1. Media Management 2304 Spring Term 2011 STEEP Analysis – Virtual Worlds for App Phones and Tablets Group 2a: Christine Alff, Niklas Hägerklo, Martina Kettner, Aline Rauh Müller

2. Executive summary The purpose of this presentation is to examine the industry of virtual worlds for mobile devices. The development and growth of portable communication devices such as smartphones and tablets has led to new opportunities and new demands for both companies and consumers. Technological advances and a change in social habits have moved the virtual world industry forward in terms of communication, availability and graphics. The market for apps, smartphones and applets are widely spread in US, Europe and Asia. Most of the virtual worlds users are people between 10-15 years and many of them are also users of these devices. But technological improvements also open up for new types of virtual worlds and new user groups. Social networking sites and marketplaces are key worlds in these new virtual trends. Virtual worlds are often offered to a worldwide public and therefore deals with a lot of regulatory and regional issues and differences. An economic system in such an environment must deal with these factors and must also offer highly developed payment solutions specifically suited for mobile devices. Technical solutions necessary are often made by third party providers and the virtual world companies main focus is on concept development and business models. Conclusions shows that rivalry among existing competitors are very low but threat of new entrants and substitute companies are high due to social and technological forces, which also have a major impact on the industry in general. User focus and awareness must be prioritized to succeed in this industry.

3. Introduction Virtual Worlds Introduction Social Technology Economic Environment Political Conclusion “Virtual worlds are persistent, avatar-based social spaces that provide players or participants with the ability to engage in long-term, joint coordinated action. In these spaces, cultures and meanings emerge from a complex set of interactions among the participants, rather than as part of a predefined story or narrative arc.” (Brown & Thomas, 2009) Impact of Virtual Worlds $3.9 billion globally in revenue from subscription fees, in-game virtual goods sales, and third-party marketing by late 2011 (Kzero, 2010) The number of users registered for virtual world sites broke the 1 billion mark during the third quarter of 2010 (Kzero, 2010) Kzero, 2010: Virtual Worlds: 2011 and beyond. http://www.readwriteweb.com/archives/number_of_virtual_world_users_breaks_the_1_billion.php; retrieved 3rd of February 2011

5. Highest retention among social network apps

6. Positive competition among app stores

7. Mobile operators have rather failed in the attempt to market and distribute applications -> collaboration with e.g. GetjarMobile

8. Advertising via apps

9. Participation of internet players in the mobile space, emergence of app stores and cross-industry services

10. Forecast Feb 2010: money transfer applications, location-based services and mobile search will reign as the top mobile application by 2012

11. Predicition: browers will be available on 80% of all mobiles by 2012, whereas 2009 it was still 60%

12. Each of these companies: own application stores (App store, Ovi store, Blackberry App world)

13. Independent players such as GetJar targeting all operating systems Ankeny, 2010

14. Examples of Virtual Worlds Introduction Social Technology Economic Environment Political Conclusion Pocket Metaverse Second Life on iPhone and iPad Bobba bar Virtual bar for mobile phones 3 D Talk by ICYou (upcoming) Smartphone multiplatform http://www.pocketmetaverse.com; http://www.virtway.com; http://www.icyou.se/;http://www.bobba.com/

15. Why do people go to virtual worlds? Introduction Social Technology Economic Environment Political Conclusion Sense of “being with others”, share interests, engage in the “play of imagination” Do the “impossible”: transcend time, loose self-boundaries, identity shifting Live, explore, interact, form relationships, and build communities as in real life Brown & Thomas, 2009; John & Sular, 1999; Richard & Velaro 2008 ; Watters & Audrey, 2010.

16. Behavior Introduction Social Technology Economic Environment Political Conclusion The users graphical experience play a minor role compared to having fun Current users need interaction, they want to feel a part of it and not only receive information. Co-creation plays a more important role Cultural differences ask for customization. Acting local enables gain of market share inside national markets E.g.: Muxlim Pal, the first virtual world aimed at the Muslim community in Western countries Stefan Lampinen and Malin Ströman (Guest Lectures); Digital Trends, 2008.

17. Browser Downloadable Client Smartphone / Tablets Technical development and trends Introduction Social Technology Economic Environment Political Conclusion Trends Many virtual world providers looking into mobile market.Doubts about profitability. From 2D to 3D “Avatar Reality is restructuring in order to concentrate on bringing Blue Mars to portable touch screen devices like the iPhone and iPad. With over 50 million new tablet devices projected to reach consumers this year along with tens of millions of iPhones and iPod Touch devices, the market for Blue Mars Mobile is a massive opportunity.” Jim Sink, CEO Blue Mars, 14 January 2011 Social networks looking into virtual worlds? Outsourcing of Graphics / Platform / Voice Communication / Payment mechanism Better graphics

18. Smartphones/ Tablets Introduction Social Technology Economic Environment Political Conclusion Highly developed from a technological perspective (screen resolution, processor, graphics card, platform) The more developed 3D VWs --> increased system requirements Smartphone Penetration By the end of 2013, half of the cell phones in the US (150 million devices) will be smartphones. (Source App Time) Tablet Penetration Estimations that more than 81.3 million tablets will be sold in 2012, up from the estimated 15.7 million units sold worldwide in 2010 Mainly driven by the iPad iPad currently represents 85% of tablet sales in 2010, expected to lead to the category, however at decreasing market share del Rey, 2010; Mashable, 2010.

19. Economical Introduction Social Technology Economic Environment Political Conclusion Fund Raising: During the development time there is no income stream and there is high investment cost. Thus the business might depend on external investors Sources of Revenue: Find a balance Advertisement and cooperation with companies User money flow (subscription, percentage on transactions) Own virtual currency implications: How and whencan users acquire the currency? What it canbe used for? What are the money sinks to avoid inflation? Unclaimed property laws, regulations on taxation Pillsbury Law, 2010. Overview of Legal Issues with Virtual Currencies. http://www.virtualworldlaw.com/Virtual%20Currency.pdf

20. Environment Introduction Social Technology Economic Environment Political Conclusion Meeting in a virtual world instead of the real world saves carbon footprints. Geography is one of the main drawbacks of real world events, it is not always possible to attend due to other commitments or time restraints. Power consumption increases with increasingly complex 3D worlds and constant internet connection. This is especially important for handhelds where as little as 1 watt increase in power could increase the temperature by 13 celsius in the handheld. Eco city in Second life. Trends are showing that consumers demands environmental friendly products, this is one example where ecological awareness is incorporated in VW. http://gamerlimit.com/2009/04/the-environmental-sustainability-of-the-games-industry/

21. Environment Introduction Social Technology Economic Environment Political Conclusion Cloud processing not as environmental friendly as previously thought. More energy efficient when producing the virtual world but you have to consider the transport too, adding that to the equation cloud gaming is actually less energy efficent than an actual application when the workload is high. 60% to 90% of total power consumption is power for transport at high usage levels Cloud processing creates a need for high speed internet connection which is not available in all parts of the world Cloud Application http://www.physorg.com/news205737760.html

23. Legal status of online assets remains unresolved in Europe, the US and the rest of the world -> property rights over digital items have not yet been determined

24. European Network and Information Security Agency (ENISA)

25. VW provider legally link the online and the real-life world by their EULA-> self-regulation -> Virtual worlds typically publish the terms of use governing participants’activities

26. VW providers‘ unwillingness to recognize players’ rights to in- game assets due to liability issues Property Rights Political Influence Personality Rights Tax System Bonifield & Tomas, 2008; Günther, 2010

28. Various countries have imposed or are considering imposition of a tax on gains from virtual goods and virtual currency transactions

29. E.g. China has imposed a 20% tax on such transactions

30. US: a congressional study is under way

31. Specific guidance on various tax issues, such as when a gain is realized/recognized and what reporting obligations exist and by which entities, remains to be provided.Personality Rights Publicity rights: individuals’ rights to control commercial use of his or her name, image Privacy rights: individuals’ rights to be free from unsanctioned intrusion and having one’s personality publicly represented without authorisation Bonifield & Tomas, 2008; Virtual Worlds & Video Games, n.d.

32. STEEP/Porter Introduction Social Technology Economic Environment Political Conclusion

33. References Ankeny, J., 2010, The App store that´s never closed Entrepreneur, p. 21-27 Apple, 2011, http://www.apple.com/itunes/10-billion-app-countdown/ retrieved 30th of January 2011 Bennett, A., 2009, The environmental sustainability of the games industry http://gamerlimit.com/2009/04/the-environmental-sustainability-of-the-games-industry/ retrieved 3rd of February 2011 Bonifield, C. & Tomas, A., 2008, Intellectual Property Issues for marketers in the virtual world. Brand Management Vol. 16, 8. pp. 571-581 Digital Trends, 2008, A Muslim Virtual World Arrives. http://www.digitaltrends.com/computing/a-muslim-virtual-world-arrives/ retrieved 2nd of February 2011 Günther, P. (2010). Virtual goods and regulatory insights fromt the European perspective. Virtual Economy Research Network. Retrieved from http://virtual-economy.org/blog/virtual_goods_and regulatory_i on February 6th, 2011 Joffe, B., 2009, Virtual worlds in Asia: Trends and Ecpectations http://www.slideshare.net/plus8star/virtual-worlds-in-asia-1144427 retrieved 31st of January 2011 KZero, 2009, Virtual worlds: 2010 and beyond http://www.slideshare.net/nicmitham/virtual-worlds-2010-2098472?from=ss_embed retrieved 31st of January 2011 KZero, 2010,Virtual Worlds: 2011 and beyond http://www.readwriteweb.com/archives/number_of_virtual_world_users_breaks_the_1_billion.php; retrieved 3rd of February 2011 Mashable, 2010, Tablet Sales expected to quadruple in 2012. retrieved from http:// mashable.com/2010/12/09/tablet-sales-2012/ on February 3rd 2011 Pillsbury, 2010, Overview of issues with virtual currencies http://www.virtualworldlaw.com/Virtual%20Currency.pdf retrieved 31st of January 2011 del Rey, J., 2010, APP Time. Inc December 2010/ January 2011, p. 116-123 Suler, J., 1999, Cyberspace as a Dream World http://users.rider.edu/~suler/psycyber/cybdream.html retrieved 3rd of February 2011 Terdiman, D., 2008, Commerce drives virtual world http://www.wired.com/gaming/gamingreviews/news/2003/08/59941retreived retrieved February 2nd 2011 Terdiman, D., 2009, Virtual world designer Metaplace to shutter http://news.cnet.com/8301-13772_3-10420089-52.html retrevied February 1st 2011 Thomas,D., Brown, J.S. ,2009. Why Virtual Worlds Matter. http://www.johnseelybrown.com/needvirtualworlds.pdf retrieved 4th of February, 2010 Velayo, R., 2008, Studying Virtual Worlds: What is in for Psychology? http://psqtest.typepad.com/blogPostPDFs/200816002_psq_53-51_StudyingVirtualWorlds.pdf retrieved 2nd of February 2011 Watters, A., 2010, Number of Virtual World Users Breaks 1 Billion. http://www.readwriteweb.com/archives/ number_of_virtual_world_users_breaks_the_1_billion.php retrieved 2nd of February 2011 Zyga, L., 2010, How energy-efficient is cloud computing http://www.physorg.com/news205737760.html retrieved 1st of February 2011 Other sources Interview ICYou, Stockholm 2011-01-31 Guest lecture Stefan Lampinen, Stockholm, 2011-02-02 Guest lecture Malin Ströman, Stockholm, 2011-02-02