The dreaded Return of Investments

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Permalink Reply by Philippe Kerremans on February 23, 2008 at 1:10am

It is possible to calculate ROI. When you are "selling" virtual worlds to a company it is for a particular application. Let's assume you want them to organize internal remote meetings in a virtual world. Companies are already using software for remote meetings (for example webex or video conferencing). You can easily use the same ROI that was used for the software they used before. It's has after all the same business function.

Then they will ask why not use that other software tool? At this point you just have to sell virtual worlds on features. We all know why virtual worlds are better than existing software tools, don't we?

My problem is to get that far in a discussion with a potential client. If a client askes you about ROI you have done already 90% of the work.

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Permalink Reply by Katherine W. Prawl on February 26, 2008 at 6:31pm

Troy's formula might work, but might also be misleading if using the VW is not the only variable you control for. Life, even life in a virtual world, is probably more complicated than that. What external events might impact your measurements? Holidays, wars, rumors of recession, and even fads could all have some influence on the profits a particular company might realize in a given period. If your test methods don't have some way to normalize the data set for these and similar influences, you could make decisions based on too limited information.

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Permalink Reply by Mark Dubin/Threedee Shepherd (SL) on February 26, 2008 at 11:08pm

About 15 years ago, when the WWW was young (and we were starry eyed) I gave a talk to an annual meeting of Caterpillar Tractor and Equipment dealers about why they should "embrace" the Web. They were skeptical, which was expected, but in retrospect short-sighted (as is easily seen by looking at their current Web sites). It's TOO SOON to use ROI as an argument for the 3D-Web (be it SL or some other that matures). I know as surely now that the 3D-Web is the "train that has left the station" as I did then that the WWW was the "real thing." The argument I make to potential clients/users is that getting in early will generate valuable experience and eventually obvious ROI. So, if the management does not accept "trust me, this is for real" it's their loss.

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Permalink Reply by Digado on February 27, 2008 at 2:01am

"trust me, this is for real"

Well I am kind of worried about this point Mark - I don't think you will get many corporations to just trust their investments on a pitch that ends essentially with 'trust me', but that might just be my experience.

I do think presenting cases and argumentation of reasonable expectancy of ROI is an essential part to reach out beyond the 'converted'. We also have to realise VW's are not like the start of the WWW in many ways. Many of the applications made for VW's are now also available on the 2D WWW, or other competing applications (Video conferencing, 3D modelling tools etc.) instead of the monopolized position the web was able to use for things like instant messaging, emails, file sharing, information sharing, and wide one to many communication in general, still the driving power of the internet.

And lets not forget, 'their loss' - is essentially our loss as well!

Troy Mc - Obviously we could use our time machine, but it ruins the fun of marketing so usually we don't (makes the guys in R&D feel useless) - unless its really important of course!

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Permalink Reply by Andrew Hennigan on February 27, 2008 at 7:11am

Mark makes an interesting point. I'd agree that this technology is too immature to make a fully reasoned ROI case and I would be tempted to pitch initially for a trial to get enough data to document the return. But the downside of this approach is that many managers will just say ok, we'll wait till it becomes mainstream. It's fun being an early adopter but most managers play it safe.

But to generate useful figures for ROI presentations I think we need some real world case data from people using VR not at the demo level but for real everyday work. Who is doing this right now? (And why am I typing this message into a little box instead of meeting you guys virtually? Are we walking the talk?)

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Permalink Reply by Timeless Prototype on February 28, 2008 at 6:55am

I'll keep my response limited to business use in the spirit of this thread, but acknowledge recreational use of virtual worlds as a given:

> "... walking the talk?"
Interestingly this highlights the issue of time zones. For discussions like this amongst many people world wide, it is more useful if we choose a medium that allows time shifted conversation, such as forums.

Virtual world presence falls into yet another category of communication tools that we can add to our tool set. It has its niche of appropriate uses, as do e-mail, web, IM, mobile phone, a brick with a note on it, etc. Neither completely invalidating the need for the others, depending on circumstances.

We should seek to define the utility of a virtual world in this regard and then the relevant use cases are clear. Use cases will highlight issues with the tools, which in turn reveals opportunities for development. Many virtual products revolve around this niche of assisting where the given tools fail.

Once the set of normal use cases is established, your return on investment will be measured by comparison of similar use cases but where a virtual world does not exist (cost savings) plus the returns made as a result of having the additional communication tool.

Returns could be measured in number of Clients retained simply because they need to know they're working with a creative agency who are simply bold and fun and they need that to reflect into the campaigns targeted at other media.

Returns could be measured in time - how long did it take to put a certain concept/performance across to a small set of your peers/colleagues/students/clients/customers/fans with and without a virtual world?

Returns could be measured in effect on sales via other mediums, whether web or in store.

Perhaps the returns are sustaining a fan base or triggering off word of mouth awareness.

All these returns are numerically trackable. Case studies are important but do require the efforts of individuals and businesses to contribute data and details of the environment the data was collected in, and the best cases would include a control (scientific method).

I recommend starting all future projects by gathering this data at the outset. Yes, many might fail, but the importance will become clear when it is compared with similar projects and we can see what elements made the spikes and upward trends. This data alone will have great value.

As we know, truth always changes - what's true one day may not apply the next due to environmental circumstances. This will mean we will constantly need to revise how we interpret the data. These are potentially further opportunities for entrepeneurs for sustainable businesses.

This is how entire economies are started. We know from history how economies behave. Businesses and governments rely on this understanding.

Do we all need to use a virtual world? Can we see opportunities because of the existence of virtual worlds? What are the niches of communication that virtual worlds are most suited to? Would your business enjoy any benefits from using this tool? What will the next generation be interested in doing?

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Permalink Reply by Wayne Porter on February 28, 2008 at 9:33pm

Measure ROI- varies on size of brand and objective.

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Permalink Reply by SuezanneCB-SuezanneC-Baskerville on March 8, 2008 at 5:25am

The thread title says "The Dreaded Return of Investments" when the intent was probably to say "The Dreaded Return on Investments".

Can we edit our thread title after we post a thread here?

If not , we who like our thread titles to be "just so" should take extra pains to be sure that they are complete and as correct as we want to make them before posting. If we make too many errors, particularly the leaving out of too many words, we might be made have to stop writing about virtual worlds and be made to serve as staff writers at mashable.com.

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Virtual worlds probably don't have the audience size at present to be used as a medium for normal advertising of normal non-virtual-world-related products such as, for example, Botox cremes and deodorants.

There might be a sufficient return on investment for operating the virtual world, such as Linden Lab does, or there might be a decent ROI on attempts to sell virtual world related products to virtual world users. The Anshe Chung enterprises presumably have had an adequate return on investment over the years. It's possible that as the virtual worlds become more powerful in their capabilities and more modifiable and more interactive with the good old 2D web there will be some money to be made satisfying demands of virtual worlds users not met by the virtual world building companies, such as for software and systems to let Second Life users do things such as use their facebook and LinkedIn and Gmail and Flickr accounts, and so on, right from within the Second Life client using the improving internal web browser and the improvements in scripting made possible when Mono replaces the current LSL scripting substrate.

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Permalink Reply by Will Weaver on March 2, 2008 at 9:35am

Do you mean how do you forecast future revenue? You should low ball it at 7-10% of the market. (I'm assuming you mean the US market) Even at that rate you should be able to show that you can pay off your investors and show a profit. Invent new and exciting revenue models. There are many was to make money in this industry, especially if you have a MMO/G/RPG as a base. Please tell me if I misunderstood.

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Permalink Reply by nic mitham on March 3, 2008 at 8:33am

I don't really know why people get so 'het-up\ about ROI in virtual worlds.

What I think started this debate was the high number of flawed initial strategies of creating branded islands off the mainland in SL. Of course, when reporters visit these islands (after reading the fanfare press releases) and see that no-one is there, then of course they are going to say 'what a waste of money'.

However, there's a few factors to consider here, in terms of drawing comparisons between VW activity and other forms of marketing - using this marketing angle in the context of ROI.

1. What's the average ROI for outdoor advertising as part of an integrated ad campaign? What about radio? Print?......

2. What about tactical URL's used as sign-offs on TV spots? Anyone know?

3. Tracking and measurement is 'out in the open' in SL (for example) because you can (or can't in many cases) see the number of visitors to an island as well as assess LL measured traffic stats. This is not possible for web-based activity because only the client (and the agency) have access to the stats.

Can VW marketing generate positive ROI? OF COURSE. And particularly if the campaign involves selling a product.

Retailing aside, people need to remember that VW activities are often part of a mix. And, if the client (and agency) set objectives and benchmarks prior to activation then measurement and thus ROI can be calculated.

However, the bigger picture here is this - you have to have a strategy prior to launching a campaign. If a company just comes in for the hell of it, thinking it's gonna work, then it's destined to fail.

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Permalink Reply by Digado on March 3, 2008 at 9:07am

"Retailing aside, people need to remember that VW activities are often part of a mix. And, if the client (and agency) set objectives and benchmarks prior to activation then measurement and thus ROI can be calculated."

I think you nailed it with this - the way social media works (which VW's are very much a part of if your market is the community) is by defining clear, obtainable goals and milestones and use the digital metrics available. However, even as a cross-realm/cross-media platform Virtual worlds are a medium with a lot to prove, unlike established concepts such as radio and television with a (declining but) clear audience and costs per head.

From a more marketing point of view - I think the point where social (the permission model) and traditional advertising (the interruption model) are different is the part where you have to get involved. You have to be present in the community as a brand, understand it and start conversations - which could scare marketers & execs used to the traditional way of advertising. A commercial on television doesn't need you to 'engage' in a 2 way conversation with a community to obtain conversion goals, there is just a huge margin for error - you send and a (small) percentage responds in terms of sales. however, this percentage is so substantially and consistently large its dealing with numbers that are easy to extrapolate and predict - thus simplifying the ROI pitch.

This is the mistake we saw at the empty island Nic mentions - no engagement, no remarkability - but it also presents the problem of ROI i think. The numbers of the SL community for example are still very hard to extrapolate into predictable figures - which is really what it comes down to at the bottom line if we are to elevate VW's as a consistant, viable marketing platform (please feel free to disagree here - this is really my interpretation of the current stage of virtual Worlds as a platform for marketing to a community). Not enough benchmarks as a whole, and the audience is limited (1.5 mil active users) so the marging for error is small - then again, investments are also relatively small...

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Permalink Reply by Dave Elchoness on March 3, 2008 at 9:15am

Yes, people miss this. Virtual worlds are about interaction and engagement. More important than the glitzy sim is the extent of community engagement.

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