what you think about it.

Though I explored a bit before, this is the first time I do a talk in SL and quite frankly I feel like a hack. I possibly have the least hours spent in SL of you all. In addition, I am in the “East” track when first, I am not Asian and second, I am today in San Francisco on a business trip. If you look at my avatar, it was graciously provided by the organizers because I had no time to prep one that would not betray my identity and errands in SL ;-)

So what could I have to say?

Well, the fact is that I did spend quite a bit of time with virtual things, digital goods and Asia, where I have been based for the past 10 years. Also, though I like technology, I am most interested by the social aspects of technology.

What Clay Shirky says “When a technology becomes boring, that’s when the social effects become interesting” resonates strongly with me. It is true also at micro-levels. Many of what has been observed in SL has been around in graphic or even text-based VW since the 80′s. I was visiting Howard Rheingold in Mill Valley last week-end and the man has been researching this field for about 25 years.

So to understand why people were acting in certain ways online, I researched offline behavior, social psychology and social dynamics. I came to understand a lot better why people behave the way they do in various social environments. I can even tell you this came at a price when experimenting with offline social dynamics.

Since I have 30 minutes what I would like to talk about is three things:
1- What I learned from researching Virtual Worlds, Social Networks and Online Games in Asia
2- What I learned by researching social psychology and social dynamics
3. I’ll then share some ideas on the good things the future might hold for us, and how we can shape it.

Digital goods

First, you might have come across some numbers about virtual goods: the market would have been around $1B in US and $7B in Asia in 2009. I have some confidence in the second estimate because I actually did it myself based on our research and estimates of the various free-to-play online gaming markets in Asia.

The reality today is that there are two shifts happening. On is a business model shift, another is a mindset shift.

The business shift is the transition, or rather diversification, of the video gaming industry to free-to-play. The West and Japan have been lagging due to their huge package software legacy, while Korea then China and now most developing economies are embracing the model, generating huge profits by cutting many costs and middle-men out of the value chain.

The mindset shift is more fundamental. It is about what Aldous Huxley called in his last series of lectures “Semantic Prisons”.

I quote here “There are plenty of semantic prisons which do not permit us to think straight”.

I think this is very true. The closest everyday expression would be “assume make an ass of you and me”. We have tons of assumptions and many of our words and thoughts are locked within semantic cells. I witnessed that countless times when discussing culture or business in Asia to foreigners, or foreign things to Asians. In the specific case of virtual worlds and the business opportunities associated, I identified two major ones:

“VIRTUAL”

For many, “virtual” sounds odd because it sounds like it does not exist, has no value. Anyone paying for something virtual would surely be slightly stupid. The fact is that “virtual” is a legacy word, and so vague it is actually hurtful to the development of the industry. The opposite of “real” is not “virtual”, it is “imaginary”. And things happening online are not “imaginary”, they are “digital”.

To make an offline parallel, when you go to a concert, you don’t get anything physical either. When you buy a CD and put it into MP3, you just got yourself a sequence of 0s and 1s. It is digital too. What you have paid for is an experience, not the plastic. Brands are very good at selling physical objects charged with symbolic value, but how many are yet able to sell non-physical objects? If the margins are better, they should!

About a month ago I did a talk for 700 P&G employees, including the CEO, about digital innovation. P&G’s products might be great, but they are commodities. For them, the symbolic value is where the margin is. What if they could add a digital component and an experience to it?

The other term that is a very damaging semantic cell is:

“GAME”

Why is “game” a problem? Because we are too serious. Games are for children; games are a waste of time; games are a waste of money.

Well, there are a few things to know about games:

- First, games are a great way to learn anything. Much better than a manual or a tech demo. Just try it, have fun and there you go – you know how to use it. New technologies have a much higher chance to spread when introduced from a gaming angle. The other possibility is adult content, but I won’t cover that here.

- Second, games are already the biggest contributor to digital goods sales – if you exclude music, movies and books. In Asia, it is about 3/4 of those $7B I mentioned earlier. So it’s already working! Many people are ok to spend to have fun, despite the mental barrier of “it’s not real”.

- Third, we are already all gamers, but we don’t want to be called gamers. My aunt, a woman in her 50’s who lives in Mountain View, California plays almost every day a puzzle game on Facebook. She also likes Sudoku. I told her she was a gamer because she played more than me. She was certainly surprised to realize that. When you go bowling, play poker you can call it sport or whatever, the reality is that you are playing a game. In the case of bowling you are even renting physical items to do it.

Not long ago, the game designer, professor, thinker and writer Jesse Schell gave a talk at DICE and Long Now Foundation about the “gamification” of everything. He was mentioning a toothpaste service could measure how long you brush and give you points for each minute. 3 minutes in a day and you get, say, 100 points, 7 days in a row and you get a bonus. You could even compare scores with friends. It could be used of course to sell more products, or simply to help you embrace positive behaviors by giving you feedback, social proof and a gaming aspect.

So my conclusions here are that:

First, “virtual” is a terrible term and we should say “digital”, or not say anything.
Second, “game” should be renamed “entertainment”.

As Cary Rosenzweig, CEO of IMVU, former P&G exec and client of ours – said “Virtual goods are consumer goods”.

I would say also “video games” should be renamed “digital entertainment”, putting them alongside movies and music. It would then become apparent that movies are simply non-interactive narratives, while music is “auditory entertainment”. Nothing wrong with that, it just shows they are more alike than we usually think.

What else is there to learn from Asia?

- That online games make a killing, are extremely profitable.

- The mobile also makes huge amounts of money. In Japan, a *mobile* social network named GREE using Flash games with digital goods and avatars made over 400 million USD last year with only 20 million users.
The profit margin is 60%. Facebook made double the amount, with much less profit and over 20 times the user base.

- Tencent, who operates QQ, the #1 IM service in China, and is also a game and SNS operator, made over $1.3B IN THE FIRST HALF OF THIS YEAR! Net profit margin is 42%. The company is now the world’s third largest Internet market cap after Google and Amazon, with $35B, and still growing fast.

- Other developing markets – including, for instance, Russia, Vietnam and Thailand – are following the same path.

(to be continued)

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+8* | Plus Eight Star thinks that it is not because you follow us at @benjaminjoffe that you are virtual and that learning from Asia can help us bridge the gap.

The panel I moderated was focused on internationalization, with an emphasis on Asia, including how Asian companies see the challenges of going global.

The presentation guide is below, report follows courtesy of Inside Facebook.

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We had a strong international showing today at our Inside Social Apps 2010 conference, and this included leading developers coming out of China. As Facebook has grown around the world, social games on its platform have also spread. The example of their success has in turn inspired other social networks to open up their platforms to developers, notably happening on Mixi in Japan and RenRen in China.

We examined how developers are building businesses around the world in the “Thinking Globally: How to Monetize International Audiences” panel.

Here’s who was on it:

• Rex Ng, CEO, 6 waves (Taiwan)
• Season Xu, Co-founder and COO, Five Minutes (China)
• Patrick Liu, CEO, Rekoo (China)
• Ron Hirson, Co-founder and SVP Product, Boku (US)
• Benjamin Joffe, CEO, +8* / Founding Partner, Cmune (Moderator)

And here are our highlights. Note: You can check out tweets from this and other conference sessions via the #isa2010 hashtag on Twitter. Some comments from Twitter:

@susanhailey Org of friends/social groups is different in China, Russia and Japan. Hard for FB to penetrate markets in non-colonized countries.
@hotlou: Season Xu touching on some thoughts similar to @garyvee: 1. audience is the asset. 2. measure the audience of the future.
@susanhailey Future trends for global social gaming: diversify platform and make games appealing to all cultures which is challenging.
@justinkistner: Cultural differences in social gaming: Asians like to buy goods for status & Westerners like to buy things for fun experiences.
@john_fan #isa2010 Season talks about “cold jokes” 冷笑話
@hotlou Most entertaining panel so far. Learning about cultural disparities that contribute to success/failure is getting lots of laughs. #isa2010
@Baris Listening int game developers panel @ #isa2010 @benjaminjoffe did good job in setting up the context.Great way to moderate a panel!

+8*: Can you start out by telling us more about your companies and were you focus.

Ng: We’re active around the world on Facebook, in every region.

Xu: Around one-eighth of our users are on Facebook, but that’s where we get 50% of our revenue; also, 80% of our Facebook users are Taiwanese.

Liu: We’re the top social game developer Japan, South Korea and China. We’ve launched on Facebook but we’re still not very big, with around 1.6 million monthly active users.

Hirson: Boku is live in 60 countries, with revenue coming from around the world.

+8*: You’re all working in multiple countries. How did you pick the markets you expanded to?

Hirson: We went for merchants looking for traction on social networks. We looked at top 5 social networks, countries, mobile phone penetration and data usage, and compared that to credit card penetatration. Many countries don’t have good penetration. In some countries, we see mobile payments as the primary method that people pay. The US ends up being about one third of our payment revenue, then a third in Europe and a third from the rest of the world. That’s because of the spending power of Europe and America. But in Asia the amount per person is low but the volume is high because there are so many people.

+8*: Patrick, you said you were the number one social gaming company in Korea and Japan.

Liu: We launched in China and decided to try Japan and South Korea, and now Russia, too. Second half of 2009 we came to Facebook. We made lots of changes for Western users. Japan is a pretty good market, but the barriers are extremely high. South Korea, too.

+8*: How did you decide to address those options?

Liu: In the beginning we didn’t know, we just wanted to try. My first venture was a social network company in China in 2004 and 2005. I got to know Mixi in Japan. I saw the evolution of Facebook. I got to know Cyworld in South Korea, I thought, well, we have a product right here. Let’s try. In Japan we had to do a lot of changeover.

+8*: If I remember you had a little help from local partners and investors.

Liu: In fact that’s not correct. In the very beginning, nobody helped us. But I happened to know some people, I asked the Mixi platform — can you get the foreign company in? Of course they said, but we went through lots of efforts. From the first day we launched our product in Q4 of last year. But after the first week, we had all viral growth, we grew so fast, that the platform said great job.

+8*: Cultural differences — it can be difficult to localize a game to certain markets. You launched a farm game first. What’s different about China versus the US.

Xu: We added stealing, but that’s not popular in western audiences. It might sound bad, but it represents a different meaning. In China, a shy guy might like a girl so he steals her book, then inserts a secret note, then he gives her the book and she finds the note.

Certain aspects can work in China but not elsewhere. One of our animals has no anus. It holds money but nothing gets out. If you have it, then you can have 1% more harvest in our farming game. But obviously when we put it in Facebook, people didn’t buy it. Also in China, we have jokes called “cold” jokes” that, when you say out loud it’s so stupid that nobody says anything. You don’t say anything, you just stare at him. Those are popular. These cultural differences make it harder to port our games to different markets.

+8*: Rex, you’re a publisher and you don’t develop your own games any more. How you decide which developers to work with?

Ng: We see the stuff from the US getting better at having universal appeal. It’s still the mass entertainment capital. Like movies — now social games. But we have to see if a game will work for a particular region. We used to have a game called “world at war,” where you represent your countries. But we found there are different behaviors. Chinese like to save money, Americans like to buy weapons, Italians just like to fight, period.

Xu: Asian people want to exchange money for status. But Western players want to exchange it for fun and entertainment.

Liu: More than language translation. We found that there are many many times that Japanese people don’t like at all. It seems Russians have a different feeling about vegetables [+8* | e.g. in Japan watermelon is an expensive fruit so the ranking of the fruits has to be adapted to the local culture].

+8*: Patrick, what’d you do to localize?

Liu: We have our own office in Tokyo, and one in Russia. We also hired people in the states who have worked in China. They can communicate with us. We are dealing with different cultures and regions. The combination of different kinds of people.

+8*: How are you handling global growth?

Hirson: Competition to get your app up and live and good penetration — better opportunities outside of the US. We see great ARPU in Nordic countries. If you’re developing on top of Facebook, you identify where advertising is cheaper and revenue is higher.

+8*: What’s your view on future trends and opportunities of monetization.

Ng: I’m seeing a diversity of developers. Before it was only three types of games: resource management, RPG and pet-caring. A lot of those, and a lot of fast followers. Now I’m seeing a lot of diversity. Feature, higher ARPU. First-person shooters, all sorts. I think there’ll be different kinds of content.

Liu: You have to diversify the platform. You cannot be dependent on one platform. The second thing: Internationalization. Now that you have one product, you can distribute it to everywhere. Marginal cost is almost zero.

+8*: Do you see revenue per user paralleling GDP per capita in countries?

Xu: It matches countries

Liu: It’s growing fast

Ng: After we get game cards, pretty comparable in China — a bit better than GDP per capita. We go in at pretty low price point. Gamers can choose… with the right optimization, it’s pretty comparable.

I was invited last year for the first time and did the closing keynote on Asian Mobile and Telecom Ecosystems. This year there was a big focus on Augmented Reality (AR) and I thought I’d hack a bit the topic by talking about another kind of Augmented Reality: the world around us…

WARNING: countains high density of obscure references.

GDC 2010 (San Francisco) | We joined our partner Cmune to be awarded “Best New Game” by MySpace’s CEO, Mike Jones. If you haven’t experienced Paradise Paintball, the first “social shooter” on Facebook, MySpace, Apple’s Dashboard Widgets and on the Cmune Portal, try it out!

SXSW (Austin) | We were speaking on a panel “Social Media in China: Different Than You Think“.

eComm (April 19-21, San Francisco) | We are preparing a semi-esoteric presentation titled “Your Reality is Augmented“.

Inside Social Apps (April 20, San Francisco) | We will be moderating the panel on “Thinking Globally: How to Monetize International Audiences”, right after the Keynote by Mark Pincus, CEO of Zynga.

We are also attending a number of events, such as Startup Waffles, TEDxBerkeley, Silicon Valley IGDA and Women 2.0 (April 15, Palo Alto).

If you wish to meet up during our visit, please contact benjamin [at] plus8star.com!