Thursday, February 5, 2009

The Importance of PrePaid Cards to Virtual Worlds & MMO's

Good article at Loki partners via Sharkjumping
Our partner GMG Entertainment today announced the roll out of Meez prepaid digital entertainment cards (and others) at top US retailer Best Buy (NYSE: BBY). This is a key move for the growth of virtual commerce at MeezNation and we're excited that Best Buy is launching dedicated card kiosks in their video game sections since it shows a strong level of commitment from a forward-thinking retailer.

So why should anyone care about old-line retail stores and physical goods when we're all selling cutting edge virtual goods? Isn't it all going to be virtual? The reason is that retail still matters a great deal, especially when addressing a somewhat unbanked audience like teenagers. We all know teens acquire an estimated $60B each year, whether it's from allowances or part-time jobs - however, they don't have an easy way to send it to their favorite virtual world or Massively Multiplayer Online (MMO) game company since they don't have credit cards, are not happy borrowing them from parents, and aren't as comfortable with PayPal, even though it can be linked to a checking account. Plus, teenagers still go shopping a lot, and that retail foot traffic is incredibly important since it provides another way to reach that audience when they're not online. Finally, parents or friends are more comfortable giving gift cards these days so it's easier for a teenager to ask grandpa for a $10 Meez card for graduation vs asking for cash - it's a big Win/Win for the category. The downsides are that there are a limited number of slots available, and the retailer/partner margin takes a significant part of the overall revenue, but since we're selling virtual goods with high margins, we believe the increase in revenue is worth the transactional cost.

On the retailer side, cards are perfect merchandise since they deliver relatively high value to floor space ratios, offer margins somewhat close to other physical products, and since there is little shrinkage/theft since the card is not worth anything unless activated at the register. Given the decline of recorded music sales and the flattening of DVD sales, this can be a nice win for retailers who really focus on the digital entertainment category - some of them will soon start to actually integrate their brands and links into these worlds so that users can move back and forth between virtual and physical spaces. Best Buy was a key driver of Rhapsody's success when I was running it 5 years ago, and the company is always looking at next wave of retail trends to make sure it stays relevant in an increasingly digital world.

This plan doesn't mean just throwing the cards next to the Macy's and TGI Friday's gift cards, as I have seen at other stores since they will get lost in the increasing blizzard of cards, many of which are aimed at different demographics than entertainment cards. That's why we're excited about GMG's efforts to work with Best Buy to launch a specialized area of the video game section in Best Buy stores, and to provide an array of entertainment cards, from hard core MMO's to broader virtual world offerings like Meez. When I asked about the cards this weekend at the Columbia, Maryland store, the employee knew exactly where it was, and took me directly to it. You can see if Meez cards at your local BB store here.

There will come a time when all transactions are done by cell phone or some other equally high tech method, but for the foreseeable future, retail placement and the resulting revenue will be a key driver for successful digital entertainment brands, and leading retailers will benefit by offering these options to their customers.


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