3D Avatar Chat Game Gets Users Engaged, Generates $40 Million Revenue Run Rate

Founded in 2004, it’s taken less than 6 years for IMVU, a 3D avatar chat game and virtual world, to become profitable with a

Quick Overview

Founded in 2004, it’s taken less than 6 years for IMVU, a 3D avatar chat game and virtual world, to become profitable with a $40 million annual revenue run rate (i.e. estimated annual revenue). The 90-employee company gets a large chunk of that revenue by selling virtual currency to 50 million registered users, including subscribers and non-subscribers. This case study outlines how they do it. (Hint: It starts with engagement.)

Target Market

“Our target is any user over 18 years old.” Harnett said. Users, in general, are about 65% female. The average age is 22. Though the site is completely in English, 40% of users are international, mostly from English-speaking countries. The other 60% live in the U.S. Once they get engaged, users spend several hours per week on IMVU.

Content Model

The main content is the virtual world itself, which is created by IMVU engineers who make up the majority of the 90 employees at the company. Registered users must download the free virtual world software in order to see their virtual room, clothing, accessories, furniture, and change their avatar’s look. The software allows them to visit other virtual rooms and chat with other avatars, in addition to the ability to kick, burp, break dance, laugh, cry, wink, shake hands, move to different areas within a room, and/or be in a flirty or groovy mood at the click of a button.

It’s a freemium model, which means nearly everything is free — the avatar, virtual world, virtual rooms within the world, a handful of clothes, accessories, and furniture, and access to more than 60 games such as Draw My Thing, which is like virtual Pictionary. Users must pay to get special features, such as access to paid-only rooms and forums and the ability to create and share virtual rooms. They can also make micropayments to purchase virtual currency called credits, which they use to purchase virtual products in the online catalog.

What’s really cool about the site is that the content that makes the most profit for IMVU — the virtual products catalog — is nearly 100% created by users for users. IMVU provides the tools that allow users to create virtual products such as hairstyles, outfits, body tattoos, jewelry, furniture, pets, etc. that they can “sell” in the online catalog to earn virtual currency. The best part is it requires very little management, so the IMVU engineers can focus on developing more new content and features that keeps users engaged and coming back. Often, there are at least 80,000 users from 80 or more countries actively engaged on the site.

Revenue Streams

The company has four revenue streams, the main one being virtual currency sales:

1. Virtual currency sales are the biggest revenue generator for IMVU. How it works: free registrants get 1,000 credits for signing up. That gets them engaged with the online catalog. They can use those credits to purchase virtual goods, which range in price from about 300-2,500 credits. If they use the initial 1,000 credits and decide they want more, they have to earn them or buy them. The price is generally $1 per 1,000 credits with the lowest price at $5 for 5,000 credits and the highest at $200 for 300,000 credits. A key to the success of this system is the fact that users can purchase credits online via the IMVU site, via SMS payments through their mobile phones, or via pre-paid cards in retail stores such as Target, Walmart, and Best Buy — all very relevant and convenient payment methods for women in their early 20s. Providing prepaid cards and SMS payments gives people who don’t have debit or credit cards the ability to purchase credits.

Credits also come in packages bundled with other products. One such package includes 25,000 credits, three virtual rooms (such as vacation home rooms, living rooms, outdoor rooms etc.), and the ability to register the user’s avatar name for $31.99. (Note: registering a name lets the user remove the “Guest” tag from his or her avatar’s name and access the site ad-free).

2. IMVU VIP Club Membership. Those who purchase a VIP subscription, currently 99 cents per month for the first month, and $9.99 per month after that (recurring) get ad-free access plus 5,000 credits monthly. They get a VIP badge, access to VIP rooms, exclusive monthly virtual gifts, and the ability to register a new name for their avatar.

3. Access Pass, which is only for those aged 18 and up, is priced at $19.95 (one-time fee). The pass provides access to adult groups, virtual rooms, and forums designed exclusively for pass holders. They can see special animations and search for other pass holders through an exclusive search function.

4. Third party ad sales. IMVU gets some revenue from third party ads, but like the other three revenue streams it’s not nearly as much revenue as from virtual currency sales.

Marketing Tactics

Though a lot of the site’s traffic comes from affiliates, most of its roughly 10+ million unique visits per month (according to Quantcast, September 2010) come to the site via direct traffic, i.e. people type in ‘IMVU’ in a search engine search box. That doesn’t stop the marketing team from using other strategies to attract and convert traffic into paying users.

Engagement Tactics — The number one way to get users to purchase is by encouraging them to engage with other users and with the site itself. The IMVU Daily Outfit Challenge is one way the team gets users to participate and make purchases. How it works: Every day there’s a new theme for which users are asked to build an outfit. Examples include ‘Amazing Acrobats,’ ‘My Favorite Musician,’ and ‘Cyberpunk.’ Players spend hours putting the outfits together, Harnett said. Some purchase more virtual goods to make their outfits better, and then they take a picture and submit it on the challenge page where other users vote on their favorite. The winner earns credits.
A/B and Multivariate Testing — The most interesting aspect of IMVU’s testing strategy is that the team runs several tests to optimize the site for engagement conversions in addition to purchase conversions. The engagement conversions include chatting, chat time, gaming, etc. They optimize the site for more than 100 engagement actions. The goal is to get them engaged first. After users are engaged, it’s easier to get them to purchase. The team runs two to three tests per week. It’s an ongoing practice.
Email Marketing — When people register by choosing an avatar and avatar name, IMVU asks for an email address, which is then used to get users to engage with other users through chat, games, etc. and to make purchases.
Online Advertising — “We do a lot of banner advertising,” Harnett said. “We don’t pay a lot so we’re very efficient as far as where we put our banner ads.” They do cost per acquisition buys on ad networks where the publishers determine where an ad will best convert. “We’re pretty broad,” he said. “We show up on a lot of different sites. Gaming sites. Chat sites.” The site also buys ad space on Facebook, but banner ads get the highest clickthrough — even higher than PPC ads.
Search Marketing — IMVU also buys PPC ads, mostly using Google Adwords. The site gets a lot of organic search traffic, partially because it has millions of pages.
Social Media — The site has a very successful Facebook page with 1.3 million fans (as of September 2010). It also has a Facebook app that allows users to choose an avatar name and character, and then register the account with IMVU. The app has about 39,000 active monthly users (as of September 2010).

Technology and Vendors Used

IMVU built an in-house testing technology platform for internal Web page testing.

Google Website Optimizer: IMVU uses this testing technology to A/B and multivariate test its landing pages http://www.google.com/websiteoptimizer/

LinkShare: powers IMVU’s affiliate program http://www.linkshare.com/

Offerpal Media: payment platform that powers IMVU’s virtual money (credits) transactions and turn those transactions into actual revenue http://www.offerpalmedia.com/

About Mark Harnett

Harnett entered this career path through online advertising in 1996. He worked mostly at real estate sites such as Move.com and LoopNet. During the past four to five years he’s dedicated himself to online marketing with a focus on consumer acquisition. He joined IMVU two years ago and, in that time, more than doubled the site’s traffic — mostly by testing banner ads to landing pages to site pages.

Subscription Site Insider’s Quick Analysis

Though the micro-transaction model may not work for every subscription site, there’s a lot to take away from how IMVU uses engagement tactics to get users to purchase. A daily challenge is a great way to keep free registrants and subscribers engaged (i.e. coming back to the site). And it’s something that almost every subscription site could emulate.

No doubt it’s those sites that can keep people engaged by providing continuous, valuable content and/or activities that spark an audience’s interest that are going to be the most profitable. Whether you’re targeting vacuum cleaner sales reps or 20-somethings with time to spare, IMVU makes a good case for the how important strong audience engagement is for success. They even test to optimize engagement on the site.

http://www.imvu.com/