The business and culture of our digital lives,
from the L.A. Times

Category: Virtual worlds

Real money spent on virtual goods

Pet Society 2
Some players of online games such as Pet Society shell out real money for virtual items. Credit: Playfish.

About one in 10 Americans reached into their wallets last year and spent an average of $30 on virtual goods, those pixelated swords, outfits and other non-real items used in online games such as Habbo and Club Penguin, according to a report released this morning by Frank N. Magid Assoc.

Of the $1 billion projected spending worldwide on virtual goods this year, between $200 million and $250 million will come from the U.S., the report said. Strategy Analytics, another firm that also is bullish on this market, has projected that it could grow to $17.3 billion in 2015.

Why waste real money on intangible items? According to a researcher with the Helsinki Institute for Information Technology Vili Lehdonvirta, people buy intangible items to gain status, identity, membership, class and performance.

Of course, the Magid results are potentially skewed -- the 1,927 people who participated were polled online, meaning they were more likely than the general population to be comfortable with online transactions (such as taking surveys or buying that fabulous chain mail to go on their level 80 troll).

-- Alex Pham

Follow my random thoughts on games, gear and technology on Twitter @AlexPham.

Facebook mulls over adding virtual currency as coin of its social realm


Gareth Davis, Facebook's gaming guru, today confirmed rumors that the company is "looking at" adding virtual currency to its hyper-popular social networking site. Translation: Facebook is actively developing the feature, but reserves the right to abandon the project.

"Clearly, it's something that is a large undertaking," Davis said in an interview at the GamesBeat conference in San Francisco. "So it has to be done carefully."

In Web games such as Club Penguin and Maple Story, players pay real dollars to get virtual currencies they can use to buy online outfits, homes and pets. Analysts estimate that consumers have spent more than $1.5 billion worldwide on virtual goods.

Though Davis declined to elaborate on Facebook's plans, he touched on a number of potential issues involved in adding the feature.

The con: Virtual currencies are vulnerable to fraud. If Facebook sells currency, it would have to police transactions to prevent scams.

The pros:

  • A Facebook currency would let its 175 million active users buy virtual items and game features more easily. Right now, users need to fork over their credit card information every time they want to spend money with a different application developer.
  • Like iTunes, the currency program could turbocharge sales by allowing one-click purchasing, which would result in more money flowing to third-party developers. Facebook also could decide to take a cut of the sales.
  • A system of virtual currency could make sales of as little as 25 cents viable since the currency would be purchased in chunks of $10 or $20, then spent in smaller increments over time. Currently, a single credit card transaction for a few pennies would cost developers more money than they would make.

What do you think? Do the benefits outweigh the hassle of setting up a virtual currency? Sound off in the comments.

-- Alex Pham

John Smedley shows off Free Realms during GamesBeat keynote

Free Realms
Free Realms, an online game for kids. Credit: Sony Online Entertainment.

John Smedley, creator of EverQuest, took the wraps off Sony Online Entertainment's new game, Free Realms, this morning at the GamesBeat in San Francisco.

The game, scheduled to open its virtual doors in April for folks to try out, is aimed at 10- to 12-year-old boys and girls. It also has the same avatar-building tools familiar to most players of massively multiplayer online (MMO) games to let kids endlessly tweak their characters. As with EverQuest and World of Warcraft, kids can pursue quests and cultivate skills.

But it also differs from MMOs in key ways, as we reported in a story in Monday's paper. Instead of slashing and burning, Free Realms features farting and burping. It also has quick games that take minutes, not hours, to play. 

"Kids game in 10-minute attention spans," Smedley said. "We're trying to reach a market we've never gotten to before. And that market is kids."

That's a change for Sony Online Entertainment, whose games tended to reach older men. For example, the average player of its EverQuest fantasy game is 33, Smedley said, and 85% of the players are male.

Smedley, a 40-year-old developer, also is motivated by a desire to make games that his four children would want to play. "It was super important that we made a game that our families can play together," he said.

Unlike some of Sony's shrink-wrapped games, Free Realms will be free to play and entirely distributed online. Digital sales makes up about 80% to 85% of his group's business, Smedley said.

Sony plans to make money from the game by offering a premium subscription for about $5 a month and by selling virtual goods via gift cards that parents can buy at retail stores. It's also gearing up to release the game on Sony's PlayStation 3 console. 

-- Alex Pham

EverQuest creator John Smedley now making games his kids would like

Sony Online Entertainment President John Smedley and his family
John Smedley, pictured with his family, helped create EverQuest. Now he's making games that all his kids would like. The latest is Free Realms. Credit: Karen Tapia-Andersen / Los Angeles Times.

It's no coincidence that most of the blockbuster video games of the last two decades have been gorefests and war simulations. Their creators were single guys in their teens and 20s whose all-night coding sessions were fueled by Doritos and Mountain Dew.

John Smedley was one of them. In the mid-1990s, he helped make the trailblazing online game EverQuest, a slash-'em-up fantasy world that only a Dungeons & Dragons-obsessed geek could love.

But Smedley has grown up, and so has the industry.

Now 40, he is broadening his definition of fun and putting the finishing touches on a game that he wants his four children to be able to play. Free Realms, expected to go live on the Web in early April, reflects a level of maturity that's starting to change the nature of games now bursting onto the market.

"The cliche of game developers 20 years ago is that of socially inept young men who sleep under their desks," said Billy Pidgeon, an analyst with IDC who worked as a game producer in the late 1980s and early 1990s. "Many of those have now climbed out from under their desks and started families."

Read the full story here.

-- Alex Pham

Mitch Lasky: Venture capitalist, Jamdat founder explains how to snag financing for your indie game

Mitch Lasky
Mitch Lasky, a venture capitalist and Jamdat founder. Credit: Alex Pham / Los Angeles Times.

With the economy gone sour, independent game developers are probably wondering, "Where's my stimulus package?"

We asked Mitch Lasky, a general partner with Benchmark Capital, whether games are being funded these days -- and if so, which ones? Lasky, who sat with us over breakfast at a cafe near his home in West Los Angeles, was chief executive of Jamdat Mobile, which he sold to Electronic Arts in 2005 for $680 million. You can check out his bio here.

How do you get funding if you're an independent game developer?

There are traditionally three pools of money. The first is publisher money from the Activisions and Electronic Arts. They've acted like hedge funds, funding independent developers and investing in intellectual property without incurring the cost of having employees. The second is private money from wealthy individuals. These are typically hardest hit in a down market like we're in now. The third is venture financing.

Do VC firms fund games?

Historically, no. Venture funds look for companies with disruptive business models that have a lot of growth potential. The problem we're in now is that traditional development of packaged games sold at retail is just not viable.

Why not?

To launch that kind of game, you need TV ads, placement in circulars, distribution, marketing. Add to that development costs of $30 million to $40 million a game. It's an increasingly expensive endeavor. You need a big army to fight that battle.

Is anything being funded by venture firms now?

There is money, but the venture money ...

Continue reading »

'Heroes' hops on to Habbo's virtual world

Habbo + Heroes

If you haven't heard of Habbo, you're probably older than 16. Among younger teens, Habbo is one of the more popular virtual hangouts on the Web, with about 2.8 million unique U.S. visitors in December, up 110% over a year earlier, according to ComScore.

That's why NBC Universal struck a deal with Habbo's Finnish developers, Sulake, to drum up interest in the show "Heroes." NBC is introducing a new spin-off character there named Syn Anders. Though she doesn't appear on "Heroes" itself, she'll be Habbo residents' virtual guide to the series, assigning players with quests and puzzles that mirror the show as it continues into its third season.

"This will help us reach a younger audience than we currently have on our website," said Stephen Andrade, general manager of NBC sees the Web as a way to promote its shows, Andrade said, but also as a way to generate advertising revenue for online content, such as its "Heroes" webisodes.

The deal gives Habbo a direct connection to the "Heroes" franchise and helps make the free-to-play game stickier, said Teemu Huuhtanen, head of Sulake's U.S. operations in Santa Monica. Huuhtanen said Habbo, which recently signed a similar deal to integrate "American Idol" into its virtual world, will be making more of these arrangements in the coming months.

-- Alex Pham

Photo credit: Sulake

Linden Lab acquires Xtreet and OnRez, brokers of virtual goods for Second Life

Obama Avatar in Second Life

Is the real economy dragging you down? Hop into Second Life, where the virtual world's gross domestic product jumped 54% in the fourth quarter!

Residents of Second Life traded $100.8 million worth of virtual items in the three months ended Dec. 31, up from $65.4 million in the same period a year earlier, said Tom Hale, chief product officer of Linden Lab, the San Francisco company that runs the virtual world. Though the sales occur in virtual Linden Dollars, the currency itself is bought and sold for U.S. dollars (the exchange rate is currently 262 Linden Dollars per U.S. dollar).

To get a piece of that action, Linden Lab announced tonight that it had acquired two websites that broker these sales: XStreet SL and OnRez. Terms of the deals were not disclosed.

For a 5% sales commission, the sites serve up an one-stop shopping experience for Second Life goods. What kind of goods? How about your very own President Obama avatar (pictured above) for about $7.50? Or a bouquet of virtual roses for a mere $2? Can't qualify for a mortgage? Get a Second Life mansion with a waterfront view for just $114.

Last year, Linden Lab estimated that its users traded about $360 million worth of items, with XStreet SL and OnRez brokering about 1% of that, or roughly $36 million in trades. Let's see, 5% of that is $1.8 million -- enough to shower your Second Life mansion with as many roses as your virtual Obama could possibly want.

-- Alex Pham

Photo credit: MrS via XStreet SL

Sony finally opens Home, and we've got video

After years of development and promotion, Sony is launching its PlayStation Home service today. Home, as we've described in a previous post, is the much-touted virtual world that will be open to those who have connected their PlayStation 3s to the Internet.

After logging in to Home, players create custom avatars and explore a virtual 3D environment that looks like a pixel-perfect cross between the Metreon shopping center in San Francisco and the boat docks in Sausalito. There are also virtual shopping malls, clubs with themes based on Sony games and theaters to watch game trailers or other video.

Home is Sony's answer to Xbox Live, the online marketplace and player matching service operated by Microsoft for its Xbox 360 game console.

Sony isn't divulging its business plans for Home just yet, saying it wants to see how its PlayStation 3 customers use the service before fleshing out the offerings. What are the possibilities? The Japanese electronics giant has built in the technical ability to sell virtual items, digital music, games and video. For now, the company is starting out small by giving players a virtual place to hang out, go play online games or watch a few game trailers.

Watch this space for updates on how Sony will remodel PlayStation Home.

-- Alex Pham

Video by Sony

Virtual shopping malls try again to sell things in 3D

It's been more than a year since a slew of marketers pulled out of Second Life and pundits worried that the 3D virtual world had jumped the shark. So why is a Kentucky company opening dozens of virtual malls that allow marketers to advertise their wares in a place that looks a heck of a lot like Second Life? And why do the avatars in this virtual world look a bit like neckless zombies? Perhaps because marketers never learn. Find out more on the LA Times Shopping blog.

Photo: She's aliiiiive! An avatar in a mall. Credit:

Lessons learned from Google's Lively experiment

Google Lively

Not all Google endeavors turn into gold. Case in point: Lively, a virtual world launched less than five months ago, albeit in "beta." Google announced on its blog late Wednesday that it would shutter the product at the end of the year to focus on its bread-and-butter search business. Here's an excerpt from the post:

Google has always been supportive of this kind of experimentation because we believe it's the best way to create groundbreaking products that make a difference to people's lives. But we've also always accepted that when you take these kinds of risks not every bet is going to pay off. ... It was been a tough decision, but we want to ensure that we prioritize our resources and focus more on our core search, ads and apps business.

As of this morning, Lively had 10,000 active users who logged into the virtual world at least once within the past week. "When you're talking about building a business, those are not huge numbers, especially for a company the size of Google," said Chris Sherman, executive director of Virtual Worlds Management, an Austin, Texas, company that manages trade shows and publishes research on virtual worlds.

Apparently, Google management thinks so too. "It’s a question of setting priorities," spokeswoman Sara Jew-Lin said. "We’re trying to focus on the core business, and this is part of that."

The statement suggests that ...

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