September 10, 2007 — A new report from The Conference Board finds that virtual worlds are emerging fast on the business landscape, but few companies have developed strategies to deal with them. Membership is now in the millions, and many of the participants are not just customers, but employees.
A Virtual World is a 3-D Internet-based simulated social networking community, usually modeled after the ?real? world, with buildings, roads, meeting rooms, bars and billboards. Generally, many users participate at any time, with the interaction being immediate–taking place in ?real time.? Some examples of virtual worlds include Second Life, Kaneva and There.
Leading companies including Cisco, IBM, and Dell already have a substantial presence in Second Life. Retailers such as Circuit City and Sears also have a presence, and information services providers such as Reuters have built large installations that offer a menu of financial data, including videos of up-to-the-minute news clippings.
?Although virtual worlds appear to mimic the real world, this is an illusion,? says Edward M. Roche, author of the report. Behind the scenes, a set of software programs determine the options available: what transactions are allowed, acceptable codes of behavior, or what types of corporate information can be imported or exported. ?For the business community, choosing the right virtual world to use is a crucial decision,? says Roche.
The Need for a Corporate Strategy
Virtual worlds enable a company to do several things: provide a meeting place; engage in v-commerce (buy and sell goods and services); allow advertising and product placement (rent or build billboards and use other ?in-world? channels to advertise products, or place products in high-volume parts of a virtual world where they will be exposed to ?traffic? by visitors); or build organizational experience in a virtual environment where mistakes and failures can safely occur. They also enable ?v-CRM? virtual Customer Relationship Management: companies can reach out and collaborate with their customers in new ways.
Eight Questions to Ask
?In many quarters, virtual worlds are met with skepticism,? says Roche. ?Some managers are stuck. They assume that since the underlying technologies for virtual worlds come from video games, there could not possibly be any relevance for their business. Other managers simply may not have heard of virtual worlds. These types do not read the newspapers, follow the trade press, or watch major news channels, such as CNN, which has regularly been airing specials on virtual worlds and their applications for business.?
Whether or not your company decides to use virtual worlds, it is useful to review a few key questions that all companies should ask as they weigh their strategy and make a decision.
Question 1: What is Your Entry Strategy?
Some companies see virtual worlds as a new frontier, similar to the Internet a decade ago. By aggressively moving into this space, they will be able to attain a ?first mover advantage,? similar to what Amazon.com did in the book-selling business or what eBay did with online auctions. Others enter because of competitive necessity, or experimentation.
Question 2: What is the Corporate Purpose?
Early corporate presence in virtual worlds appear to be mostly for the purpose of ?staking out a claim? or establishing a ?showcase? to put everyone on notice that the corporation is ?in there.? Some companies take out advertising in other parts of the virtual world. Others enter for the purpose of v-commerce or to provide customers with more information about their products and services.
Question 3: Do You Plan to Offer v-Products?
Virtual worlds offer an opportunity for companies to re-think completely their product and service offerings. But a change of perspective is required. Some use virtual worlds to promote and sell currently existing products. Others plan to create completely new products and services.
Question 4: Who is in Charge?
Most companies are unlikely to have a ?Virtual Worlds Department? or ?Virtual Worlds Vice President.? The Reuters news service has a ?Second Life Bureau Chief,? but that is an exception. Since companies don?t have this function in place, it will need to be invented. But who should take the lead? Some companies have set up committees or teams, or use their sales and marketing department.
Question 5: Which Virtual Worlds Should be Used?
Companies can choose from hundreds or even thousands of virtual worlds. But which one is best? Second Life is very popular. Some companies use multiple virtual worlds, develop a presence in each of them, and see which one holds out for the long haul. Others select a virtual world that is specialized–one that is frequented by a specific type of customer.
Question 6: How Much Will it Cost?
There is, as yet, no clear set of figures or benchmarks for budgeting for creation of a virtual world. Some companies are spending much more than others. Major areas of cost include design, building and maintenance, systems integration and hosting.
Question 7: What is the Revenue Model?
For most companies, understanding how to recoup their investment is difficult, at least for now. Much depends on the mode of entry. Some companies are justifying their virtual worlds budget through advertising, sales and marketing, customer and market research, training or R&D.
Question 8: Is IT Up to the Job?
?The IT function in most companies is one of the most under-rated and under-appreciated groups,? says Roche. Apart from fighting a 24/7 battle against information terrorism, virus attacks, and various hacker clubs around the world while dealing with the next operating system release, the IT group manages for the most part to keep millions of transactions per second coursing through the electronic veins of an enterprise.
Adds Roche: ?Unfortunately, continual nagging from users and extremely difficult technical challenges tend to make IT resistant to change. Often, a new project is considered little more than another headache. But, ultimately, IT can be counted on to get the job done. Just budget the money and get out of the way.?