In recent years, virtual worlds (also known as massively multiplayer online games, or MMOs) have shown tremendous growth in terms of user numbers and revenue. However, the market for them is currently in tremendous flux, with the most well-known sub-genre — the subscriber-based fantasy role playing games (MMORPGs) — suffering a growth plateau, due to the dominating success of World of Warcraft. At the same time, user activity in “freemium” virtual worlds continues to explode, most especially in the tween/adolescent market, which is likely to reach a market saturation point soon, though monetization prospects for all but the established players remain uncertain. The explosion of social networks, which share numerous traits with virtual worlds, have created a new potential audience for this genre, while the mass adoption of web plug-ins and smartphones like the iPhone have opened up new markets for the genre.

In this transitional period, many of the best investment and growth opportunities to watch are not the worlds themselves, but the solution providers offering developers the means to better monetize their existing MMOs. Opportunities also exist in niche MMOs that appeal to consumers seeking entertainment outside the established fantasy and kids social MMO space. However, new players that would enter this already crowded market must foster a community of users by rewarding user-created content and continued engagement, while also being architected with multiple revenue streams and play platforms. Read more at GigaOM Pro »