The return to growth in March's NPD results showed further year-over-year strengthening of the retail games business forecast for much of the year to come. More importantly, it may also show steps toward strengthening investor confidence in what just a few months ago was pegged as an all-but-dead business.
Doom and gloom articles in the mainstream media and in financial publications pointed to explosive social media, console game development budgets at critical mass, and a Wii bubble-bust as reasons for a market contraction the reversal of which none could easily predict.
But even at our own game development events, like GDC, the prevalence of confident social venture capitalists and developers making an exodus to the Facebook and iPhone space made even the most optimistic traditional game creator -- or player -- feel a little cynical.
Certainly the gaming-lite trend is poised to continue, and it remains a fruitful space for the investment of resources and attention on all sides. But the Facebook gold rush is also highly reminiscent of another buzzworthy trend that's not too far behind us: the virtual worlds craze.
This Is My Second Self
Just two to three years ago, avatar-based social interaction was considered the wave of the future. As internet savvy rapidly went mainstream starting at the turn of the millennium, it ceased to be the province of only the early adopters, and the way users established identities online and interacted with one another began to draw a good deal of consideration.
Perhaps ironically, the rapid growth of the video game business between 2006 and 2009 may have contributed to the virtual worlds boom. The cross-pollination of two rapid-growth, high-tech areas seemed natural: Why not take the digital imagery, multiplayer environments and concepts of self-representation that made traditional video games rich and engrossing, and adapt them for a new audience seeking fresh entertainment?
Thus the virtual worlds craze was born -- online avatar-based social spaces meant to offer users accessible, immersive environments without the complexity or intimidation factor of an actual game.
Second Life and the news and commentary around it were all the rage, from TV and radio to Time magazine. Linden Lab CEO Philip Rosedale was a household name to the business world, and the word "avatar" was everywhere. Avatar-based social interaction was so integral, some argued, that the natural evolution of the Web itself would see static pages yield in favor of entirely 3D environments.
The 3D Web Fallacy
Media company Virtual Worlds Management found that in 2008 and 2009, the amount of venture capital placed behind companies working in the virtual worlds space approached $600 million in two years. There was some dispute over the data, as many companies that were primarily video game technology providers, like Havok, were included among the investments, but nonetheless, virtual worlds at one time established themselves as one of the most active investment spaces in new media.
Sony made a major effort to get behind the idea with Home, and while it maintains Home is a success as a hub for its developers and advertisers, it remains unclear how the virtual world is doing as a revenue source.
Needless to say, the "3D web" hasn't materialized. In fact, some of the most visible spots in the virtual worlds boom, such as There.com and Metaplace, ended up closing just a few years after they were established. Second Life of course still has its core constituency of users, but it's widely viewed as a representation of a particular community, rather than as a trend that will continue to expand and gain more users.
So what happened to the next big thing? The explosive success of Facebook and Twitter show that people very much want to socialize online. It's just that perhaps the simplest paradigm is the best one; your average web user desires immediacy and efficiency, and simple social tools online make it easy to create a digital "persona" simply by interacting, and without the need to spend time -- or money -- in a character editor dressing up in virtual clothing.
The bust of the virtual worlds bubble, however, provides important lessons about what engages several different vertices of users; what they will and won't sustain interest in spending money on, and what kinds of mechanics of interaction are necessary to not just capture a rush of interest, but to sustain long-term engagement.
Many of these lessons have been integrated back into the larger video game environment that helped spawn them -- users will pay for in-game items and other incremental content, the traditional gaming world has learned. Character customization can be a meaningful value-add in an otherwise linear interactive experience.
And the social features of Xbox Live take a large share of the credit for the Xbox 360's major share of the next-gen console market. For further proof of the wisdom in simplicity, take the fact that gamers have shown they would rather glance at a leaderboard list than walk their avatar over to a virtual trophy cabinet.
And today's venture capitalists, social media professionals, game designers and investors would do well to observe the rise and fall of the virtual worlds fad before they get too comfortable with their Facebook successes. Just like the virtual worlds companies, social gaming firms tend to measure their success and their future viability solely by metrics: average revenue per user, average time spent playing, number of uniques.
But when one monetizes on metrics alone, there's a danger in missing the audience. Virtual worlds lost out in the end because they strove to predict what users would want to do, whereas simpler platforms thrived because they developed as a response to the way people were already using the internet.
But the virtual worlds bust proves that in new media paradigms, the high-growth period is often too early to to start counting dollars, at least until the dust settles -- no matter how many dollars there are. Metrics aren't in and of themselves an indicator of the long-term viability of a paradigm. Certainly social gaming is here to stay -- but the proving period that will show which companies, games and gameplay formats thrive and which ebb away is still ongoing.
It also shows that the baby ought not to be thrown out with the bathwater; social gaming will not cannibalize the traditional industry any more than virtual worlds could devour the traditional web.