Web 3.0 Is Virtual Dog Food Says Pincus

When you talk to people about the mega-growth in the sale of online virtual goods, the reaction tends to be similar to the first time they hear about Twitter.  ‘They do what!?’ – followed by rolling of eyeballs and looks around the room for mutual support about this latest round of web craziness.  It’s an entirely understandable response.  Why would anyone spend real money on, for instance, virtual dog food for their virtual pet?   Or more confusing still, why would anyone wish to pay $335,000 in hard cash for a virtual leisure club in Entropia, an online science-fiction world?  One way to move beyond the perplexing notion of people spending their shekels on such apparent lunacy is to stop viewing it as people buying ‘goods’ and start seeing it as people paying for ‘content’.  Albeit of a novel interactive variety.  After all, gazillions each year are spent on media content including cable TV channels, music, books and magazines.   And we don’t hear about the madness of people buying virtual goods from Hollywood.  But, just a minute I hear you cry, people don’t pay for content online do they?  Free is now the default, right?  It's the bugbear of Content Kings everywhere, including the Old Digger Murdoch who has thrown up the paywalls around his valuable content, even though he knows he'll lose most of his online readers.  It’s the reason that Hollywood has blocked Google TV accessing its AAA-productions in case Messrs Brin & Page repeat the havoc they unleashed on the newspaper industry by giving their treasures away for free to a global audience.  So what's going on?  On the one hand we have people paying good money for virtual dog food.  On the other a refusal to pay for the insights of cerebral journalists and the world's finest movies.   With these apparently contradictory trends in mind, I was interested to hear Marc Pincus, the CEO of Zynga, the social gaming empire, describe in this frenetic talk his theory that, ‘the third business plan of the internet will be users paying for things; often digital only, virtual and high-margin; and services that are found as apps.  I believe every major franchise on the Internet is up-for-grabs, just like it was at the beginning of Web 2.0’ (52 mins).  Well he would say that wouldn’t he?  Pincus’ company, Zynga, has made a king’s ransom and...

...more from the selling of digital gubbins to people who enjoy playing his games, with his company now attracting the type of stellar valuations reserved only for Silicon Valley’s, Moore’s Law powered, parallel universe.  However, he may have a point.  Prior to the period now referred to as Web 1.0, the WebNets were a technological utopia where people talked about whuffie and gift economies, not filthy lucre.  The Web was Sir Tim Berners-Lee’s dream to, ‘connect humanity’ not drive its commerce harder. And people didn’t trust or couldn’t be bothered to tap their credit card details into a mysterious website to pay for small random subscriptions.  Subsequently, the closest the web got to its own cash till was Paypal which succeeded greatly without becoming mainstream, or Amazon’s one-click service that grew to decimate one industry by being terribly convenient.  

However, then came along Steve Jobs and Mark Zuckerberg who through their respective perfectly-manicured and disciplined walled gardens, aka AppStores, plugged massive micro-payment systems into the web and created trusted channels for people to buy almost anything.  A fact that super-smart operators like Pincus spotted and ruthlessly exploited selling shovels for people virtually tending their smallholdings in his hit game Farmville.  

No wonder the Old Digger Murdoch’s so furious.  For a time there he was King of the Social Networks through his purchase of MySpace.  However, his advertising-led mindset and mega-deal with Google, that seemed like a stroke of genius at the time, in hindsight may prove to be one that looked backwards not forwards, keeping the network firmly lodged in the past.  Meanwhile Jobs and Zuckerberg went straight to the consumer and started collecting micro-payments for tiny pieces of content, possibly creating The New Rivers Of Gold, as Murdoch once called classified advertising.  

In fact, far from being another odd web novelty, the virtual goods economy has expanded to the point that people use it in sophisticated ways, beyond just entertainment. For many, purchasing virtual goods is part of the overall identity they express to the world. As the ever insightful Matthew Warneford said in this post from last year : ‘Every product contains both tangible and intangible sources of value; its this intangible value that is in fact virtual, everything you buy has at least some "virtual" component.  By recognizing these components, we can make better sense of what's going on in the online virtual goods market, and craft strategies that leverage people's pre-existing experience with virtual goods.  Paying a premium for a branded pair of virtual jeans is actually a pretty similar experience for most virtual goods customers.’

And, of course, as the mobile web becomes a mainstream part of shopping and the consumer’s path to purchase; blending locational informational and constant updates about bargains and offers from the digital grapevines, the Web 3.0 experience - fuelled 'by users paying for things' as Pincus describes - does indeed look set to become increasingly pervasive.  

So, rather than Web 3.0 being a new level of futuristic, techno-wizadry served up from the febrile minds in the Valley and backed by the deep pockets of Sand Hill Road, Mr Zynga believes it will be about people paying for content and entertainment, in the guise of digital goods and services.  Not so strange really.  In fact, maybe we'll look back on the free content period as the time that bucked the longest of long-term trends, namely demand and supply.

Maybe there’s no such thing as a free lunch after all, virtual or otherwise.

 

Comments

[Katie @ SM Workshop]

I heard Facebook is thinking of introducing a credit type system where you can charge an account for "stuff" and pay later. The web is creating crazy possibilities!

[Dara Bell]

Hi Katie,

Ironically these people are very smart. Theres a TED talk that says if you could tap the problem solving abilities of social gamers you can solve lots of real world problems.

Climate Change could be licked in a few months if millions of people were not going onto such sites.

Its a sort of apathy.

I think in the 80's when I was growing up we played a fair ammount of Tekkan, Donkey Kong etc but there was alot of oil back then, no climate change.

This is human potential wasted.

Those are my thoughts. I personally am only ever going to slot technology around my life never let it dictate my life.

Dara

[James Cherkoff]

Thanks Katie, yes I think FB is being really creative in the social shopping area...

Hey Dara, I don't quite follow - you think social gaming is a bad thing?