Michael Wilson Transcript Now Available

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The transcript from this week's Metanomics interview of There.com's CEO, Michael Wilson, is now available.

Wilson emphasized the double bind of There's corporate infrastructure: on one hand it must establish and enforce community standards and other operating procedures that make There a desirable world to inhabit. On the other hand, There must "get out of the way" to avoid impeding on the creativity and independence of its users that are crucial in maintaining a dynamic and entertaining experience in an unstructured world. The challenge for every virtual world is to strike an appropriate balance between these two imperatives-standards and freedom- to create a space that is sufficiently desirable and immersive for its users while generating enough revenue to cover its capital and labor costs. In particular, 'virtual fiscal policy' plays a crucial role in the growth and sustainability of virtual worlds.

As Wilson's explains, there are three primary 'rules' in the There world: PG13, brand protection, and accessibility.

The rules we made were--the first one was PG13... The reason it's PG13 is more people are going to be uncomfortable seeing non-PG13 content than are going to be uncomfortable because they can't see non-PG13 content...

The other was no brand theft. We have a strong belief that a brand is something you own and that allowing people to copy other people's brands and take advantage of them, anywhere, including Virtual Worlds, is a bad thing. It's just wrong. ... So we review all the content that goes into the worlds in order to make sure that you own it when you submit and to make sure you're not infringing on anyone else's right. The combination of those two things makes our environment, if you will, very appealing to big brands. ...

The third thing was to make it possible for as many people to use our product as possible. So you'll find that it turns out that our PC product will run on any PC shipped in 2003 and will actually run over 56K dialup. That's why a lot of people look at There--and they say, "Well, it's cartoonlike," and that's because we limit, for the places that we build, the texture budget such that to make sure you have a good experience.

One of the notable features of There.com's strategy is its' "four rivers of revenue" including subscription payments, ingame currency micro payments, sponsorships and white labeling, and ecommerce.

The subscription model, I think, is something that everybody aspires to. My belief is a subscription model doesn't work very well unless you have tons of content for people to visit... We are constantly exploring new subscription models, especially with our younger members who don't want to have to hit up their parents every ten minutes for some more of their bucks to spend.

The largest part of our model is virtual currency sales, and I think that that's well understood by your audience and yourself that that's the coin of the realm, and that's how people do business in There.com, and so that's where our largest source of revenue is.

The third, which is sponsorship for advertising is something which is very nascent, and we've paid a lot of attention to. Again, we want to make sure that people who have paid for sponsorship for advertising have a great experience. Scion is a good example. We have those giant car clubs, which, I don't know if you've visited them, but Scion asked us to give them a concept for sponsorship. Instead of doing the usual thing, which is little Scion cars inworld, we created giant nightclubs shaped like Scion cars.

Now, one thing I'll say about advertising is it's not well understood. In fact, I've said many timesmaybe you have some students that would be willing to take me up on thisbut it is not well understood how you monetize advertising in a virtual world. Because it's not a simple case of click-through advertising, which you pay pennies for. In fact, we've got studies that show that advertising in virtual worlds gets a much, much higher rate or recognition than it does on the Web. And that's only the smallest part of it.

The fourth area is ecommerce, and that is, I see a virtual, say, a pair of Vuarnet sunglasses, and I also see I like to buy a real pair, and I buy them. That's a whole area that we're just beginning to explore, and we're very excited about it because we think that there's a certain parallelism, though it's not 100 percent between your virtual self and your real self and the stuff you buy for your virtual self and the stuff you buy for your real self. So that's a very exciting area.

This analysis appears to leave out an important fifth 'river of revenue': virtual taxation. In order to pay the costs of enforcing its brand protection, There has imposed substantial costs on its content developers. In addition to a $9.95 membership fee required to create content, it charges significant "developer fees" outlined on the There site. (Prices are given in "Therebucks" worth approximately $0.0005.)

The effect of this policy is that a developer creating a t-shirt design would pay a (USD) $3 fixed cost plus between 50 cents and a dollar for each copy of the virtual shirt made in order to be reviewed for uniqueness and ownership. For more complex building designs, these fees can be as high as $10 fixed costs plus $10 per unit in variable costs.

Certainly, the individuals who pay these fees value the 'government' service There provides in protecting their property claim to their brand. Additionally, it provides revenues to cover the costs of other public goods such as recruiting new users and protecting property rights.

However, this form of taxation comes with costs not observed in "untaxed" worlds like Second Life: first, it discourages the speed content diffuses across the community because of the variable costs. Secondly, it stifles creativity and content experimentation by content developers. Finally, it enforces a dichotomy between content creators and consumers by access to capital rather than access to skill. The net result is that the silent "fifth stream" of virtual fiscal policy carries the risk of significant detrimental effects on There's virtual environment and must be crafted carefully.

Future competition between virtual worlds will help determine which policies are most sustainable in the long-run. I invite others to comment as to whether There has struck an appropriate balance between its operational objectives and community empowerment, drawing on your experience in worlds with managed and unmanaged content.