Will Google's Virtual World Plans Change Virtual Ad Economics?

JackMyers.com Virtual World Report

Virtual worlds, though nascent, can be a great way for an advertiser to build relationships with audiences, and for media companies to solidify a relationship with advertisers. But both have to be willing to shake up their current advertising models, and to take a fresh look at the meaning of audience.

MTV is one of the few large media and entertainment companies claiming not only marketing but also advertising success in the virtual world space. Through their site VMTV.com, users can download an application via the Internet Explorer browser, and then access virtual worlds for any of seven shows -- Laguna Beach, The Hills, Real World Sydney, Newport Harbor, Pimp My Ride, the new show Kaya and the Video Music Awards. MTV claims to have attracted some 1.2 million registrants, 500,000 of them to Laguna Beach. Another planned world, Lower East Side, is under construction and expected to launch in 2008. In the worlds, users' avatars can chat with each other, interact with avatars of stars, buy adornments for their avatars and explore worlds that mimic the shows. Just as importantly, says Van Toffler, President of MTV Networks, Music & Logo Group, users also are interacting with advertisers' brands. "Pepsi reached 90% of our audience close to nine times each. It really reaches tremendous penetration once you get in world," he said. He says MTV's virtual worlds revenues are in the millions, and the network expects to break a profit in VW within two years. (see more on MTV Virtual Worlds at www.vmtv.com)

Yet, Toffler and others who spoke exclusively to Jack Myers Media Business Report hastened to add that they are measuring VW in ways well outside the usual norms. MTV, for example, sees four advertising revenue streams. One is the traditional CPM model; those who pass by an ad are counted as having received an ''impression.'' Another is when an avatar interacts with a product, say, grabbing a can of soda. The third way to bill advertisers, Toffler says, is for "viral word of mouth," when someone's avatar tells others of an experience. And the highest value is when someone pays to have their avatar acquire a product or service. "Advertisers and sponsors will pay for those levels of engagement," Toffler says. MTV also makes money from its own virtual commerce such as selling virtual clothes, from subscriptions to things like in-world movies or concerts, and for regular e-commerce, such as selling real-world t-shirts shown in a virtual world MTV so far has charged advertisers a flat fee and openly shared information and learning. They expect to come up with a rate card for future rounds, Toffler says.

Meanwhile, others say demanding traditional return on investment is not only premature, it may even be wrongheaded. Brand managers, they say, should think beyond the products they sell. For example, can a car company project "strength" or "speed" or "comfort?" They certainly don't stand for metal on wheels, says Chad Stoller, Executive Director of Emerging Platforms at ad agency Organic: "Nobody needs a car in Second Life. You can fly!" in virtual worlds, says Ron Burns, president of B2B-targeted VW platform Proton Media, is "a place to go to end personal isolation rather than a place to go to just get information." Imagine, he says, experts explaining hybrid cars and green energy, rather than just trying to sell a car. His company is building worlds for medical device companies to demonstrate their wares to doctors.

At a recent diversity training seminar that used Second Life put on by strategic consultancy Future Work Institute, participants half-jokingly debated whether virtual worlds are in the disarray of the Internet in 1994, or in 1998. With myriad vendors using proprietary platforms, there are no clear cut ways to proceed. Second Life is the most open and populated world, but a company risks having its image affiliated with sordid behaviors. Or should a marketer spend tens of thousands more dollars for a platform that will have trouble attracting users? Very few media properties have the fortunate confluence of MTV's audience: one that's massive, international, young, and can be reached through TV without any out of pocket expense.

And while companies like HeadCase Humanufacturing and Multiverse are trying to bridge the worlds so avatars can travel among them, there's one company that could change the equation completely. "Google is now testing a new application with a limited number of users that is rumored to be a virtual world," says Boris Kizelshteyn of CombinedStory, which built the virtual world for the recent Advertising Week (that took place in the real world in New York). "If everybody with a gmail account all of a sudden had access to a virtual world, the number of users of virtual worlds would go up metafold overnight." At the FWI seminar, President and CEO Margaret Regan cited research that said people in their teens move seamlessly from virtual to actual reality that 90 percent of young people in some Asian countries have avatars, and that 80 percent of Internet users will have interacted with VW by 2011. MTV, she said, found that young people are stressed out if they are disconnected. Companies that want to reach those billions of potential consumers had better start learning how now.

Contact: Combined Story via their contacts page: www.combinedstory.com/contactUs.aspx

Dorian Benkoil, a regular contributor to Jack Myers Media Business Report is a senior consultant for www.teemingmedia.com, a digital media business consultancy. He can be reached at Dorian@JackMyers.com.