Settlers of the New [Virtual] World[s] - Social Interface Design for Virtual Worlds

Settlers of the New [Virtual] World[s]

Social Interface Design for Virtual Worlds

I did not expect to be reading books on the 9th Amendment of the US Constitution, nor did I think I would have given a talk at Seattle last month where I discussed the Magna Carta, North Korea, the UN’s Universal Human Rights, Second Life and World of Warcraft all in one talk.

My education is an undergraduate and graduate degree in Aerospace Engineering, but my actual trade skills are in glazing, software engineering, and game design.

My current job is the CEO if GoPets. Lately I have been forced to confront so many subtle and transcendental issues that I feel compelled to take a moment and understand what does it mean to be the CEO of GoPets? The CEO part is straightforward it means that my job is to maximize the revenue and to minimize the costs of operating my company to return the greatest possible profits for my shareholders.

In the landmark Supreme Court case of Dodge vs. Ford I was astonished to learn that Ford lost the case to deliver cars to the masses at a lower price than the market would bear. Ford thought it was his prerogative as the CEO to determine the balance of interests between management, owners, employees and the customers. The Dodge brothers contention was that they were materially harmed by Ford’s decision to sell the Model T at $440 a car when they were selling fine at $880.

They Court pointedly tried to help Ford by wrapping a suggestion in the form of a question, “…you made the decision to lower the prices for you thought that you would overall make more money through greater sales volume?” To this Ford defiantly said no, but that instead he wanted to see the everyday man have access to the liberty that the automobile provides. Bzzzt! Wrong Answer. Pay the Dodge brothers.

This same law makes it illegal for McDonalds to change its menu to be health focused – this would come at the expense of the shareholders profits. Instead McDonalds must put up the pretense of sensitivity to obesity concerns and unhealthful food behaviors in children but it would be actually illegal for McDonalds to pursue more aggressively than market conditions warrant. Management plans that this pretense leads to greater sales.

The simplicity of the case law surprised me: my only job is to deliver profit for the shareholders. The employees, the managers, the customers, the public, and even the environment at large are only to be taken in to consideration and accommodation only to the extent that it furthers the profit margins of my company. As a pointed example the 2031 people that have received a malaria preventing mosquito net from people purchasing digital items in GoPets while having the laudable goal of keeping 2031 from an early death I must as a manager of the company argue that the real purpose was to increase sales either directly or indirectly though awareness and goodwill. At least that is what I am supposed to say – the real reason why I did it is that I cannot think of any charity more efficient than Save3Lives for $5. Fortunately, the shareholders of GoPets are all really good people and I am not expecting to go to the Supreme Court over these mosquito nets.

However, this case has made an indelible impression on my mind. Personally, I am your typical geek-techo-libertarian where I want the government not to interfere with anyone’s personal business whether it be financial or moral and I want people to be free to pursue their own life, liberty and happiness in any manner that pleases them as long as it does not harm anyone else or infringe anyone else’s rights or interests.

Those two roles: the CEO, and the geek-techno-libertarian are the easy roles to assume. What is harder is to understand what does it mean to be a citizen, where do my rights end and your rights begin? And a much deeper surprise to me is that it has taken me three years to understand what motivates the people who engage in GoPets and where we need as a service company to go in the future.

On the citizen side while I am fiercely libertarian in my economics and moral values I quickly become archly environmentalist and believe strongly that we are all in for a very painful adjustment to learn how to be live a sustainable lifestyle.

So here despite my geek-techo-liberties if I had the power of the land I would restrict financial freedoms in favor of protecting the environment. Now things get very complicated and very messy and are no longer so infantile-clear cut as they were earlier in this essay. Of course, as a citizen of the United States and as a resident of the Republic of Korea there exists mechanisms for me to express my views and to campaign for any changes that I seek to have happen – but what about as the CEO of GoPets? Do I enjoy absolute sovereignty of this domain? And more important of whether or not I enjoy absolute sovereignty – will it lead to higher profits for GoPets if we do not look at our legal contractual property rights as the service operator – but instead farther ahead and try to determine what rights will stimulate the most activity inside of GoPets?

Now with the advent of online communities, MMORPGs, virtual worlds, engineered realities, user created content and so on we are now chest deep in waves of conflicting interest from every stakeholder. Shareholder, manager, employee, player, user, parent, sibling, associate, 3rd party commercial interest, public at large, politicians, the courts and the legislatures – everyone of these entities stands to gain or lose as the laws governing property, human rights, decency, harassment, fraud and other forms of criminal conduct are refined for use with these new spaces that we spend our living time.

The debate is hot and fierce with professional lawyers, sitting judges, economic professors, CEOs, game designers, players, gold farmers and traders, citizens, creative folks all with their own ideas of what is ‘obviously right’ and ‘obviously legal’.

What is legal now and what is legal in the future is an interesting academic discussion that I think is truly nifty and read about it as much as I can. However, I do not believe that it matters a wit in a practical sense to GoPets directly. We are a Korean entity which makes it more expensive for people to bring to bear class action lawsuits and for the time being there are much bigger fish to go after us. Also the Korean courts are fairly progressive in terms of recognizing the player’s property rights and sense we already have a heightened sensitivity towards our player’s property rights I am truly not concerned about getting sued by a player of GoPets.

I do believe that the fundamental nature of click-wrap and their heavily one-sided non-negotiated nature in the current form I expect to see struck down piece by piece one unconscionable clause by clause in a painfully slow series of class action lawsuits. However the timeframe of these courts cases exceeds my notoriously short patience.

I want to find answers faster than the courts around the world can deliver them to me. But before I can find my own answers I first must figure out what is the question.

I think I know the question, but I want to hold onto that for a bit for dramatic effect for it has taken me a long time to figure out the question – so I will subject you to a small version of the frustration that I went through.

Back to being the CEO of GoPets: Got the CEO part figured out thanks to Dodge vs. Ford, but what is GoPets?

GoPets = A cute online virtual pet game?

It would certainly seem so to a casual observer of the art work and design of our website. A few more hours of play and other definitions might come to light: a social network service for woman (we are 80%+ female), a casual gaming platform, an online (role) playing game, a shopping sim, a virtual travel experience, a platform for creativity and a market place. GoPets means different things to different people and thus there is a wide range of possible expressions for what is GoPets.

Okay that is great, but how can I nail down GoPets into something that can be productively analyzed, labeled and put into a box? It turns out that the process to figure this out while taking me a long, in the end I feel sheepish for how simple was the ultimate solution.

Again, at the end of the day GoPets must be a vehicle for producing profits for our shareholders. So then we must dig in and find out how does GoPets make profits? What are we selling and who is buying?

We could be engaged in a number of businesses and business models; however here are the big ones out there right now in our space:

1. Advertisement sponsored online services and content
2. A software development house that makes money performing software construction jobs
3. A retail product software publisher
4. User subscriptions to an online service and content
5. Item-based, micro-transactions for online services and content
6. A special purpose entity that is designed from conception to be swallowed up by a larger entity for a strategic M&A purposes

GoPets has in fact received revenue for all six of these business models to date. But to be successful we must identify the core, main business and knock that out of the park and let the other models develop as they may as secondary sources of revenue. We just cannot focus on six different businesses at the same time.

Allow me to indulge in a bit of elimination. For #6, while we are extremely fortunate to have unparallel supporting investments from Tencent in China, Nexon in Korea and Liberty in the US as well of course our partnership with MS with the integration with their instant messaging platform. As truly wonderful as that is, all of our strategic partners are extremely competent and savvy organizations and they are much more interested in us creating real value and revenues and are not looking simply for a snazzy sounding press release in a short term effort to make public investors happily distracted with a ‘web 2.0’ play.

For #2, I did plenty of that in my last company Taldren. No thanks, I have had plenty. Creating software as a construction project for other people I think is an exceedingly challenging business that has extremely low margins (usually negative), very high costs and stresses and altogether I can not recommend for any but the very best in the world. We have been approached by several Fortune 500 companies to license to them a white label GoPets platform, we have declined this for while in the short term it would be a nice bump in revenue we would then have to become focused on servicing these folks as our customers rather than focus on the people who actually engage with GoPets.

Looking at #1, I have a great amount of personal skepticism that the advertising industry as a whole creates or destroys value. For the most part it is about getting people to look at your advertisement of product, service or simply brand to influence their later purchase decisions. Now that we are confronted with 3000 to 5000 advertisements per day I no longer believe that we are capable of really digesting all of these messages and responding to them.

How well advertising still works is very debatable and I acknowledge that it still has considerable power (such as the recent study on McDonalds packaged carrots having better taste in the minds of toddlers), I must stand firm and declare that if at GoPets run the core of the business around an advertisement model then the advertisement agencies would then become our customers and we would then have to focus on them.

While we have some great ideas for connecting people to brands through new verbs other than looking such as eating, wearing, drinking, driving, flying and creating the advertisement items inside the GoPets world, and while I think that it is a very interesting area of development the game designer in me rejects this in my gut. For a true long-term value creation that builds a company to last longer than a fad and is truly enduring the only customer that makes sense to me – and significantly to the board of GoPets – are the players and people who engage in GoPets directly.

By now you have may noticed that I use the expression ‘people who engage’ rather than the industry standards of ‘player’ or ‘user’. I feel that player is too narrow in definition and I feel that user is bluntly a derogatory term. After the release of the GoLand feature set in May of this year we have comfortably shifted to citizens as we now have actual tracts of land for people to settle – and so it felt comfortable now to use a word of broader fulfillment than player. And so far our citizens overwhelming prefer calling each other citizens over being labeled users.

Okay so were are left with selling retail packages (#3), subscriptions (#4) or digital items (#5) to the citizens of GoPets?

The problem with #3 is the cartel-like distribution structures that are inevitable in the retail model again distort the market dynamics such that even being a small publisher of our own IP we would be forced to find ways to please the folks who hold the keys to Wal-Mart and Best Buy. Besides those problems I feel that the model does not serve either the consumer or GoPets well for both sides are dealing with a relatively large price decision before the consumer is even able to find out if they like the service and its content.

I have given about a dozen lectures and panels over the past couple of years documenting the aggressive revolution in business model that has occurred here in Korea with the extinction of retail over a decade ago, replaced with subscriptions and now the item based model dominates the total revenue out here in Asia.

From simply watching how subscriptions played out in Korea it is clear that the consumer is becoming increasingly sophisticated and is no longer willing to get locked up into a fixed-price service, but is instead demanding to sample the service not for 10 hours or 5 days, but on the schedule of time that suits their needs.

Further, in the whole debate of whether or not purchasing gold is cheating or not – I find it a closed issue exactly the same of whether or not copying music CDs is wrong. Whether or not it is against ‘The Rules’ or not does not matter to me – what matters to me is what is the collective actual behaviors of the people?. I will return to this later, but I feel strongly that the online games and virtual worlds are committing an active and conscious act of fraud when they use terms like gold, inventory, your house, your backpack, and all of the associated nouns, verbs, and phrases associated with private property and in the other hand drafting these EULAs and TOSs that directly deny the private property. Once you have private property then instantly I argue you have the full item model, RMT, gold farming and so on.

Thus while GoPets has a premium service model, we consider it secondary model that is inherently built upon the underlying item-based model of GoPets with the limited edition items that are released once a month to only the current premium service members.

Okay so that settles it right? GoPets is about selling digital items to our citizens? Well, the reason way it has taken me so long to figure out what we are about is not that I was trying to understand the item model. I immediately grasped the significance of the success that Korea has had with the model and moved with my wife and 2-year old Kyle to Korea.

What has taken me so long is to figure out what motivates people to buy our items, and more importantly our gold shells to buy items from other people?

Originally, we built a sandbox for interaction that is a hybrid of a social networking service, a digital pet experience and tossed in some light casual games. We saw this as an opening in the market and less clinically GoPets was simply appealing to us to create.

While we have made a lot of progress and have actually received rather large payments when taken in aggregate from some of our users the pattern of payment did not follow as we predicted in our original business plans.

Due to the extremely light forms of ‘hard play’ (e.g. no questing, no crafting, no combat, no grind) – and the simple enjoyment of just friends and pets in an online dog park we thought we would develop a few dollars of revenue from an extremely broad base of people who enjoy pets. Instead what occurred is the reverse, a relatively narrow band of people have paid us money well in excess of what we know of as the industry standard ARPU from a paying customer.

This led us to work towards creating a totally new user interface experience to clean up all of the various windows and remove the right-click ‘hidden’ drop down menus and such. This work was a necessary precursor task prior to integration of GoPets into the MS Messenger IM platform.

While this work has been positive it did not unleash a torrent of new revenue from previously confused users. Again to be clear it made the experience better, but we simply did not see a direct spike up in associated payments. In fact what happened is that while we naturally have ‘churn’ the turn over of new customers replacing existing customers, the majority of our payments continued from our ‘hardcore’ narrow band of dedicated online pet lovers. (I am wryly amused with using hardcore to describe an online pet service.)

Okay so this was a puzzle, clearly we are making a relatively narrow band of people very, very happy and not appealing enough to a much larger set of people to motivate them to pay.

Okay, so clearly now we must find out what are the aspects of GoPets that is motivating these folks to buy our gold shells. To increase revenues we must understand what people like doing and conversely what people do not like doing.

It turned out that the people who own land, and/or create custom clothing and furniture and/or harvest fruit from fruit trees define that narrow, hardcore group of GoPets citizens that comprises the bulk of our revenue.

What is common from land to fruit trees to creating custom clothes? Is that they are all market-based transactions between the users in our various digital currencies (gold shells = time, green shells = creativity, prize shells = game skill, and pink shells = larger time commitments/creativity).

Our trade forums have vibrant activity where folks are asking for better ways for secure trade of shells, selling land and clarity of RMT trades. In addition we would be performing a significant service if users were able to able to find more accurate prices for their items.

So finally I get to back to the beginning of this essay to determine what is our Question

The Question:
What is the Best TOS/EULA structure to develop the greatest amount of profits for GoPets?

It has been established that profits for GoPets are directly proportional to citizen transactional volume.

Then we can re-phrase: What is the Best TOS/EULA structure to develop the greatest volume of citizen transactional volume in GoPets?

Originally posted on LiveJournal