Ethan Beardsley

Off to the Pays Basque for a couple of weeks of vacation tomorrow. Lots of reading, good food, golf, body surf and running on the beach. There’s no easy broadband access so it will be a real chance to “unplug”.

I feel good about the progress on Nooja and ready for the launch of our closed beta in October. After 18 months of work, we’re all looking forward to seeing how kids react to the game!

Determining the market size of the freemium virtual world and casual MMO market is notoriously difficult due to the reluctance of most players to publish detailed stats on their monetization and revenue models.

Luckily I’ve seen some good recent analysis on the size of the kids’ virtual world and casual MMO size which focuses on Average Revenue Per Unique Visitor. This methodology makes a lot of sense because it homogenizes a lot of the differences  between the wide variety of business models. For example, micro-transaction based worlds tend to have lower penetration of paying users but higher revenue per paying user whereas subscription-based worlds have higher penetration of paying users and lower revenue per paying user.

I’ve tweaked the analysis using some additional data based on business plan work done on Nooja with regard to Club Penguin, Habbo,  Runescape and IMVU.

Club Penguin numbers date back to August 2007 at the time of the acquisition by Disney. Reported paying subscribers at the time was 700K at an average revenue per subscriber of $5 (I think the $6 average price which is cited in most calculations is aggressive due to VAT on the Canadian & UK subscribers and to significant discounts given for long-term subscriptions). On this basis, I’d assume Club Penguin had a  $3.5M revenue run rate in August 2007. At the time, worldwide unique visitors were estimated at 4.7M so we can assume that at the time Disney was doing about $0.75 per unique user. This number is considerably less optimistic than some other estimates which goes as high as 1.62$/monthly unique but feels about right to me.

Runescape declared subscription revenues of 30M£ for 2008. Let’s assume that their average run rate is 2.5M£. Restated at average £/$ exchange rates of 1.85, this works out to an average run rate of $4.6M. If we assume 4.2M worldwide uniques, this works $1.10/monthly unique. This figure is a bit higher than other estimates but seems consistent with the very high engagement levels that are generated by MMO-like game plays.

Habbo declared total revenues of $74M for 2008 which works out to average monthly revenues of $8.3M. Most of Sulake’s B2B business has wound down so let’s assume all of this was derived from item selling. According to Comscore data, average worldwide uniques for 2008 appear to have averaged around 9M uniques. On this basis, we obtain $0.92 per monthly unique.

IMVU‘s monthly revenue is currently estimated at $1.7M per month. On the basis of estimated traffic of 4.2M uniques per month, this works out to $0.40 per monthly unique.

Averaging out these three examples works out to an average revenue of 0.74$ per unique user– this seems pretty reasonable.

Now how does this all add up in terms of overall market size?

My “seat of the pants” calculation is to look at the current audience levels of a wide range of ten popular worlds including :

• Casual gaming worlds : Club Penguin and Neopets
• Fashion worlds : Barbie Girls and Stardoll
• Chat/teen worlds : Habbo, Gaia Online and IMVU
• Casual MMORPG: Runescape, Dofus and Fusion Fall

These worlds account for a total of 32M unique visitors in June 2009 according to Google Ad Planner.

Taking our monthly revenue per unique, this means that these worlds could generate $280 million in 2009. I think this is a much bigger market opportunity than most people think…and it would only get bigger if we were to factor all the 70+ worlds that are currently competing in this space.

Please let me know your thoughts…

Internet adoption by kids continues to grow. The 2008 EU Kids Online report shows that 75% of kids 6-17 are internet users.The UK, the Netherlands and Nordic countries all have usage rates that are above 90%. Adoption is also taking place younger and younger. 60% of EU kids 6-10 are online and penetration rates are now in excess of 80% in the most advanced countries.

This trend brings a couple of ideas/reflections on creating a safe internet experience for kids:

1. Kid’s usage is very difficult to control. Some parents of younger kids are starting to use filtering software but adoption is not yet widespread. The key to online safety is probably parental involvement, education and making sure that attractive and appropriate content is available online for kids. Anecdotal evidence suggests that more and more parents are actually sharing and interacting with their kids online. I hear lots of stories about families playing MMORPGs like World of Warcraft together.
2. Creating “destination sites” for kids is helpful but not sufficient. The US Children’s Online Privacy Protection Act  (COPPA) imposes strict guidelines for the collection of personal information from kids who are less that 13 years of age. Such guidelines have probably helped define an industry of kid-focused virtual worlds and communities like Club Penguin but the reality is that it’s pretty difficult to create a walled garden. Facebook or Habbo have huge appeal for younger kids… they are theoretically in conformity with COPPA because they ban kids less than 13 years of age but there’s little that the sites can do to prevent an 11 year old with a valid personal email address from registering on the site.
3. Financing internet content requires adoption of pay models. If you let your kid surf online for free, he will necessarily be much more solicited than if he’s in a premium pay environment. The success of many kid-focused freemium virtual worlds like Club Penguin or Webkinz suggests that parents are increasingly recognizing this.
4. Producers who create content which can appeal to kids need to make sure their site is safe regardless of age or registration procedures. The real sweet spot for online content producers is “online family entertainment” : web content that is safe, appeals to both kids and parents, creates opportunities for family interaction and that can be monetized without advertising.