Dear citypixel.com residents,

As you know we’ve been hard at work, and today, we are proud to announce the release of citypixel.com’s Facebook application!

The Facebook application allows you to…
- Show off your virtual spaces (your apartment and car) to all of your Facebook friends
- Invite your Facebook friends to become citypixel.com users
- Rate your friend’s apartments
- Buy and send virtual gifts to your friends
- Through paypal, buy extra ‘pixels’ (virtual currency)

Check us out now at: http://apps.facebook.com/citypixel/

Don’t forget to invite your friends!

Have fun,
citypixel.com Mayor

Hey guys,

We’re working on alot of cool things at the moment and we need help! We’re looking for a web developer with experience working on Flash widgets, particularly those integrated into social networks (ex. Facebook applications). Backend would be PHP.

Please email cpixel.jobs@gmail.com with your portfolio if interested.

So amid all of the performance enhancement drugs (HGH and steroids) conversations, baseball season is just around the corner as spring training started for many teams this past weekend. Not quite Legends Field in Tampa where the Yankees are preparing for 2008, but PixelYork is now home to it’s very own baseball diamond that can be found on 2100-2600 Wall Street.

Check it out when you get a chance. We promise there won’t be Andy Pettitte defending his story or a Roger Clemens sighting here, just good old clean and fun baseball. I know it’s not quite the new (or old) Yankees and Shea Stadiums, but it’s a start. Enjoy!

~The Commish

I thought I’d take another stab at estimating the market size for virtual goods. The size of the market can be determined using the following formula:

Virtual goods market = Potential users x Yearly user spend x Penetration

Below I’ve gone through each variable and made estimates for 2006, 2007 and 2012.

Potential users
The easiest figure to use for this would be the total number social network users, as Bear Sterns released a research report (in 08/07) that had projected and historical figures. Generally social networks and virtual worlds will be where users buy virtual goods and most likely if you’re a virtual world user, you’re also a social networking user, so there is no need to double count. There could be other sites that will offer virtual goods, but they’ll most likely be “social media” related, and it’s not clear exactly what BS has defined as “social networks”, so its best to make it simplified and just use their numbers.

Potential users:
2006 = 382m
2007 = 573m
2012 = 914m

Penetration
Andrew Chen has a good post on his blog recapping the Virtual Goods Summit during June of 2007. One of his take aways was that only 5-15% of users will ever buy virtual goods (Darren Herman commented that he thinks this % will actually increase over time). Unlike potential users, there isn’t a source for penetration figures. In 2006, we know that the market was roughly $1.5bn (this has been often quoted but I’m not sure of the original source, I assume its from the Virtual goods summit), if we assume penetration of 7%, it results in yearly user spend of $54, which might make sense. I’ve assumed an increase on 1% a year as virtual commerce gains acceptance.

Penetration:
2006 = 7%
2007 = 8%
2012 = 13%

Yearly user spend
As mentioned in Penetration, in 2006 we’re assuming the average yearly user spend was $54 or $4.5/month. This is lower than the big virtual worlds (Maple Story: $7, Habbo Hotel: $15-20) but considering Facebook charges only $1 for virtual items than $4.5 might be right. Also, Club Penguin charges users $6/month which validates that some users are willing to spend that amount every month. I’ve assumed small yearly increases.

Yearly user spend:
2006 = $4.5 x 12 = 54
2007 = $5 x 12 = $60
2012 = $7.3 x 12 = $87

Virtual goods market estimates
Using the variables above, the market estimates are:

2006 = $1.5bn
2007 = $2.7bn (90% growth
2012 = $10.3bn (07-12 CAGR: 30%)

What you need to know about casual gaming:

1. Fast growing market - Casual gaming is worth $2.2bn, and growing fast - growth rate estimated at 20%
2. Investors are getting in - Rebel Monkey ($1m), Alamofire ($2m), Zynga ($10m), C3L3B ($3m), PlayFirst ($26.5m), Doof ($??), Outspark ($11m) to name just a few
3. Social gaming - Currently this means casual games that integrate with social networks, but virtual worlds are also starting to integrate with casual games (ie. Flowplay and something citypixel.com is looking at). Inside Facebook has a good rundownof the top Facebook game developers. One interesting take away is that the daily active user ratios for these gaming apps are much higher compared to other apps, 10-20% vs. 4-5%.
4. Widening demographics - The San Jose Mercury News reported that women in their 30s and 40s are behind the casual gaming boom - apparently women account for 74% of paying customers. The NY Times just ran an article on how the “growth in the now $18 billion gaming market is in simple, user-friendly experiences that families and friends can enjoy together.”
5. Big game publishers are taking notice - EA has started a division called EA Blueprint. The group will be led by former EA Los Angeles general manager Neil Young and artist and creative director Alan Yu. Products will include brand extensions of existing EA games in addition to original IP. The EA Blueprint games will reportedly focus on social networking platforms, such as Facebook. Apparently CAA is involved somehow.
6. Monetisation - Current focus is on in-game advertising. CPMs are difficult to judge, Jeremy Liew posted awhile back that Wild Tangent was getting an eCPM of $150, but this was a mix of revenue from both premium and advertising driven games. Venturebeat interviewed Zynga and they were talking about CPMs of $0.10. Awhile back Google bought an in-game ad network so apparently they are getting into this space.
7. Guys who know what they are talking about - Jeremy Liew, of Lightspeed Partners and Andew Chen

If you look on the right side of the blog, we now have a button to our RSS feed! So now you’ll never miss a post.

In my last post I looked at some of the assumptions behind estimated virtual commerce revenue for a virtual world. Next I’m going to look at traditional advertising revenue, ie. simple banner ads. This is excluding the more interesting and exciting possibilities of interactive marketing campaigns and branding.

The cost of advertising is often measured using CPM, or cost per mille. For banner advertising, this is the cost per thousand impressions. The CPMs for Internet advertising are much lower then other medium, to put it in perspective, in 2006, Internet advertising had a CPM of $3.50 while Network TV had $21.75, Magazines $16.60 and Newspapers $18.69. Below are some Internet CPM forecasts from JPM Morgan.

In-game advertising
According to in-game advertising network IGA CEO Justin Townsend, virtual networks are too small for these kind of ads,

these are mainly creatively-driven environments and frankly not open to advertising. And if they are, it’s hard to get one set of advertising standards defined through all the different virtual world companies. If you wanted to provide ads into virtual worlds, it would be one-off bespoke, as opposed to aggregating ten virtual worlds together and providing a decent amount of reach to consumers.”

This is true for the most part, but as the industry develops and ad sizes are standardised, this will change. To determine what sort of CPMs virtual worlds might get you need to look at its closest comparable. Current in-game CPMs might be one comparable, I’ve heard some reports of CPMs at $20, and Sony’s new game Pain is offering advertising at a CPM of $30. I think the current in-game CPM rates are probably higher than what you’d expect in a virtual world as there is more control over ad placement and where the users attention is directed. Also, currently the investory level for in-gaming is low, once more and more games include advertising, and potentially virtual worlds, I would expect CPMs to fall.

Social network CPMs
Another comparable might be social networks, the similiarity being the access to detailed user infomation and that people are using them to interact with other people, but in the case of virtual worlds, in a much more immersive way. These are lower than the average online CPMs (JPMorgan estimates $3.31 in ‘07), Techdirt explains why,

Ads work on Google because people are looking for information. They do a search, and if the advertisement shows information that helps with the query, that makes everyone happy. However, when it comes to a social network, usage is quite different. People aren’t looking for information about products — they’re looking to communicate with friends. In that environment, ads are seen as an intrusion — which is the exact opposite of ads in a search world.

Reports vary quite a bit on actual social network CPMs, here is a round up: Facebook (according to Bear Sterns research, $0.88 blended CPM, but prime CPM up to $10), MySpace ($0.10 - $3.00), Flux ($1.50), Friendster ($0.04).

Virtual world CPMs
Will future virtual world CPMs be somewhere in between? In-game CPMs are high right now, but as it becomes more common, there isn’t going to be enough demand, and CPMs will fall. Unlike online advertising, in-game advertising isn’t going to attract the same array of verticals. If using for forecasts, I would be conservative and assume that virtual world CPMs will be closer to social networks.

While social networks are focusing their business models on advertising, virtual commerce are driving the business models of virtual worlds, ex. Habbo Hotel (90% of revenue), Tencent (65%), Cyworld (43.5%) and Nexon (85%). Statistics on the current market size of virtual goods are hard to come by, but one stat puts the amount that people spend on virtual items at over $1.5bn/year.

Use cases
Jeremy Liew has a great post on the use cases for digital goods; (i) increased functionality (ii) self expression and (iii) communication. The virtual goods in citypixel.com are mostly about self expression, allowing users to personalize their apartments and other spaces.

The ability to buy a car with virtual currency has introduced virtual goods that increase functionality into the world.

Ultimately, to maximise the monetisation potential of the virtual world and to provide users with the greatest number of options, all 3 use cases should be provided.

Current adoption rates
Finding statistics on the current level of user adoption of virtual commerce is very difficult. Social networks and virtual worlds are using private companies and don’t have to release these figures. To get a sense of what the average number of transactions per user might be for social networks and virtual worlds, you have to really scrounge the Internet looking for numbers.

The most readily available statistic for these sites is registered users, “active users” or “unique users a month” would have been preferred but there are varying definitions and not always released. I then tried to find how many virtual transactions each social network or virtual world has a month - this was quite difficult and I was only able to find numbers for a few, and they are a bit sketchy. See the table below for my findings:

The market for virtual commerce is at its infancy so these low numbers aren’t very surprising. What is surprising is how successful Neopets has been in this area - apparently they have consistently ranked as one of the Internet’s stickiest sites, which would explain alot.

Transaction size
I tried to find the average dollar amount of a typical virtual transactions, but this was even more difficult. The average transaction size on Xbox Live is $2.78, with users spending on average $1.46/month. Maple Story transactions are on average $2.67 with users spending $0.02/month. Facebook charges $1 for each virtual gift. According to Wikipedia, Habbo hotel users who participate in virtual commerce spend $15-20 a month, no idea what average user amounts are though. I’d be interested if anyone has anymore info on how much users are spending on virtual goods

So what better way to celebrate Super Sunday then to party in CityPixel, right? Have all of you stumbled upon 7100-7600 Lenox Avenue within PixelYork before? We aren’t holding the Super Bowl this evening there, but it is the home of PixelYork’s state-of-the-art stadium. Definitely check it out next time you are navigating within the city. We are still trying to finalize what features the stadium will include, so we are open to all suggestions on what we can offer there. Heck, if it’s a good idea we may just implement it, so this is your chance to be part of CityPixel history!

Now back to the big game tonight! This is definitely a historic game as the Brady-led Patriots attempt to complete only the second undefeated season in NFL history. But Eli and the Giants are on a roll, since they last met up with New England in Week 17, and will definitely put up a fight. Aside from waiting for the next “funniest” commercial, look for Plaxico and Bradshaw to put up some huge numbers in the game.

Now if only tomorrow was a national holiday! Can’t we move up President’s day by a couple of weeks, to this Monday, ha!

Go Giants!

~The Commish

Yeah!

Check out some recent blog posts about CityPixel:

A couple reviews:

http://www.listio.com/web20/story.php?title=citypixel

http://aleyh.com/blogs/Apartments/245612/

A shout-out in this article:

http://thepaisano.wordpress.com/2008/01/23/web-3d/

For our Spanish-speaking users:

http://www.gromenauer.es/2008/01/24/city-pixel-la-ciudad-pixelada-20/

Hope you enjoy the reads, and remember continue to share your thoughts on the site!

~The Commish