Avatar Business Value Analysis: A Method for the Evaluation of Business Value Creation in Virtual Commerce

Article excerpt

ABSTRACT

The recent years have seen the emergence of a number of virtual worlds with various designs and purposes. Some have become very popular and have developed growing in-world economies. Real-world businesses are increasingly experimenting with doing virtual business there as well. In this paper, we present Avatar Business Value Analysis, a novel theoretical framework and a computational method and decision tool to help evaluate and strategically manage business value creation inside synthetic environments, and show how it can be applied to cost-benefit analysis in practical settings. The decision-tree-based method includes traffic metrics that may be used to empirically estimate the business value of virtual commerce ventures. We also investigate some intangible factors that are impacting these metrics in the context of the particular case of the virtual world Second Life and discuss their implications. We conclude by outlining strategies that could be considered by the operators of virtual worlds and the real corporations in order to promote sustainable virtual business in synthetic environments.

Keywords: business strategy, business value creation, online marketing, second life, traffic metrics, virtual commerce, virtual worlds.

1. Introduction

The recent years have seen the emergence of a number of virtual worlds with various designs and purposes. These worlds have found large user bases and growing member communities. Massively multiplayer online games (MMOGs) have been playing the pioneering role in bringing these synthetic worlds out of the subculture of computer geeks into the mainstream Internet-based business domain. As synthetic worlds are becoming more popular, they are developing advanced in-world economies [Castranova 2005] by offering users the opportunity to conduct a variety of virtual business activities that we refer to as virtual commerce, or v-commerce. Besides academic fascination with virtual economies and the possible spillovers to the real world economies, existing companies, online and offline, are investigating the means that would allow them to leverage the nascent virtual markets to their own advantage [Hemp 2006]. Since innovative use of new forms of electronic business can improve firm performance [Zhuang 2005], many Fortune 500 companies are rushing to establish some presence in virtual places like Linden Lab's Second Life [Mennecke et al. 2007]. In addition to creating brand awareness that may translate into eventual sales of real products in the real world, these companies are aiming to understand the concealed needs of their current or potentially new customers. Understanding deep-seated desires, which may openly be expressed in virtual settings, may help the companies in better serving customers not just in the virtual but also in the real world. Many of these companies are also anticipating a new source of income by directly selling virtual products and services to the inhabitants of the virtual world.

1.1. Research Questions

Our research is motivated by the need to understand business value creation inside virtual environments, specifically business value that derives from traffic to virtual stores. There is no established theoretical body or empirical work to ground research in this emerging field yet. The literature also lacks appropriate measures that would allow the assessment of the value of virtual world business ventures [Barnes 2007]. We do not address in this article the business model of owning and operating a virtual world. We rather concentrate on existing real-world companies setting up a presence and conducting virtual commerce inside an established virtual world run by an operator such as Linden Lab. The article's main research question is: "How can we assess the business value created inside a virtual world, and how does that value translate into tangible benefits in the material world?" The purpose of the paper is to propose a novel theoretical framework that conceptualizes the business problem of value creation in virtual worlds, and to contribute an original computational method and decision aid that can be employed by management to support virtual business investment and strategic management decisions. …