Those Tricky Virtual Numbers: Engagement and Investment

There are a couple of interesting items floating around the virtual community.

First up is a report by the Yankee Group I first read about on the Virtual World News blog (Link). From the Yankee Group Press Release:

According to the recently published Yankee Group Note, Wither Second Life?, the growth rate of Second Life users has slowed since its peak in October 2006, while user engagement (as measured by average time spent per user) has leveled off at just 12 minutes per month.

People are scratching their head over that 12 minutes per month number. Especially since it’s tied to some questionable conclusions.

Facebook’s average time spent per user, for example, increased 24% over 6 months to 186 minutes per month, equating to 15-times more engagement per user than Second Life. The Note considers a number of factors contributing to this stagnation, but concludes that Second Life’s PC-centric approach in an increasingly mobile world is to blame.

I just happened to be looking at the metrics a few days prior to that report, so I did a double-take. Then I read Wagner James Au’s post on New World Notes (Link) and saw that he was doing a double-take as well. Then I saw more head-scratching in a few other places, so I assumed this would have some traction. It does. Because once again those entities who somehow receive authority by virtue of being a media brand or a “Group, Inc” are expected to get it right, but all too often don’t.

In any event, the comment I like most is Tateru Nino’s post over on the Second Life Insider (Link):

Well… I suppose there’s only one way to figure out what population figure they used, and that’s to divide user minutes by 12, right? The answer has to be in the approximate ballpark of the population figure they used.

Here goes…

1,407,327,060 minutes divided by 12 minutes per user is …

117,277,255! One hundred and seventeen million users plus change.

That’s very generous, boys, but a bit off the mark.

All is not lost, Yankee Group. Losing credibility isn’t the end of the virtual world.

By the way, as a matter of reference, the Guardian earlier reported that Second Life in fact is the stickiest application. From that Guardian article (Link):

Facebook’s users spent a total of 991m minutes on the site during August, Bebo users 600m minutes and MySpace users 540m minutes

However, in terms of time spent per user, Second Life proved the most “sticky” site with total visits averaging five hours 29 minutes during August.

Expect that number and others to start getting some play. There are already articles second-guessing the backlash (e.g. CNN’s recent piece, “Second Life’s 2nd value: Testing ideas – Link).

The other number that’s getting some buzz was reported earlier today, also on the Virtual World News blog. From their entry (Link):

$1 billion has been invested in 35 virtual worlds companies since last October, Virtual Worlds Management announced today as a lead up to the Virtual Worlds Fall Conference and Expo next week at the San Jose Convention Center. $196.8 Million was invested in 33 companies, with leadership from Redpoint Ventures, Charles River Ventures, Intel, and Rustic Canyon Partners. The rest of the money comes from two major deals: Disney’s $700 million purchase of Club Penguin and Intel’s recent $110 million acquisition of Havok, the 3D graphics provider that provides the physics inside of Second Life.

Okay, to be fair, I don’t think Intel’s purchase of Havok should be included. There are other applications for physics code. For example, product design in a PLM-based simulation. Havok may never be used for those applications, but the fact that it could be used is sufficient for me to discount it.

Far and away, the Club Penguin deal (done this past August) is the story here. And while that purchase price surprised a lot of people, put in the context of recent news that eBay’s $2.6B purchase of Skype in 2005 hasn’t panned out the way they’d apparently hoped, who’s to say Disney’s purchase is a poor investment? For all we know they’re shifting money from advertising.*

But the thing is, they haven’t paid $700M. They paid $350M with the remaining amount to be paid out over the next couple of years… contingent on performance.

Maybe Disney was paying attention to the Skype purchase. And maybe everyone should review their numbers before they publish their research.

*Note: if you’re familiar with some of Disney’s ad budget numbers you know why I suggest the money may be shifting.

{Update: Just a couple of links relating to the Yankee Group story:

Second Grade Math” – Linden Lab Official blog
“Linden Lab Label’s Yankee Group’s Report “Second Grade Math” – Virtual World News }

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