Competitive Forces: Virtual Product Pricing & Life-Cycle

Business owners interested in understanding the profitability of a market or industry, prior to releasing a product, should be very aware of the forces affecting competition. These forces, are generally accepted as indicators to predicting profitability. Understanding these forces also exposes which forces in an industry may be advantageous to being profitable, and which are challenging the opportunity. Since I sell a line of pre-fabricated retail stores in Second Life, I've had to consider things such as pricing, feature sets, texturing, and correctly sizing the buildings for my target market, compared to existing substitutes or alternatives. Using the XStreetSL web site to sell my virtual goods, I have experienced a phenomenon in doing virtual business manufacturing that is completely different from the real world: my competitor's products never go away, they only get cheaper and cheaper until they are offered for free! What I am suggesting in this post, is that the lack of entry and exit costs (not to mention direct costs) associated with selling virtual products, negatively affects both pricing and product life-cycles in the virtual product industry. Combine this supposition with the exchange ratios of virtual currencies to real world currencies, and being a product manufacturer is a very difficult industry in which to find sustainable profitability.

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The “Monetize” Phenomenon

This term, monetize, is being thrown around by Internet companies and their leaders, like it's almost, in style. If you're not familiar with the term, it is used as a verb to say, "We'd like to figure out how our platform or social media site is going to make some money off our killer idea". It seems the business model of yesteryear, where you figure that out before investing in a project, is now out of style.

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Business Models vs Internet Business “Concepts”, part 1

Immersive technology and virtual worlds presents new opportunities and challenges to the traditional sense of the profitable business model. "Discontinuous change", according to Gary Hamel of Strategos, is the make up of today's and tomorrow's successful business models. Discontinuous change includes not thinking of a new business model itself, but a new business concept. It is almost like saying, there aren't any new business models to create, so we must recreate what a business model looks like--to be discontinuous. Social networking sites are perhaps the epitome of these new business concepts. Unfortunately, these pioneers of social media have forgotten one very important part of business, and that is evidenced in the many discussions of how these sites intend to "monetize" their creations "after" the start of the business.

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Virtual To Real Currency Restriction Risk: China

When operating a business in foreign countries, currency exchange and repatriation risks are added to risk management planning and strategy. While the U.S. Government has made no policy (yet) against currency conversion from virtual to real, China's Government has. In the article "China bars use of virtual money for trading in real goods", the official ruling is aimed to prevent a "possible impact on the real financial system". In a way similar to foreign currency exchanges, virtual to real currency exchanges also have variable exchange rates, commissions, and value-added taxes in many cases. Virtual businesses operating in China can no longer trade virtual currencies, such as those used for online gambling or "pre-paid cards of cyber-games" for real world products and services.

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Business Value in the “Immersive Internet” Explored

Well, this is what it's all about here at Metaverse For Business. I'm scouring the 'net looking for fantastic resources and support, or evidence against some of my own beliefs and observations about business in the metaverse. Earlier, I came across a paper released by ThinkBalm that looked into the business value from using immersive Internet technology (aka, virtual worlds) in the work setting. I'm very much into finding quantitative results here and I don't expect everyone to read the full 36-page report, but I will try to summarize here, those things relative to this blog's mission.

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Your Time: Virtually, Your Only Direct Cost

An interesting concept I've realized about business in virtual worlds, involves the issues of direct and indirect costs. The concept goes like this. . . In the real world, creating a product or service has its associated costs. These costs are generally put into two buckets. Direct costs are those activities where costs can be tracked directly to the cost of making your widget or producing your service. Examples would be working on a drill press to machine a part, or the time you bill your client to be his personal trainer in the gym. Indirect costs are activities not directly tied to the output of your product or service; there's overlap in the costs as they are shared across activities such as utility bills, rents, and "general and administrative" time. But in the virtual world unlike the real world, there is only one direct cost: your time.

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Metaverse Technology & Demand Limitations

It's apparent that many people in Second Life join to try and make money in-world. "What can I do to make some money?", is a very popular question by these reward-seekers. If you're familiar with the Second Life life style, then a list of jobs pops into your head immediately. Dancer, host, DJ are usually at the top of the list. Look at these three jobs however, what does that say about the environment which you've entered? It says, "This is a very social place," and your job, and your success at these positions is based on people paying you tips for your service. Compare this to the real world now. The answer to, "What can I do to make money?", has a much broader answer; hardly able to nail it down to just three common tasks. This exposes two facts about this contrast. The first is that the virtual world is very limited to what new products or services you can create. The second is more reflective of real-life; consumers ultimately determine what is hot and what is not.

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Second Life Economy Overview

Second Life mimics real life where society needs and relies on money exchanging hands to support economic growth. As more real-world currencies are converted into Lindens (the financial unit of exchange in Second Life), more money becomes available for exchange between participants. "The Fed" (US Federal Reserve Bank) in the U.S. greatly influences the cost of borrowing money and setting its value through financial policy. In Second Life, Linden Labs has many of the same controls over the costs of capital, exchanges, its value, and availability of currency.

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Virtual Economic Value?

I’d been contemplating writing this sort of thing for months; not sure if the real-life person in me saw the value in applying real-world business concepts to the virtual space. Just how much knowledge can be transferred from an educational standpoint on business concepts to an understanding of business in the metaverse? Hopefully as I explore different business concepts and apply them to my time and observation in Second Life, I, as well as my readers (are you out there?) may find some value in this blog.

I didn’t go to graduate school to try and make it rich in virtual worlds. Let me just put that statement out there. In real-life, I’m an IT operations and management specialist with 15 years of industry experience. I’ve run the full gamut of my IT career from web programmer and database administrator, to systems administrator and multi-site data center manager. I decided to get my MBA because I knew after 15 years, there were answers to questions I didn’t know. What is the business case for technology within an organization? Is technology a requirement for business, a competitive advantage, or both? Heck, I didn’t even know what questions to ask and where to begin.

I enjoy virtual reality and I’m regularly on Second Life. I’ve read the blogs on how to do business in this market space. Some were great when I first started. I see the virtual world as a new frontier, but little real-world, thought provoking business concepts applied. So I start my journey here, and I hope you’ll join me as I attempt to put my perspective on this virtual economy. I think in the beginning, I will focus more on the metaverse business environment as I know it; reviewing it, describing it, and tring to make sense of what we’re working with. But along the way, I expect to explore opportunities this environment presents to both your average and savvy business disciples like myself. Where possible, I will also add opportunities and risks for businesses at the end of each post pertaining to the topic.

If you have any suggestions for a topic, send me an email. I have a list of things to come, but your comments may change that priority. Enjoy and thanks!