Virtual Worlds dying - but slowly

Out of curiosity I have done some online search about virtual worlds. I have also visited INSEAD's Second Life (SL) location and while there, I was wondering around SL's mainland, something I have not done for 3 years now (!). To my astonishment there was more life on Second Life than I expected. I had a particularly interesting time in a rock club where the music was exceptionally good and the DJ had a great line.... The club had a good dozen people dancing, quite some turnover and good looking avatars and all of this at around 9 am EST on a Tuesday. The SL mainland was certainly more active than 3-4 years ago when the virtual world fell off the Internet publicity cliff and sunk into the unknown.

Today, virtual worlds are dwarfed by more successful social media companies such as Twitter, Facebook and other sites having hundreds of millions of users. The odd article that you find about some of the early players that haven't shut down, like the one below on IMVU are misleading (and this can be gauged by one of the - only 3 - comments to the article):
http://venturebeat.com/2012/08/20/imvu-social-world-crosses-100m-registered-users/.

But, despite this lost popularity to the masses virtual worlds are still alive and attract a small but devoted community. Who these people are is hard to figure out but my hypothesis is that they tend to be 'introverts' who appreciate the anonymity of virtual worlds and the idea that they can create their own realities. This group has always been the core of the user base - even when SL was on the top of the hype. Note that there still is tremendous creativity one can observe on SL: people create incredible things there. I vividly recommend an informal tour - if you have some time.....

Because the user group is small, I guess revenues are small too (the above article mentions $50 million for IMVU, which is insignificant compared to the billions that - say - Facebook gets). As a result the infrastructure is clunky, which in today's world means that only the real fans will join. This closes the loop: the community remains small and appeals to people who like small communities who don't mind the clunky infrastructure that much (in fact, they appreciate the tech barrier that keeps the crowds out). Revenues and resources are thin so massive improvements are difficult to pull off (SL, for example, hasn't really changed its UI in the last 4-5 years).

What is interesting though is that virtual worlds do not disappear. They survive. We don't hear about them, we have few friends who even know about them. Yet they generate enough revenue not to shut down. Can this lead to a renaissance? Not if the above loop is closed. But is it? One of the clear barrier to the masses is technology. It doesn't work well enough. However, MORPEG technology is improving fast in a related and extremely successful industry: gaming. Billions are being invested in high-bandwidth 3D interactivity by the gaming industry. While virtual worlds are experimenting with the concept their underlying infrastructure technology is rapidly improved by a neighboring industry, exploiting the latest innovations in software, hardware and networking gear. Bottom line: the loop might not be entirely closed and a renaissance is possible. After all, the history of the World Wide Web is very similar (obscure for decades, only used by scientists and suddenly, with Netscape, breaking into the mainstream).....

Bogus viewership ratings

A few weeks ago, New Delhi Television Limited, India's oldest and largest news network has sued Nielsen, one of the largest and most prestigious international media research agencies for intentionally manipulating viewership ratings in return for bribes. Details of the news can be read here:

http://www.hollywoodreporter.com/thr-esq/nielsen-sued-billions-manipulated-ratings-355829.

The lawsuit represents billions of dollars of potential losses for Nielsen, not even mentioning the loss of reputation, its core competitive advantage.

In all these cases, it is hard to make a judgment on who is wrong or right. The Indian business environment is known to be corrupt as many recent cases have shown, so it is conceivable that Nielsen executives fell into the trap of some local business practices. Courts will decide... 

However, it is important to keep in mind that the lawsuit does not (yet) cast doubt on the rating methodologies that have been used for decades by Nielsen, although their implementation in the Indian market is being questioned. This is important because the advertising industry is undergoing a major shift in terms of budget allocation. Large sums are moving, in particular, from traditional media to online media. The speed of this fundamental shift is based on consumers' presence in the competing (or complementary) media outlets, which in turn, is measured by media analysts like Nielsen. 

Marketing managers in all - especially large - companies are struggling to figure out what proportion of their budgets should be moved across media types. TV has been largely sheltered so far while print media had to face a harsher adjustment, although even here there are large differences. Mistakes can go in both directions: most companies tend to be too conservative although some others have been too bold. A recent example of boldness is Pepsi's shift of advertising budget from the Superbowl to sponsorship on social media in the "Refresh Everything" campaign. Sound media metrics are critical to make these decisions. Hopefully, Nielsen will be able to restore the trust of the advertising industry in its ratings. 

Facebook's stock price

Today's 8pm News on French TV reviewed the evolution of Facebook's stock price - an interesting move from a rather 'business unfriendly' medium. Or was it, maybe, jealousy the motivating factor? "See those 20-year billionaires in the US; their success is all bogus...."

Putting media bias aside, it is hard not to wonder about the steadily declining stock price of Facebook. The obvious answer is that the site has done badly in monetizing its huge user base. Advertising alongside Facebook pages doesn't really work and the company hasn't revealed plans on developing alternative sources of revenue. But this can barely be the cause of the recent slide for the simple reason that people knew this before Facebook's introduction to Wall Street. Also, let us remember that the user base is still very active - a lot of corporations and brands have most of their online presence materialize via their Facebook page. There doesn't seem to be an alternative website or medium emerging either, one to which people flee in mass.

My hypothesis is that what we see is simply the cash-out of insiders. They were patiently waiting for their shares and now they are ready to sell them and leave. In fact, the News mentioned that three of the top executives are leaving the company. All this of course worries uninformed investors in a pretty bearish economic climate which can reinforce the sell off.

Bottom line: let's not burry Facebook yet. After all, even at the current price the company is still worth - what? - 50 billion dollars?

Olympics on new and traditional media

There is an interesting conflict between new and traditional media when it comes to global sport events, the biggest of which being the summer Olympic games. Old media buys broadcasting rights and airs events punctuated by advertising. As long as events are aired in real time there is no problem. However, if the audience happens to be in a different time zone media want to air the most important events in prime time (for best advertising returns). However, the experience might be spoiled by social media that operates in real time and may reveal results and key content by the time mainstream media broadcasts events. If you want your audience to watch Usain Bolt win the 100m sprint there is a problem: chances are people will check the event at work using their iPhones or YouTube on their desktops at work.

Data seems to indicate that for now this is still a contained problem: only a few percent of the (mostly young) audience abandons the core sport channels because of the time difference but with social media becoming mainstream this should change fast. For the next Olimpics, traditional media will need, not only be present online, but also, develop a smart bundle for its customers so they can benefit from the thrill of sports news as well as the benefits of picture quality, coverage, commentary, all in one's home comfort. How to price such a bundle and how to extract advertising revenues from it is a fascinating problem.

Is Wikipedia biased?

A very interesting study about Wikipedia appeared in the recent issue of the American Economic Review (Greenstein and Zhu, 2012). The article tries to establish if Wikipedia is biased in a political sense? Are articles more left or right leaning? The question is interesting because Wikipedia is the prototypical medium built entirely on user-generated content. But Wikipedia is not just a social network where personal information constitutes the overwhelming majority of uploaded content. Wikipedia is an encyclopedia meant to summarize the collective knowledge of mankind.

The article finds that Wikipedia was indeed biased towards the left (Democratic) in the early years. This bias however, comes from the publishing of more left leaning articles and seems to disappear over time. Essentially, the change doesn't come from the revision of existing articles (this effect is marginal) but rather, from the publishing of new articles in the with an opposite slant (Republican).

The result is comforting: collectively we generate valuable and relatively objective information. The 'wisdom of crowds' is supported in this natural experiment. Yet, it is interesting that, individually, we are quite biased and have a strong need to express this. The study also provides great empirical support to the behavioral assumptions of the entire 'media bias' literature. There, the main argument is that media is biased to cater to the preferences of biased individuals who only want to hear information that is consistent with their views. This, in turn explains a hoard of industry dynamics when media outlets are set out to compete with one another. Those studies only assume biased behavior from individuals. The present study however, shows that indeed, individuals do have a need to reaffirm their biases as opposed to seek objectivity. The good news is that, somehow the market seems to correct for this.

Oracles again

There is a good article in The Economist, June 9th, 2012 about expert advice. The article provides evidence that such advice remains very highly on demand despite clear evidence that it's quality is bad. One of the key reasons mentioned is that people need psychological reassurance: "we believe in experts the same way our anchestors believed in oracles; we want to believe in a controllable world and we have a flawed understanding of the laws of chance." ends the article with a quote from a recent author (Philip Tetlock: Expert political advice). The issue is complicated as I try to argue in my book (also mentioning oracles :-)) but it is clear that psychology has an important role in seeking advice. The article describes an experiment where clearly the advice is bogus (it is about the outcome of coin tosses) yet people pay for it and more so if they find it consistent with their payoffs. This is quite depressing yet very revealing about the market. Still, there is more to advice than just psychology. In a complex world we do have experts of certain important details (tax advisors, etc.). Most advice is really teaching decision makers what the decision is about not trying to forecast the future. Furthermore, there is good evidence that in high uncertainty, while individual advice is likely to be too unrealizable, multiple sources of information combined (the wisdom of crowds) can be hugely effective in arriving at a good conclusion. All these forces, especially the fact that experts' advice needs to be pooled will massively rise the demand for these services. Could this also be an explanation for the thriving of the information industry, be it in finance, health, politics or other matters?

Google's Knowledge Graph

Google has just announced that it will completely reshape the presentation of its search results. Instead of listing websites where people can find the answer to their queries, it will present data, links, pictures, etc. from its own databases, some 500 million "items". The redesign is said to represent the biggest change in search for the last five years, not just conceptually but also in terms of business impact.

The goal, of course, is to make sure that web surfers remain on Google properties instead of clicking away to another site for answers. Internet companies all over the world already complain and regulators can add the move to their list of Google features to investigate from an antitrust perspective. The announcement is also a subtle tactical move, just one day before Facebook's IPO. It reinforces Google's positioning as the owner of the "knowledge network" as opposed to the "social network".

It is hard to anticipate what the new 'product' will really be but there are a few important pointers. First, it will make connections between the different information elements. At the moment, search provides a list of sources but does not really categorize them. Knowledge Graph will and may even link the sources to one another. People (not least Tim Berners-Lee) have always argued for the, so called 'semantic web' to replace the traditional web. Google's Knowledge Graph is a fine approximation of the idea. Another aspect of the service will, hopefully, have to do with formatting. We may get a more standardized presentation of the information, which is quite important for rapid processing. Will Google look more like Wikipedia then? I think that the answer is 'yes'. The difference is that the voluntary human element in building knowledge will be taken out of the equation and be replaced by a few algorithms.

And now for some fun: I always thought that Google is building a giant brain, the cells of which being living web pages constantly built and animated by human beings. Is it possible that this brain will one day wake up to consciousness? It is hard to believe that this will not happen, actually. Maybe the alarm clock has just gone off....