The Penguin Eaten by the Mouse

It's official! Club Penguin has been acquired by Disney for a whopping $350 million with bonuses and incentives that could be worth up to $350 million more. Supposedly Disney outmaneuvered AOL at the last moment. We talked a few months ago about how Sony was in talks with them at a valuation of $450 million. The site has 12 million users and 700,000 subscribers paying anywhere from $6 a month to $58 a year. The amazing thing about this site unlike many others that have been bought is that it is a cash cow. The site has margins of 50% with about $30 million in revenue. Talks with Sony and other media companies interested in buying it supposedly fell apart because the Penguin donates a substantial amount of profits to charity.

I think that Disney got a steal here. If you think about the MySpace acquisition about 3 years ago which Fox also stole at $580 million Disney will have a lock on the child market. And unlike Second Life, these are real paying users. I'm not sure how integrated the Penguin will be with other Disney properties and I don't know how good of an idea it will be to do that, but just the fact that you have the attention of 12 million people (I'm assuming mostly kids) is superb. Again, not to bash Second Life, or even Joost, or other download services, but it goes to show you how important it is to keep your product within the confines of the Web. Club Penguin is flash based. Kids don't need to worry about viruses or any other kind of malware and they are able to access their accounts from anywhere - versus any of the software based programs which force you to download onto the local computer. Viacom purchased Neopets in 2005 for $160 million (a very good deal, good job Sumner!) and now there appears to be a showdown between Disney and Nickelodeon for the kid market. What will happen? I'm not sure. But this space dominated by others like Webkinz and Habbo Hotel will be an area to watch.

Virtual Worlds the New Social Network?

We've all heard of MySpace, YouTube, Facebook, and the myriad of other social networks that have popped up since the infamous Friendster spawned the social network revolution. MySpace sold for $580 million and everyone has jumped on the social network bandwagon. Since then however, we've had some interesting developments in the space including virtual worlds, which is essentially a social network based on a movable avatar. Second Life is the most popular of these with a in world economy and real money being transacted. I previously wrote about how I thought that this would be an interesting addendum to the Web with Linden Labs (who owns Second Life) to open up their architecture and allowing anyone to plug into their API (application programming interface) similar to the World Wide Web but in 3D space.

While I still believe that this is Web 3.0, I can't ignore these new Flash based applications like Habbo Hotel, Webkinz, Club Penguin, Runescape, and a bunch of other in browser applications. While most of these are for younger users (children and younger), there is an appeal to many based on the lack of a download and simplicity of it (a common complaint about Second Life is usability). Recently Sony was in talks to acquire Club Penguin for $500 million+. (via Techcrunch) This puts Club Penguin with a demographic heavily skewed toward youth right up their with MySpace. The big difference between the two is that users are willing to pay a fee to dress up their avatars in Club Penguin and have access to members only areas.

I think this customization will allow these social networks to finally monetize. MySpace which allows HTML customization is free, but with virtual worlds, the ability to feel like you purchased something as you would in real life appears to be worth payment. So users feel like there is value in having customized clothing for the avatars which is similar to having personalized wallpaper in MySpace. It's an interesting concept and I bring it up because of the potential for true interaction with your customers. There is now a way to track to see if users would like to use your product for their avatar (which would be fraction of the cost of real world usage). Further, as I previously mentioned, in the virtual world you can create anything, so another great opportunity to see how users interact with your brand.
Watch this space since it appears that it will follow the way of the social network where a virtual world will appear for the long tail.

The Final Frontier?

There's been a lot of speculation about Web 3.0 and what that will mean in the coming months and years. A quick recap - Web 1.0 was simply push technology, technology similar to a newspaper where a central editor pushed out content to you. Web 2.0 (where we are now) combined Ajax (pages reload with hitting refresh, similar to Google Maps) with an interactivity feature like a blog, social network, or rating system with the first Web 2.0 properties being Amazon.com, eBay, and Craigslist. Web 2.0 has definitely made an impact on the current web with nearly all sites offering these features and valuations skyrocketing into the billions (see YouTube). The most important aspect of Web 2.0 though is the fact that it is so engaging that Web 2.0 sites are one of the stickiest sites on the Web and one of the most visited (behind search engines). Now if you think about where the majority of us spend our time it is on video games. Yes, even older women spend time playing video games online, since games include not just Grand Theft Auto but Sudoku and FreeCell.


So what's the point of this recap? Well, its definitely to figure out where the Web is going. There's been a lot of hype over Second Life (kind of a Sims like game where there really is no point). There's also been a lot of hype over video games including Sony's Virtual World for PS3 users. What about the combination? Hitwise came out with a report yesterday about how quickly virtual worlds have been growing and Runescape is #1 with 44% of marketshare to online worlds with Webkinz coming in a distant second with 14%. This, of course, does not include downloaded virtual worlds like Second Life, or the ever popular World of Warcraft, although I think at some point Web based games may overtake these downloaded versions.

The virtual worlds cannot be ignored. I think that we all like the aspect of the interface coupled with the Web 2.0 characteristics of real people that we can interact with. Brands now will have that intricate product placement opportunity ever so prevalent with video games, an ability to monitor dialogues, and a chance to see what people will create and do with their brands given a blank slate. Is this Web 3.0? Many think so. Many think that its simply a way of representing Web 2.0 in 3D space. I think that if its not Web 3.0 at least it will be Web 2.5.