Technology Intelligence Group

The slippery value proposition- Virtual Spaces

Value Proposition. Return on Investment. Justification for Expenditure.

However you phrase it, there are skeptical people in every organization who want empirical, objective, hard evidence that any new initiative has a clear return on investment. In these harsh macro-economic times, this tendency towards risk-aversion is amplified to the detriment of new technology deployments that can save organizations much needed hard capital in the long term. The conundrum with RoI is that it is best defined after extensive deployments of a given technology, and their associated beneficiaries. When 100 or 1000 early adopters have installed a technology, used it extensively, and have had the leisure to write up a quantitative statement of benefit, the skeptics are happy and have covered their respective assets enough to green-light a project.  This would be fine if the organization wasn't attempting to gain a technological advantage or benefit from either making or saving money in the short term, because these well-defined RoI studies don't emerge until about 25-30% of the way through the maturity curve of a new technology. By the time you can definitively justify it, it's not new.

Looking at Virtual Spaces, there are luckily a number of RoI vectors, with both 'soft' and 'hard' numbers.  Lets walk through some of them briefly and the best sources for updated data:

The current economy and Virtual Worlds

These are indeed interesting times for businesses, most particularly startups.  I always seem to be in a virtual world presentation or at a virtual world conference as the macro-economic situation worsens and worsens.  In stepping back, this downturn should have some surprising impacts on this stage of development of the virtual worlds industry.

By way of context, in my humble opinion, the virtual world industry is still relatively nascent. There have been companies doing virtual world platforms for fun and profit for decades, however as a technology sector overall, they are just now coming into mainstream adoption numbers.  There is the standard first/second/third technology generation tensions between early entrants (many of which are making money) and new market entrants (who are not) looking to disrupt and capitalize.

The virtual world companies that are in the middle of (or about to seek) fund raising will find their valuations pushed down as a best-case-scenario, with 'no capital availability' as a worst-case scenario.  Typical sources of capital like friends/family/angel investors are all feeling the pain of watching their personal portfolios shrinking on a daily basis, and are therefore less likely to invest in a speculative venture in an increasingly-crowded sector.  The venture community is suffering from a combination of gripping fear, lack of self confidence, and overall paralysis.....but only at a certain altitude.  Large VCs are most impacted, as they have so much more capital to put in to play that they need certain (absurdly large) valuations of the startups they are injecting capital into.  Smaller funds, which invest in smaller denominations/valuations, are going to clean up during this time. 

Bad news for VW startups wanting large valuations about now, good news for smaller VCs with capital on hand and VW startups looking for early smaller rounds.

What about the impact of the economy on the broader value proposition of the industry?  Lets break it down a step at a time....

Eduverse Follow Up- Symposium3 Video Now Online

Robert Shepherd, the coordinator behind the recent Symposium3 event in Amsterdam, was kind enough to post the video of the event on GoogleVideo this morning.  My video-conferenced keynote address, with the 1970s earmuff headphones and all, follows:

Serious Virtual Worlds '08

In beautiful Coventry, England today and tomorrow is the Serious Virtual Worlds '08 conference, as part of the Serious Games Institute of Coventry University.  Hosted by Sara de Freitas and David Wortley, the conference has been at the forefront of mixed-reality events and location-integration between the real and virtual worlds.

I had the good fortune to keynote the conference last year and again this year.  Below is a link to a swf (flash) file of my slides, which I will annotate with audio (or link to the show video recorded) when I get back to my home base next week.

Download coventry_svw08.swf

Virtual Worlds Expo 2008 Round-up

Last week was a busy week in Los Angeles for the Virtual Worlds Expo 2008 at the Los Angeles Convention Center.  According to conference organizers I spoke with, nearly 1300 attendees participated in the event, which included multiple tracks covering consumer, media, children, enterprise, education and a 'future of virtual worlds' track.  I was fortunate enough to participate on a panel in this last track, alongside such industry luminaries as John Swords, Ian Hughes, Mark Wallace, and Ben Goetzel. 

The overall show was well populated compared to previous shows, if not a bit drowning in the spacious LACC.  It was evident that the industry is evolving, both in the international flavor of the participants attending, as well as the distribution of industry vs. customers, and (within industry) the number of consumer virtual world companies vs. the number of technology providers to same.  The latter quantity was present in abundance, with every company vying to be the platform-of-choice for developers to create consumer and business worlds upon.

This is the current-indicator-incarnation of a leading-indicator that I wrote about in late 2007, in that VC investment in the virtual worlds market was leaning heavily towards technology and component startups versus retail virtual world plays themselves.  It took eight to ten months for these second round investments to bear fruit, and they were in full bloom at the show.

One side note- many vendors I spoke with bemoaned the mix of industry/customers at the show, as there was an overpopulation of industry represented this time around.  It may be the first-time-location or a statistical blip in attendee mix.  Time will give us more samples to trend from.

Next, I head off to Coventry England to the Serious Virtual Worlds 2008 conference.  I had the opportunity to keynote the conference last year just as the integration of virtual worlds and the real world was still a black art.  This year should provide much more meat for conversation (or presentation) given the considerable activity that has taken place in the intervening twelve months.  I'll be posting the presentation shortly after my keynote, although in my usual fashion, it will be of the 'pretty pictures to accompany the speaker's points' school and not a longhand document with lots of text. When I get back to the states next week I will do a voiceover to accompany the slides and post them to slideshare.

Announcing the T.I.G. Virtual Worlds Industry Outlook 2008-2009

Shortly after leaving Cisco in June, I began speaking at length with customers, startups, large technology firms, goverment and academics about the state of the virtual worlds industry.  Based on those discussions, and key insights from fellow TIGger Sean Kane, I am pleased to announce the release of the Technology Intelligence Group's Virtual World Industry Outlook 2008-2009.

The document will be relocated shortly to it's permanent home on the Technology Intelligence Group's formal website, which is coming soon.  I encourage you to check back regularly for the formal launch of the TIG website and the key insights available from industry experts.

Comments and criticisms welcome.

Welcoming contributor Benjamin Duranske

The Technology Intelligence Group is pleased to introduce our newest contributor, Benjamin Duranske.  Mr. Duranske is an intellectual property attorney and a frequent speaker and writer on the subject of virtual world technologies and the law.  He is the author of the book Virtual Law: Navigating the Legal Landscape of Virtual Worlds, and co-chairs the American Bar Association's Committee on Virtual Worlds and Multiuser Online Games of the Section of Science & Technology Law.  He founded the SL Bar association in the virtual world of Second Life, and writes on legal issues associated with virtual worlds at the blog Virtually Blind.

Please join us in welcoming Benjamin, and look forward to his insights in this emerging field.

Welcoming contributor Dr. Wm LeRoy Heinrichs

It is my distinct pleasure to welcome the newest contributor to the Technology Intelligence Group, Dr. Wm LeRoy Heinrichs.  Many of you may recognize Dr. Heinrichs from his long tenure with Stanford SUMMIT, and the phenomenal work they have done there in surgical simulation over the last 20+ years.

For those of you who are not familiar with his work, Dr. Heinrichs is Professor (Emeritus) at Stanford University's School of Medicine and Director of Simulation at SUMMIT (Stanford University Medical Media and Information Technologies).  Dr. Heinrichs serves on the Executive Committee of the Center for Immersive and Simulation-based Learning, and writes and lectures widely about Surgical Simulation and Serious Virtual Worlds.  Dr. Heinrichs serves as Chief Medical Director at Innovation in Learning, Inc.

I have personally had the opportunity to view SUMMITs impressive projects in this space and have spoken extensively in industry how they are a benchmark for simulation leveraging virtual environments.  I am personally looking forward to Dr. Heinrichs contributions and analysis in how the field of surgical simulation and related fields can benefit from emerging technologies such as virtual simulation spaces.

Please welcome Dr. Heinrichs.

Nortel: Part II- 'All your positional voice belong to us'

Nortel dropped the other shoe this morning, in addition to their formal announcement of Project Chainsaw, by announcing their acquisiton of Diamondware (Mesa, AZ) for $10M.  Diamondware is a company that provides 3D positional audio for virtual worlds and games.

This is a case of $10M providing considerable leverage.  When I was at Cisco, we used to search long and hard for key technology players that had disruptive potential for the industry if acquired.  A protocol stack here, a key-technology player there, and pretty soon you have a corner on the key resources needed to make a market work.

Diamondware is a key technology provider to MANY companies in the virtual world and gaming markets.  For example, one of their licensees is Vivox, the people who get all the credit for providing spatial audio for SecondLife.

On a related note, Nortel announced intent to acquire PingTel about a week ago as well.  PingTel makes a slick opensource, SIP-based, IP PBX for Linux.  If the Nortel voice team were to combine some cool SIP-based IP Telephony kit with spatial/positional audio.........

Now that Nortel has announced intent to acquire Diamondware, expect a number of shakeups around industry as (generally) virtual world startups will be averse to using spatial-audio technology owned by a company who sells virtual world technology.  If you are the CEO of some other spatial-audio vendor today, I'd go get a haircut and whiten my teeth if I were you, because you're about to get a bunch of invitations to the dance.

Virtual Worlds Innovation Awards- Call for Nominations

Concurrent with the Virtual Worlds Expo in Los Angeles, they will be announcing the first annual Virtual Worlds Innovation Awards.  These awards are to recognize key contributions to the development of the industry, and are broken down into the categories of:

Overall Innovator Award
Best Innovation in a Consumer Market
Best Innovation in the Enterprise Market
Best Innovation in the Youth Market

There may be multiple awards depending on the space and players, we're (thankfully) staying flexible.

Joey Seiler at Virtual Worlds News, Steve Prentice at Gartner, Nic Mitham at KZero, Erica Driver at ThinkBalm, Robert Bloomfield at Cornell, and I are the judges for this year's awards.  I have already received a number of suggestions from the community, and now it's time to open up the nominations.  Who would you like to see get an award?  Speak up now as we are nearing the decision point. Rationales and reasons welcome.