Virtual Worlds

December 11, 2007

GP Bullhound have released a research note (pdf) on Virtual Worlds.

The key findings are:

  • Experts predicting that 80% of internet users will become members of virtual worlds by 2011.
  • Virtual Worlds increasingly segmented by demographics and hobbies.
  • In 2007, 24% of US child and teen internet users will visit virtual worlds. By 2011, an estimated 53% will do so.
  • Multiple revenue streams are emerging in the virtual world space. The main business models identified are:
    • The sale of virtual goods.
      • It is key for virtual worlds to have multiple payment methods ranging from credit cards, to Paypal or SMS in order to be able to process micro payments efficiently and to allow users to pay conveniently.
    • Subscription and premium subscription.
    • In-world advertising and product licensing.
      • In June 2007, Parks Associates estimated that US$15m was spent on virtual world advertising in the US in 2006 and projected that it would rise tenfold to US$150m in 2012.
  • Given the competitive environment the virtual worlds operate in, they forecast that subscriptions and premium subscriptions for virtual worlds will decrease in prominence by 2010.
  • Virtual worlds will instead benefit from the growth of advertising and the purchase of virtual goods.

You can download the full research note (pdf) from their website.


McKinsey – Delivering Software As A Service

September 11, 2007

Just came across this article (free registration required or use bugmenot’s login) from McKinsey Quarterly about delivering software as a service. Thought it is relavent to the high profile Xero, who provide accounting software as a service.

Main points in the article:

  • An IDC report projects that 10% of the market for enterprise software will migrate to a pure software as a service model by 2009.
  • Software as a service vendors are less profitable than some traditional software vendors today, this gap is primarily caused by a lack of scale.
    • A few service vendors already have much higher margins (WebEx, at 26%, and Digital Insight, at 19%) because they’ve been able to achieve scale and a leading position in their niches.
    • Other leaders, such as salesforce.com (which provides on-demand CRM and sales force automation tools) and ADP (the world’s largest automated check processor) have also gained mainstream uptake among midsize and large companies.
  • Software as a service offers several advantages to IT buyers:
    • More frequent (and potentially less painful) upgrades.
    • Lower cost of ownership.
    • Higher level of service from vendors that must become more responsive to customer needs or risk losing subscription revenues.
    • Countering these benefits are the acknowledged risks of reliability and security.
  • The article has a great graph showing the migration of software applications, broken down software catergory, large enterprises, SMEs, if the speed of migration is different for each customer segment).
    • The conclusion was for core financial applications that SMEs are already migrating (pace depends on customer segment) while it may be unlikey for for large enterprises to migrate at all.

Follow The Leader

June 14, 2007

If you are interested in where famous investors are putting their money check out www.gurufocus.com. The site tracks investments from the likes of Warren Buffett, Wallace Weitz, Martin Whitman, Carl Icahn etc.