It was the early 1990s, the Internet was blooming, and Christopher Klaus had an idea for a video game: stop hackers from breaking into a computer network. Klaus, then an undergraduate college student, spent hours imagining methods hackers might use. To stop a thief you have to think like a thief, says Klaus, the founder & CEO of Kaneva, a 3D digital metropolis.
While he created what he describes as a bad video game, he stumbled on a great idea in the process. It wasn't long before he began charging companies to identify vulnerabilities in their computer networks. In 1994, he launched Internet Security Systems (ISS). A little more than a decade later, Klaus sold his company to IBM for $1.3 billion.
Klaus, the keynote speaker at Emory University's Goizueta Business School's 11th annual Undergraduate Business School Leadership Conference (UBSLC), reminded the group of undergraduate business leaders gathered for the two-and-a-half-day conference that a good idea can change the world. Via the Internet, entrepreneurs can reach potential customers and partners anywhere and do so without making a huge investment. It's a pretty amazing time to be an entrepreneur, he states. There are thousands of opportunities if you have the right skill sets to pursue them.
The industries most prime for the taking? Areas of rapid change, says Klaus. Genetics, nanotechnology, online media, health care, education, entertainment-the list goes on. Kaneva, a rapidly growing virtual world, fits most snugly in the entertainment category, but the business model Kaneva is built upon can apply to any new field that's emerging, explains Klaus. That model, a mix of three-dimensional (3D) virtual worlds and two-dimensional (2D) social networking, offers businesses and organizations new ways of reaching people, showcasing products and delivering messages. Klaus believes this 3D/2D trend may be as much a paradigm shift as the Internet was two decades ago.
According to the information technology research firm Gartner, more than 250 million people will be in virtual worlds by 2011. Kaneva differs from other 3D worlds in that it's not a non-realistic world, but an extensible one that enables online connections and encourages and enhances real friendships. Members' avatars get a Kaneva City Loft (their own 3D space) where they can bring their favorite videos, music, and games and watch them on their 3D televisions. Friends can hang out in each other's lofts, engage in real time chat, or meet up to dance, shop, play games, and watch movies. For Facebook's 350 million users (many of whom are already familiar with Facebook's virtual world offerings such as Farmville), the switch to a 3D universe experience, predicts Klaus, is only a matter of time.
He points to the trend of the Internet embedded in TV. Things like streaming video sites Hulu, Netflix, and YouTube are now baked into all the TVs. All the data comes from the Internet, Klaus says. Long term, this will continue to emerge. Virtual worlds and eventually all video content will come through the Internet.
The implications of this-more direct access from content creator to consumer or audience-are huge. It's already turning industries built around content upside down. Print newspapers and magazines that fail to monetize their content offerings online are going out of business or fighting to stay alive. In the music industry, CD sales have plummeted as music sales have shifted online and to a pay-per-song model. The old guys will tell you this is the worst time in [the] music [industry], says Klaus, but a lot of start-ups think this is the best time to be in music. It depends on what side of the wall you're on.
How content is paid for has also changed. Dubbed the Freemium model, the current trend is to offer basic content, web services or downloadable digital products for free, but charge a premium for greater access or advanced features. Want basic information about a Major League Baseball team? Just log on. Want to watch live streaming video of a favorite team? That costs extra. Ultimately we'll see more and more businesses give their core business away for free and have a marketplace to upsell accessories and applications, says Klaus.
A paradigm shift
Attracting innovators to create such applications is easier due to the Internet. For instance, with Kaneva, Klaus plans to create a sandbox environment where game creators use Kaneva's open source gaming technology to create games. (Spending upwards of a million dollars on gaming technology is not uncommon.) In exchange for use of its gaming technology, Kaneva gains a 3D library of original gaming content. Part of my vision is to open this up and create an ecosystem and share in the value of this platform so everyone who has an idea for a 3D experience can be a start-up and grow in this platform-create 3D apps for games, for education, for health care, for businesses, he says. This is a paradigm shift, he says.
Devices like Amazon's Kindle Reader make content easier and cheaper to publish and distribute. Book authors can now reap 70% of gross revenues from online publishers such as Amazon.com. (The cut from traditional publishing houses is closer to 5%.) Currently, those who sell their games to gaming publishers net approximately 10% of the profits. Klaus contends he'll offer that same game creator 70% of the proceeds.
According to Klaus, these trends signal the emergence of a bigger business model. He uses education as an example. Over the next decade, Klaus predicts the democratization of education. More classes will be offered online, he says, and there will be an increased awareness of education around the world. The use of gaming mechanisms will motivate people to make use of educational content. Brains like constant feedback, says Klaus. Ultimately it takes education from a boring subject into a fun video game to master. That's a paradigm shift.
He predicts another paradigm shift (a phrase Klaus uses a lot these days) in advertising, branding and marketing. Consumers may have grown up watching commercials in 30-second chunks, but video games offer retailers a more immersive, branded experience. As the cost of building video games falls, more content for video games will move from passive marketing and branding content to an engaging factor of what you're playing, explains Klaus. Rather than watching a half-minute commercial, a child playing a video game might go to a virtual McDonald's to play with friends and stay for hours. Businesses will need to build interface online that's as good as walking into the store, Klaus says. Marketing is going to be forced into a more participatory model.
In 3D worlds, members can buy branded clothing and furniture, visit branded hotel lobbies, dance clubs, and restaurants. This influences consumer behavior. Reminds Klaus, there are real people behind every avatar. While Kaneva is clearly an entertainment site, the potential of the 3D experience doesn't end there. After the devastating earthquake in Haiti, the Kaneva community held a Haiti Fundraiser where members could buy virtual T-shirts (to be worn by members' avatars). The real life proceeds were given to charity.
As these business models continue to emerge, Klaus envisions a new type of leadership, one where company leaders are equipped with global perspectives and a solid background in technology. This background will help them leverage their businesses online, get them to think outside of the U.S. market, and help them use the Internet to scale their business and utilize online marketing tools and social media. As more and more businesses use technology to enable and disrupt and scale their businesses, it's extremely important that leaders have a strong technology background, says Klaus.
Klaus believes there are plenty of opportunities for the taking, and money will follow those ideas that create value or solve a problem. The Internet is still evolving, notes Klaus. A lot of people don't have confidence-they think they don't have an idea to change the world. But they should be thinking about it.