Club Penguin has been a meaningful catalyst for my career trajectory. I’m serious.
Those that know me well would know I was an avid Club Penguin user as CaliGirl238 (don’t worry, I’m rolling my eyes too). Ignoring the embarrassing verbosity of my 2007 self in the email excerpt below, you could say I should’ve been getting some meaningful referral bonuses back in the day:
As a high schooler who had never heard the words merger and acquisition, you best believe I was all over it when my game changed completely upon Club Penguin’s acquisition by Disney. It was then that I went into a rabbithole of understanding the what & why behind not only this transaction, but others as well. Fast forward 8 years, in 2015 I started my career as a M&A banker and have since transitioned to venture capital, where I’ve spent the past few years focusing on the power of community and how it creates more meaningful consumer experiences - largely stemming from the countless hours I spent on Club Penguin, if you can believe it.
Club Penguin showcased the power of virtual worlds, casual gaming, virtual goods and social networking - quite ahead of its time, if I may add, supporting ~250mm players at one point. While Club Penguin is now unfortunately nonexistent, the demand for immersive digital experiences that existed in 2007 persists to this day, 15 years later, in spades.
Today, as an investor at Acrew Capital, I spend my days thinking about the future of how consumers will play, shop, connect and work. One particular evolution we’re paying attention to is that of virtual worlds - not a new concept by any means as evidenced earlier - but one that we believe is at the cusp of reaching further scale due to culminating technological innovation and behavior changes. We recently published a post (linked here) that explores and highlights some innovation we’ve observed - also sharing below:
A new era of connectivity
While we prefer the term virtual worlds, we would be remiss if we didn’t acknowledge the term “metaverse”, virtual, interactive space(s) designed for human interaction that can parallel the physical world. While “metaverse” today proliferates as the buzziest of buzzwords, the concept is not a new one. Fictional novels like Stephenson’s now infamous 1992 “Snow Crash” were the first to coin the term. Fast forward to 2011 and Cline’s “Ready Player One” (and Spielberg’s 2018 film adaptation) transports you to a virtual world where you can play, shop, and work. In the real world, there have been a few waves of attempts to build virtual worlds. In their prime, early platforms like Second Life, Lively and Club Penguin boasted 200M+ active users. The virtual worlds that have scaled and remain highly prevalent to this day include Roblox (~200mm active users), Fortnite by Epic Games (80mm+ active users), and Minecraft (140mm+ active users). Today in the US, ~67% of those between 9 and 12 years old use Roblox. Presented another way, Roblox counts roughly 33% of all Americans under the age of 16 as users. The way we see it, consumers have shown repeatedly the desire to find connection through immersive virtual experiences and those experiences are only getting richer.
We believe we are on the precipice of a technological platform shift that coincides with changing consumer behavior. On the former: we see a near-term with new hardware & form factors, improved compute, improved connectivity, improved bandwidth, and more. On the latter, we see the rise of Gen-Z as key influencers, users, and customers, post-COVID behavioral changes, and excitement around reimagining what ownership looks like on the web. Advancements in blockchain technologies are now enabling true digital ownership of data, identity, and assets.
The evolving ecosystem of virtual worlds
To help orient ourselves to the flourishing virtual world ecosystem, we created a “Virtual World Stack” (which we define and expand upon below). We start our “stack” at the layer above generalized infrastructure (e.g., cloud services, etc.) and run up through the end consumer applications.
Building Blocks: Underpinning the whole ecosystem are the enabling platforms and tools. This ranges from creation (3D modeling, motion, programming) to intelligence (AI) to ownership (wallets and vaults). Advancement in infrastructure has made possible some of the innovation we’re seeing today, and our view is that there is still opportunity for the infrastructure to bring continued scale and adoption to this ecosystem. We’ve made investments (to soon be announced) in a few players in this space and are excited about doubling down in this area.
Land: Interaction within virtual worlds has to live within a set of virtual spaces to have meaning. We conceptualize these spaces as “land”. There are closed, walled garden environments (e.g., Roblox) that allow users to move among various spaces within their platform. And there are emerging platforms that might enable more interoperability (e.g., Improbable, Decentraland). Further, users may be able to lay claim to ownership of land that exists within these spaces via NFTs (see Decentraland, Sandbox, Yuga’s Otherside). We view closed → open ecosystems as a spectrum and expect activity across that spectrum. This said, our bent is towards open ecosystems that encourage interoperability. We are further keen to see communities, creators, and brands collaborate on experiences that sit within one or many spaces.
Goods: Within virtual worlds, users can “own” anything and everything from skins & digital fashion to collectibles & in-game assets (see our post on consumer utility in blockchain gaming), to other digital goods such as music. Consumers are starting to rapidly accumulate digital goods and brands are getting into the game too (e.g., Starbucks, Tiffany’s, Gucci). NFTs have been the most popular way to create a record of ownership that is verifiable by all parties and immutable. Over time, one could envision interoperability of goods; design principles will have to be respected here, but we think there’s a there, there, and trust founders will find a way to bring this to life.
Identity: Individuality has been appreciated and rewarded today more than ever - as individuals find different ways to express themselves, we're observing the concept of "identity" evolving to become more fluid. When we look to virtual worlds, we believe users will want to have the flexibility in how they represent themselves (e.g., avatars or profile pictures aka PFPs). Further, we are intrigued by how the concept of digital reputation continues to evolve as there becomes more transparency into an individual’s activity and contribution online and on-chain. In a world where one might wear a variety of different representations and usernames, we believe there’s a need for the portability of reputation (in a privacy preserving manner). We are interested in companies that are rethinking how individuals build reputation and represent themselves digitally.
Experience: The “experience layer” sits atop the stack and describes the way a user might want to engage with a virtual world. A user may want to game, socialize, collaborate in a virtual workplace, seek entertainment in a concert, or have a richer shopping experience. The experience layer will be comprised of a mix of horizontal and vertical applications, similar to how consumers interact with the web today. In some instances, there will be scaled applications that allow consumers to fulfill multiple goals. And in other instances, there will be a more focused set of use cases.
As Cline wrote in “Ready Player One”, “for a bunch of hairless apes, we've actually managed to invent some pretty incredible things.” And we’re just at the cusp of transformative ways in which consumers will connect and immerse themselves in the future. If you’re building something within this stack, I’d love to hear from you. Once a CaliGirl238, always a CaliGirl238; except now, you can reach me at firstname.lastname@example.org.