November 26, 2007

Virtual China – “It will be faster, bigger, more like an explosion!”

Filed under: Gaming,Social Networks,Virtual Goods — Administrator @ 4:57 pm

For the past 12-months, the market’s been buzzing about Beijing’s partnership with MindArk (creators of Entropia Universe) to build a second dam on the Yangtze River…er…I mean they could possibly build a second dam assuming their joint Beijing Cyber Recreation District project (the world’s largest 3D virtual world capable of supporting 7 million concurrent users) throttles up and launches free and clear.

In fact, not only could the Chinese government build a second, third or even fourth dam, they just might figure out how to (competently and securely) connect western consumers and retailers directly to Chinese manufacturers (sidestepping our friends at Alibaba along the way).

As Vic Keegan reports in a recent Guardian article titled “Virtual China looks for real benefits” this is:

“…a bold attempt to repeat what China has done in manufacturing (i.e. conquering the world) in services. Be warned. It doesn’t stop there. This site, now under construction, will have all the infrastructure (server farms, communication links, electricity, banking links, logistics, etc) needed to make this the world’s one-stop shop for consumers and producers.”

Full stop — this “virtual world stuff” is for real and will no doubt have an immeasurable impact on real world commerce. Yup, it could take a number of years to get it right but given the amount of capital, breath and focus China (let alone the rest of the world) is directing at this space the time is yesterday to begin toying around in this field.

Already, virtual commerce is massive (just ask the Korean’s circa 1998) and hitting the bottomlines’ of major listed Internet properties – for example, 65% of Tencent’s revenue is generated from the sales of virtual crap. Furthermore, virtual commerce is already a sophisticated market economy striated into primary (site-to-user) and secondary (user-to-user) markets – the equivalent of a US$2.0 to US$2.5 billion market worldwide.

And, over the next couple of years this industry will only continue to grow and proliferate as bandwidth increases allowing more and more users (in developing countries like China, India, and Thailand) to join 3D virtual communities, such as Chinese start-ups Hipihi and Novoking.

Of course, there are a lot of people who aren’t drinking the 3D Kool-Aid, and by some measure, they’re right…but not entirely. My most excellent friend and brother Frank Yu writes that graphics and experience has less to do with a successful roll-out than understanding the local culture. Frank writes:

“…anecdotal evidence seems to indicate that Chinese MMORPGs and Casual Games can more easily be integrated into the markets of Vietnam, Indonesia, Russia and India easier than the more higher end Western games that most industry analyst are familiar with. If this is the case, there is a revolution in gaming based not on graphics, performance or even features but one based on distribution, cultural affinity and low barriers to entry…”

Recognize! If I’m a Western gaming or virtual community operating in Asia – sure, point well taken…but what if I’m local? What if we’re all local and operating on a level “cultural” playing field? What if Beijing tosses up a platform that support 150 million avatars and recommends (in a “velvet glove, iron fist” sort of way) leading manufacturers sign up? What will happen is you’ll be forced to compete – so rather than hang around – waiting – just get going because that virtual runway is pocked marked and difficult to navigate in the best of times.

I’ve been waiting to use this video titled “Are Virtual Goods the Next Big Business Model?” for a while, granted it is from this past June’s Virtual Goods Summit 2007 hosted at Standford University, but it is really quite good (assuming you like to listen to a group of entrepreneurs, VC’s and other tech industry people who got together to talk about the emerging market opportunities for virtual goods and economies).

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