Horngren’s Cost Accounting A Managerial Emphasis, Canadian 9th edition soluti...
Virtual Worlds: Second Life
1. Virtual Worlds: The Second Life Example
Ibrahim Shafi
Semantic Contexts, LLC
ibrahim@shafi.org
2. Massively Multiplayer Online Games (MMOG)
In the video game genre
Played online
Supports thousands of players simultaneously
Variety of gameplay types (role-playing, first-person
shooter, real-time strategy)
Virtual currency
Unlike SL, most don’t trade into real currency
Run by graphical, physical, and network engines
Most charge a bimonthly fee
Few have client-side AI like SL does
Issues: server overload, hacking, internet delays
5. Traditionally physical goods
Islands, buildings, clothing, food, nature
Social, entertainment, and cultural experience
Avatar interaction, music concerts, clubs, create and view art
Consumer experience
Shopping outlets
Marketplace
Information goods sold in Linden Dollars (250 L$ = 1 US $)
Corporate functions
Conferences, product testing, business ventures, promotion
Education
Holding courses, debates, conducting social experiments
6. Economies
of Scale
Initial high and sunk
fixed cost to create
the SL infrastructure
Costs nothing to
serve another
customer; MC -> 0
Virtually no limit to
amount of
consumers added
Experience
Good
Must access SL in
order to understand
its value
Reviews and word-
of-mouth
Public
Good
Non-rivalry: More
Avatars increase,
not decrease,
individual SL
experience
non-excludability:
Creations in SL can
be enjoyed by
everyone equally
7. SL has many
features and can
become
confusing
Allows users to
become familiar
with interface
Increase
switching costs
• Allow user to
customize avatar
• Meet people and
build social network
Build Network
Effects
• Give away API to
developers
10. • Casual, dedicated, creative, businesses, etc.
• Price according to their needs in SL
Identified
segments of users
• API for developers to build SL tools and interfaces
• Buy and sell land, user creations, L$, real money
• L$ stipend to entice users to move to high end
Develop
complements to
extract more value
• High end features not available to low end users
Avoid
cannibalization
11.
12. Subsidize Content Creators
Make platform code open source
Encourage development of tools, creations, extensions
Example: Creating a themed island in SL
One island could potentially attract thousands of users
Increases users’ willingness to pay subscription fee
17. Pictured: Midian City, dynamic interactive cyberpunk
novel with thousands of players/storytellers
18. Strength of Network Effect
Very strong across the board
Multi-homing costs
Low to moderate for both sides
Demand for differentiated features
High – limitless possibilities
Platform enables customization
Not a Winner-Take-All Market
19. Sole Sponsor: Linden Labs
Controls who can participate in SL
Develops rules
Multiple Providers
Many content creators
Plays by the rules
Compete for the market
20. Weak Substitutes
Other MMOG’s
Add SL-like features to existing games, e.g. World
of Warcraft
HiPiHi – Chinese SL
MetaPlace, Multiverse, etc.
Weak Complements
E-commerce transactions
Vulnerable to intermodal attacks
21. Find a Big Brother/Build alliances
Linden Labs is partnering with IBM
SL Land auctions on eBay
Bundling
Hardware accessories to use with SL
Merchandising
Become the common platform for virtual world
collaboration
Education
Meetings/speeches
Showcasing Design
29. Online virtual world and social network
People represented by “Avatars”
Communication via chat/instant messaging
Currently, attracting attention of retailers, film
companies, music groups, hotel chains, and
colleges/universities
From an advertising perspective, offers:
Product placement
Market research potential (trendwatching)
Product testing/Consumer feedback
Notas do Editor
High Threat of substitutes:
The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases
The customers have a high propensity to substitute with other activities (outdoors and other MMOGs Massive Multiplayer Online Games )
The customers have high switching costs
High level of product differentiation ?
Low threat of the entry of new competitors:
Although Second Life can be a profitable market, yielding high returns, the existence of barriers to entry such as patents ?? and high capital requirements as well as the network effects which will be explained later, enhances the possibility of Second Life to stay alone.
High intensity of competitive rivalry:
The industry is increasing at a high rate with a high level of innovation and marketing.
There is a high number of competitors (Substitutes?) which are very diverse in nature
High bargaining power of customers:
The market of outputs.
Customers may put Second Life under pressure
Customers are very sensitivity to price changes.
bargaining leverage
The customers have low switching costs relative to Second Life switching costs
Additionally there are a high volume of existing substitute products available
Low ? bargaining power of suppliers
The market of inputs.
Suppliers of raw materials, components, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources.
supplier switching costs are lower than Second Life’s switching costs
There is a High degree of differentiation of inputs
High presence of substitute inputs
supplier concentration to firm concentration ratio
threat of forward integration by suppliers relative to the threat of backward integration by firms
cost of inputs relative to selling price of the product
Very strong network effects throughout.
Same-side effects:
Users (Social networking)
Advertisers (Competitive, agency pressure)
Developers (Validity, legitimacy)
Advertisers want to be where the most eyeballs are; users, in the case, appreciate presence of advertising because it brings more products/services and opportunity to participate in development process
Developers can obtain funding from advertisers and advertisers use developers to build robust platforms that stand apart
Users like developers because they continue to enhance the online environment
And more users create more demand for development, which developers need to stay in business
Penetration pricing
Switching costs
Unlike social networking sites, which have yet to develop a successful revenue model,
Second Life has its own economy and even its own stock market!
For network effects, this means that users, advertisers, and developers all have a vested interest in being on Second Life to get a piece of pie.
This also creates moderate multi-homing costs. Users put a lot of money into the development of their personal avatars, advertisers into the development of their online presence (whether virtual store or island), and developers cannot transfer their applications to anything else that is currently out there.
Interestingly, the demand for differentiated products and features strong. This is basically an online world which, like the real world we live in, can only continue to grow and expand its features and benefits.
As a result of the strong network effects, moderate multi-homing costs, and strong differentiation demand this is not a WTA market.
