Virtual worlds; real emotions August 30, 2007Posted by jeremyliew in game mechanics, gaming, mmorpg, virtual worlds.
A few weeks ago the WSJ printed an article asking if getting married in second life was cheating on your real wife. The article mentions:
Nearly 40% of men and 53% of women who play online games said their virtual friends were equal to or better than their real-life friends, according to a survey of 30,000 gamers conducted by Nick Yee, a recent Ph.D. graduate from Stanford University.
Those are pretty fascinating results. I grabbed a copy of the 53 page paper, titled, The Demographics, Motivations, and Derived Experiences of Users of Massively Multi-User Online Graphical Environments, from Nick Yee’s website to see what else he found.
Some of the Yee’s findings echo popular wisdom; MMORPG players are overwhelmingly male (86%) and 50% of them are between 19 and 32 years old. Male players tended to be younger (average 25) then female players (average 32), with only 7% of players younger than 22 being female. Yee attributes this to the fact that 27% of female gamers were introduced to the game by their significant others – in fact fully 60% of female gamers played with their significant other.
More interesting is the addition research on the emotional intensity that gamers are experiencing. More than a quarter of gamers said the emotional highlight of the past week occurred in game! In addition, around a third said that their most annoying or infuriating experience over the last week occurred in an MMORPG. Interestingly, these ratios declined little for older players versus younger players.
Another indicator of how meaningful “in game” relationships and are is that 23% of male players and 32% of female players had told secrets to MMORPG friends that they have NEVER TOLD their real-life friends. This may partly be a function of “anonymity”, but is also a function of the 40-53% of players who felt that their “in game” friendships were as good or better than their real life friendships, as the WSJ notes above.
Yee also has some interesting findings on player motivations; why gamers play MMORGPs, that I’ll cover in a later post.
The McKinsey Quarterly recently published an interesting article titled The Granularity of Growth ($150 subscription required) that analyzed the drivers of growth at 100 large companies in 17 different industries. A free podcast of the article is available here as well.
Within industries, there was very high variability in the growth rates of competitors. For example, ten European telcos saw compound annual growth rates of between 1 and 25% between 1999 and 2005 – a very wide range.
McKinsey found that there were three key drivers of the variance in growth:
1. Portfolio momentum: organic revenue growth from the market growth of segments where they compete
2. M&A: inorganic growth from acquisition or divestiture
3. Market share performance: organic growth from gaining share in a market
Interestingly, market share performance was found to explain just 22% of the variability in growth rates. Portfolio momentum explained 43% of the differences in growth rates, and M&A explained 35%. McKinsey concludes:
Simply put, a company’s choice of markets and M&A is four times more important than outperforming in its markets. This finding comes as something of a surprise, since many management teams focus on gaining share organically through superior execution and often factor that goal into their business plans.
Startups can also learn a lesson from this. Riding market growth in a fast growing market is a lot easier than trying to take market share in a slow growth market.
Its important to look at markets in a very granular way as you do this analysis. Clay Christensen observes in the Innovator’s Dilemma that disruptive technology shifts can create fast growth submarkets in industries. Often incumbents fail to make the transition across these technology shifts because they continue to focus on their dominant position in their existing markets which may be seeing slowing or declining growth. They miss the portfolio momentum that is such a key driver of growth.
Make sure that your startup doesn’t make the same mistake!
Monetizing Search August 8, 2007Posted by jeremyliew in business models, Consumer internet, Internet, Search, start-up, startups.
Before I joined Lightspeed I was General Manager of Netscape, where I was responsible for the portal and the browser. Search drove about half of Netscape’s revenues and so I spent a fair amount of time trying to understand how to best monetize search traffic.
In fact, around 20% of searches are “navigational” in nature – users looking for a particular website. Another 50% of searches are “informational” in nature (e.g. “capital of Taiwan”, “top social networks”) and the remaining 30% are “transactional” in nature (e.g. “cheap flights to Orlando”, “flat screen TV”. These stats come from an IBM research paper from 2002 that defines a taxonomy of web search, but the ratios were still roughly accurate as of 2006 when Gina Winkler, the outstanding woman who ran Netscape’s search team, left the company. [NB Netscape’s search is now largely a re-skinned version of Google, a very different product to what it used to be]
It is relatively difficult to monetize navigational and informational searches. Try searches for “amazon” or “specific gravity of lead” and you won’t see any sponsored links. All the monetization comes from the transactional searches. Look at the huge number of sponsored links for searches on “ipod“, “rowing machines” or “disneyland hotels” in comparison.
So a new search company’s ability to monetizing search depends largely on what percentage of its search volume is transactional. For some of the new vertical search sites, this percentage can vary dramatically.
Take people search for example. A search on “jeremy liew” in Google yields no sponsored links (although before Ebay cut back its spending on Google there used to be an ad for “Great deals on jeremy liew at Ebay”!). In general, people search is informational. The proportion of transactional searches will likely be lower than general search. This is something that companies like Wink and Spock will need to take into account as they develop their business models.
Conversely, sites focused on shopping search will have a very high proportion of transactional queries. The first generation of comparison shopping engines such as Shopping.com, Shopzilla built valuable businesses on much lower traffic than the big general search engines because almost every query is monetizable. This bodes well for the next generation of shopping search engines including companies such as Shopwiki, The Find (a Lightspeed portfolio company), and Krillion.
Similar analyses can be conducted on other vertical search engines in areas such as local, travel, video and health – some of these will have a much higher proportion of transactional searches than others.
Semantic search startups propose to do a better job on informational search than the current search engines. If they see a greater proportion of informational searches because of this, then they may in fact monetize at a lower rate than today’s search engines.
Search is a tough business because of the need to change customer habits and pull search share away from today’s big branded search engines. If a new search engine does not monetize well because of its mix of queries, it has even more work to do.