BUSINESS MODELS AND VIRTUAL WORLDS:

THE SECOND LIFE LESSON

Prof. Maria Rosita CagninaDott. Michele PoianDepartment of Economics

Università degli Studi di Udine

SECOND LIFE WORKSHOP: Virtual CommunitiesCOST 298 - Participation in the Broadband Society

So you want to be an avatar?

Yes , we can!

Business models (1)

• A tool for managing the convergence between strategy, technology, organization, processes (D’Atri, Braccini, 2007; Jansen, Steenbakkers, Jägers, 2007)

• It allows to generate value and benefit from new sources of sustainable competitive advantage.

Business Models (2)

• A Business Model (BM) should consider at least (Osterwalder et Al, 2005):– The value a company offers to one or more

segments of the market; – The structure of the company and the network

of partners that permit to create, market and appropriate of the generated value;

– The relationship with the capital, in order to generate profits and sustainable revenue streams.

SL and BM (1)

• The relationship between Second Life (SL) and BM can be seen from two points of view:– SL as a platform to create new BMs

• Third parties firms, who join the VW

– SL as the BM• Virtual World owner

SL and BM (2)

• SL may be used to reinforce business proposal of a firm. Indeed, SL:– embodies a community;– enables rich interactive exchanges;– allows to manage multimedia items;– embeds a system of micropayment;– fulfils the desire of users for identity.

• SL can be exploited as an innovative business platform

Business categories

RW service providers in Second Life

RW corporate brands

Metabrands

VW Owner

Business in SL: 1.0 phase

• SL as a new mass-market. Therefore:

– Firms approached SL as “another web channel” (showcase islands)

– Brand awareness obtained by means of “splash media” effects

• As a consequence, firms approached SL trying to replicate worn-out real-world strategies and focusing on short-term results

Shocase islands

Virtual Apparel

Enel Park

“Media Splash” effect

Real World business failure

• Poor understanding of SL peculiarities.– Avatars or humans?

• Irrational expectations.– Absolute numbers are low

• Weak integration between firms’ BMs and SL.– Where’s my ROI?

• Ineffective marketing efforts.– Copyright is dead

Costa Crocere

Costa Crocere

Armani

SL peculiarities

• Real-time interaction

• Communication channels convergence

• Digital content spans VW boundaries

• Centaur consumers (Wind, Mahajan, Gunther, 2002) and prosumers (Toffler, 1980)

• Even better, not consumers but only users

Exogenous conditions

Enacted dimensions

Endogenous conditions

Tecnology

Content creation

InteractivityImmersionEnacted

environment

How to explain VW’s logic

Source: Cagnina, Poian, 2007

How BM changes in SL?

– The value a company offers to one or more segments of the market;

– The structure of the company and the network of partners that permit to create, market and appropriate of the generated value;

– The relationship with the capital, in order to generate profits and sustainable revenue streams;

– The added value provided by platform users;

– The network effects that connects each element.

First perpective...

• Chris Satchell – ex CTO of Microsoft’s Interactive Entertainment Business (about XNA Platform):

“ If you can give people a way to communicate, to talk about content, to rate it and express what's cool, then you start a virtuous cycle, because more people want to get involved,

more people create content and more people comment on it.”

Source: Welsh, 2006; http://www.gamesindustry.biz/content_page.php?aid=21697

... second perspective...

• Philip Rosedale – founder and former Linden Lab CTO:

“Linden Lab’s BM is not related to the company’s success in pushing a service (...). LL’ s BM is to provide clients with tools to

make business (among themselves), and get a share from it (through tier and a small

transaction fee on the LindeX).”Source: http://tsf.sapo.pt/PaginaInicial/AudioeVideo.aspx?content_id=1144559http://gwynethllewelyn.net/2009/02/13/philips-vision-1999-2009-and-beyond/

... are VERY similar!

• Putting them together:

“ If you provide clients with tools to make business (among themselves), you start a virtuous cycle, because more people want to get involved, more people create content and more people comment on it, and you can get a share from it”

VW and BM logics

Exogenous conditions

Enacted dimensions

Endogenous conditions

Tecnology

Content creation

InteractivityImmersionEnacted

environment

Value Valueextractionextraction

Emergence of a new BM?

• Join a platform or creating a new one.

• Providing users with tools, and get a share from the traffic they generate.

• The BM reinforces as long as people interact each other, and get a share of the growth.

• Therefore, the business model capitalizes on a combination of network externalities (Shuen, 2008) among different traffic routes, and get a share of them.

Traffic-based BM

Thanks to anyone!

Prof. Maria Rosita Cagnina

Medusa Cortes

cagnina@uniud.it

Dott. Michele Poian

Pitecus Afarensis

michele.poian@uniud.it

Our blog http://www.fantasilab.com