Fortune Brainstorm Tech
Tuesday, December 8, 2009
Living in the post-Visa world
Nine-year-old Boy #1 – “I like Fusion Fall. It’s kind of a mission game; it’s not like a chatting game. Sometimes I like to play chat, that’s why I like Club Penguin. But now I like Fusion better, mostly it’s just more fun to earn Taros and Nanos and Fusion Matter. I like spending Fusion Matter because I can get more HP and cool clothes. And, it loads my clothes super fast.”
Nine-year-old Boy #2 – “I hate Adventurequest because it’s just an RPG and it looks like no one else is there. I like to earn prestige and HP. I get hurt all the time, so I need to buy HP all the time. I haven’t figured out all of the shopkeepers in Fusion Fall, but there are different types. The power shopkeeper seems like the best.”
“Load my clothes”? “Prestige and HP”? “Power shopkeeper”? If you have no idea what these kids are talking about, welcome to the post-VISA world of virtual currency. The very nature of basic transactions will be transformed by this generation and this piece of a kid’s conversation is just the beginning.
No matter what you call it – virtual currency, s-commerce, contextual payments, in-apps buying or stored value – young people want to pay for things in little pieces without leaving the entertainment experience.
For instance, the kids above want their avatar warrior to walk up to an avatar merchant and buy some digital medicine to repair their digital muscles. As Apple's (AAPL) iTunes has shown the world, most people want to buy digital stuff in little tiny pieces, for less than one dollar or euro, without entering a credit card number each time. This is what the interactive media industry calls a “micro-transaction.” Using virtual currency and the concept has forever changed the world.
The primary way to accomplish all of this, while maintaining the security controls of the global personal banking system, is with stored value and virtual currency. Converting real money to virtual currency gives life to all kinds of marketing applications, as we have seen with “frequent flyer points,” one of the most successful forms of virtual currency around the world.
Having consumers load real money into accounts, “storing” the value, then drawing down on the balance in the form of points or credits as required, is a good idea for a lot of reasons.
- First, it minimizes interest impact from using credit cards for the consumer. In some countries, they don’t even like credit cards. In many parts of the world, interest is considered a sin.
- Second, it minimizes transaction fees from the Web site.
- Third, younger consumers want to make their spending modular. This demographic often subconsciously segment their spending into categories like phone, games, clothes, etc. Stored value and virtual currency helps them to facilitate the process.
As millennials — people born after 1978 — begin to play a bigger role in the global economy, we will see a blossoming of innovations using stored value and virtual currency in new and exciting ways. Lending will be restricted, credit will be scarce and young people will adapt faster than older generations. To paraphrase Negroponte, virtual currency will be noticed only by its absence, not its presence.
Virtual currency will be intrinsic to each and every transaction. Maybe one day, we will log on to Yahoo! (YHOO) and check our Yahoo! Coins balance. Then pay for dating services, games and comedy video with the Yahoo! Coins you bought. Or, AOL will give you AOL Coins for sharing TMZ videos and news items from PopEater, which you can then use to buy stuff on Sorority Life or Farmville, while hanging out on Bebo.
It will seem antiquated to use real money to pay for anything. Real money will be something you load into a stored value account for some specific purpose and the virtual currency will be what you actually use to pay for something. Virtual currency won’t really be a topic for discussion. The real excitement will come from the transformation of our lifestyles, business models and how we come to value intangible digital goods.
Below is my version of the five forces driving the irreversible trend towards ubiquitous virtual currency.
American Express (AXP) travelers checks got it. Frequent flyer consortiums got it. In the future, new payment networks will emerge. Kind of like JCB, Visa and MasterCard, but a lot more flexible. When kids see a virtual currency payment network logo, they will assume the virtual currency they hold will be valid, regardless of its origin. It could have been earned on AOL, bought on Arkadium or gifted on Facebook. Kids want “one world” and they will spend their time on digital properties with open payment networks that allow them to move virtual currency around at a fraction of the fees and regulations required for moving real money.
Our first Web portals (AOL, CompuServe, etc.) essentially were “social circles” didn’t translate in that digital world and were replaced by what I call “social buckets.” There is no universally accepted social rank anymore or transfer of social status from one digital world to another. I’m a god in digital music bucket if enough people download my self-published iMix collections on iTunes, but that celebrity doesn’t translate to YouTube. Ten-year-olds kick my butt on FusionFall (the aforementioned multiplayer game) and my ability to throw a knuckleball in the real world means little to them. I’m certainly no sociologist, but I do think that our concept of social status varies by digital bucket. Virtual currency will be the only common denominator.
Who owns your friends?
Imagine you get together with some friends at the pub. Your friends arrive then proceed to talk, drink and have a good time. Each one of your friends also brings a representative from their financial institution that they will use for individual transactions. Every time one of your friends buys a drink, their financial institution’s guy starts talking to them and you have lost your ability to host effectively. Sound chaotic? Even ridiculous?
This is what it feels like today for a digital media company. Every visitor to their site uses a payment method that oversteps it bounds and dominates the conversation with the consumers. The digital media company brought everyone together, yet the digital payment companies, offer businesses and payment gallery operators start dialogs with the visitors that prevent the digital media company from properly hosting the party. In the future, digital media companies will take control of the conversation with their friends through their own branded payment options.
Size Matters Not
Virtual currency will make the size of the digital media company irrelevant in relation to its potency. Virgin, Airtran and JetBlue are all really small airlines that used effective virtual currency and stored value business models to make a lot of trouble for Continental, Delta and United in long-haul air travel. A small Web site with a great concept of virtual currency and stored value can have a disproportionate impact on the marketplace. Just look at ActiveCause.com or Causes.com, versus United Way. I meet lots of 28-year-olds in my work life, and I really don’t know many that donate to the United Way.
Net worth was once judged by the difference between one’s assets and one’s liabilities. Both were valued in relation to money, which represented ounces of gold. What will the world be like when digital goods, images, ideas, concepts are a central part of the equation? I create a character on Blizzard’s World of Warcraft or Eve Online and it’s a hit. Hell, who knows, it might just be the next Avatar, SpiderMan or James Bond. I’d probably make out a little better than if I’d owned, say, a million shares of Washington Mutual stock. Thought products, secured by virtual currency, will likely make the next tycoons. Ralph Lauren, Paul McCartney, the mysterious founders of Skype, Steven Spielberg and even Jay-Z, all created multigenerational wealth through digital assets that none of us can actually touch. I’m sure the folks at TenCent, China’s most popular Internet portal, would agree.
Bye for now, I’m signing into WeeWorld to download a Justin Timberlake digital jacket for my avatar using my green diamonds.Roger Wood is CEO of ORCA Inc., a provider of electronic payment and transaction solutions for social interactive media.
For further reading:
"Can Virtual Currencies Eclipse Real Currency?", Pixels and Policy, November 6, 2009