Avatars as well as virtual (game) items were quite popular as a media topic back in the late 90s. To be honest, I myself even worked as the “manager” of a “star avatar” called E-Cyas in 1999. This included giving TV and press interviews in his name, answering fan mails and representing his alter ego in online chat rooms. Yes it was a crazy time! The most prominent star avatar that comes to one’s mind might be Lara Croft.  But the concept of online avatars and virtual items dates back to the mid-80s.  After nearly 30 years and after two major dot-com bubble bursts this business has come to a mature state. The popularity of social networks and high speed networks as well as the revolution of the mobile internet helped to turn it into serious business. In Asia this can be seen even stronger than in the rest of the world. There over $ 18 billion have been generated through the sales of virtual items and the use of virtual currencies. (Compared to around $2 billion in the US) We covered this phenomenon in the chapter about “Mobile Businessmodels” in our book.

Looking at Japan

Let’s take a brief look at Japan: Here the biggest social networks (mixi, mobage, GREE) are mainly accessed via mobile devices. A trend we can also see happening in the West right now, as more and more people are moving towards data-flatrate plans.  Mobage and GREE –one of Japans biggest social networks- are centered around avatars and social games.  GREE was launched back in 2004 and mobage in 2006.  Each has around 24 Million members. On these platform users can play free games with others, buy/win in-game items and also purchase or be rewarded with new items, clothes and accessories for their personalized avatar or decoration items for their virtual rooms. And this strategy seems to pay off: Over 85% of GREES $1.5 billion revenue was generated by the sale of virtual avatar goods and in-game items.  Interestingly the heavy users of these platforms and the most avid virtual item and accessories collectors are not teens but mostly females in their mid-20s to mid-30s. All virtual goods purchase is handled through virtual currencies. In mobages case it is called mobage gold. Users can also receive mobage gold coins by clicking on ads or by making an online purchase through a partner store.

Brands becoming active

Also brands could see this growing trend and started to embrace these platforms quickly. Coca Cola Japan for example has partnered with Mobage back in 2006 to offer Coca-Cola branded limited edition avatar clothes and accessories. Other brands like Pizza-La and SevenEleven followed soon after with their own limited edition items and accessories.  Fashion brands even went a step further and launched their new collections within these social networks by providing virtual versions of their new line-ups for the users avatar. Aeon department stores teamed up with mobage recently to have users vote on their favorite Aeon clothes and participants would receive the virtual version of the selected clothes for their avatar.

Ameba Pigg is another good example. This very cute avatar platform that launched in 2009 already has around 15 million users. The service cashed in around 1 million US$ on virtual item sales during last year’s new year’s season. Beyond this it is used heavily by brands as an engagement platform. In late 2011 fashion brand Gucci even took it one step further by opening a virtual shop in Ameba Pigg and selling virtual Gucci items for real money. A virtual Gucci bag sells for around 28$.

The West is catching up

But also in the West it has become more and more popular for brands to offer virtual items for example in Facebook games like Farmville. McDonald partnered with Zyngas in 2011 to offer special FarmVille in-game items like a hot air balloon.  Bing and SevenEleven also have tried similar partnerships. IMVU, a Western avatar chat platform with over 50 million registered users is another good example. They have the largest virtual goods catalogues and brands are already strong involved in providing branded items. Also Japanese platforms are expanding into the West: Both mobage and GREE recently made major global acquisitions and are already offering English versions of their platforms.  Ameba also launched a global PC & mobile version of Ameba Pigg recently. Global game companies are also more and more shifting towards the “item-sale” monetization model. A good recent example is “Smurf’s Village” by Capcom.  Given all that is does not come to a surprise that DeNA, the company behind mobage teamed up with game maker Bandai-Namco this year to start a new global gaming enterprise.

The Takeaway

What we see here is just the beginning of a bigger trend. And it is a good time to start engaging existing and potential customers through these new possibilities.

For outside players like brands or telcos to dip their toes into this field, here are some possible benefits:

-potential tool to reward existing customers (with virtual branded items/goods)

-stronger, more direct brand engagement

-attract potential new targets in a very “playful” way

-more meaningful and personal from the users point of view

-users become brand ambassadors (avatars wear the virtual accessory and by talking about it)

-possibility to collect valuable consumer insights (virtual sampling)

You can also expect to see many more platforms and opportunities evolving mostly on the mobile platform.

The announcement of Apples in-app subscription has created an uproar amongst content creators and received a lot of coverage in the press. To summarize it, Apple generally wants 30% of all the revenues generated in and through applications in its online store. This now also includes iOS subscription services to magazines, newspapers, movie rentals and other content offers.

What might seem as a surprising move is just a logic step towards an even more closed ecosystem. Very much like what we have seen here in Japan over 10 years ago. Apple is and has been an avid learner. It is safe to say that already a long time ago Apple (and in a sense Google too) took a lot of inspirations from the i-modes business model: The iPod and its integration into iTunes, providing a vital ecosystem for developers and content owners, controlling the hardware and the service, one-stop payments, etc.

Lessons learned from Japan

Interestingly withy the start of i-mode in Japan, all paid applications in the official menu were only available as subscription services. This means that even for just downloading a game the user had to subscribe to the game service and pay a monthly fee ranging from around 100 – 500 Yen. For content providers this made it possible to have a constant stream of revenues right fro the start. And as users are often reluctant (or lets call it too lazy) to cancel subscriptions that monthly revenue tends to last for quite a while

So looking back at Japans past, Apples in-app subscription approach is nothing new. It has been one of the cornerstones of success of the mobile ecosystem.

The introduction of the iPhone and other smart phones in Japan recently started to threaten this subscription based business model as suddenly application fees only needed to be paid once and even upgrades came for free. Not to mention the new freedom for independent developers allowing them to be part of the mobile revenue game even just as a “one-man-show”. It brought a new fresh open wind to the Japanese mobile business world. But how things look right now, Apples business model is more and more turning into what i-mode was all about right from the start: a tightly vertically integrated and controlled solution, expanding into new hardware platforms with a shared content and business platform, relying heavily on subscription based content offers.

Don’t be greedy

There is only one important difference: NTT has always been less greedy. Apples demands quite a big share when it comes to splitting revenues. 30% is a lot if we compare it to  i-mode. NTT only asked for 9% of the revenues.  And this was one of the main reasons that i-mode became an attractive platform for content owners and developers. So right from the start there was enough interesting content to drive users to the platform. In the end what makes a platform successful depends very much on these developers and content providers. They turn a technical gadget into a joyful experience. Content sells.

While this seemed to have turned out fine for Apple in the past now things start to shake up. Already application developers and content announced they might not give in to Apple this time.

30% is a lot to ask for. If you have something like  “mobile ecosystem monopoly” this might work out for a while but in the end it bites the hand that feeds you: content providers.

Our advice on this: Never be too greedy. Be willing to share. That is what it is all about. Keep you partners and customers happy and you keep everybody happy.