Tomorrow morning for the 2008 Cannes Lions Advertising Festival.    With so much attention focused on Virtual Greats and the launch, it will be interesting to refocus on our core business and thinking about how we can bring larger scale storytelling to the web for clients.  Of course, we may also pay attention to whether folks find it interesting to think about celebrity endorsement at mass scale from avatars.  Or we may just sit on the beach.

One things for sure — the flight will be long and painful.  Life’s certainties provide odd solace.

Variety’s Marc Graser officially broke the news about the launch of our new affiliated company, Virtual Greats, which is the de facto leader in the extremely promising - but fragmented - US$1.5b virtual goods market.

Read the full piece here.

In the past 2 years, virtual worlds have received a great deal of media coverage. The Gartner Group predicts that by 2011, 80% of internet users will participate in at least 1 virtual world. Globally, sales of items in virtual worlds account for $1.5 billion.

About a year ago, I became fascinated by the almost complete absence of copyrighted material in the virtual goods market. This was especially weird given that the audience was largely teenagers with a provable affinity for celebrities, heroes and copywritten material. What I discovered was that legally, “virtual merchandise” had never existed as a class of rights and therefore belonged to the owner of the core IP (in some cases a recording artist, in others, a studio). As we struggled to think how to use this insight to transform this market, we also noticed that from a distribution perspective, the market was extremely fragmented; globally there are 130 million users split between some 60 different worlds. The problem this presents IP owners is that they would need to seek out dozens of worlds in order to achieve scale.

Today, I am proud to announce the launch of a company built to address this market, bringing incremental revenue to IP owners and virtual world operators while allowing the audience to aspirationally connect with the stars they idolize. We’re upping the ante in virtual goods by introducing “virtual greats” – premium virtual goods.

To achieve this, we have entered into partnership with the world’s most iconic personalities and characters. Starting today, we will begin making announcements about our exclusive license and distribution partners. The story will break in Variety in Hollywood, with a press release and general coverage to follow.

The virtual merchandise we create and market in partnership with celebrities will fall into several categories:

1. Personal Likeness
2. Animations and Signature Moves
3. Catchphrases
4. Clothing Lines
5. Furniture Collections

Most importantly, I’d like to thank all the people who made this launch possible. First my wife and kids. Second, my partner Christian Lassonde and all our colleagues at Millions of Us. Then, our friends and allies at Omnicom – Jonathan Nelson and John Wren. Then Gary Stiffelman, Jamie Young and Alicia Sydney at Ziffren Brittenham. Also Craig Sherman and Joe Hyrkin at Gaia Interactive. And of course, Mitch Kanner.

Finally, and most importantly, our leader. This is a completely separate company from Millions of Us. We searched long and hard for a great CEO, capable of building a game-changing company and leading it to large scale. Dan Jansen is that person. Prior to joining us, Dan led the Media and Entertainment practice at the Boston Consulting Group. He is dynamic, expert and lots of fun to work with.

This is going to be a brilliant ride. Can’t wait.

Sometimes the most amazing things happen right under our noses and we miss them because we’re not in 4th Grade.

Take a stroll down the aisles at your local Target, Walmart, Walgreens or Rite-Aid and you’ll notice an interesting phenomenon — pre-paid gift cards for as many as 26 virtual worlds. Let me try to explain what this means (if you have a 4th Grader, feel free to skip the next few paragraphs)

There are roughly 100 million people in virtual worlds at the moment and the vast majority of them are kids and teens. These worlds, which in general are rather simple looking, allow kids to hangout together on the web. Jeff Yang of Redpoint ventures, a prominent investor in a variety of these worlds (he was also the sole Venture Capitalist behind Myspace) likes to call these worlds the “New Mall”. Collectively, the kids in this “mall” are spending over $1.5 Billion on avatars, clothing, pets and the like. That’s real money on virtual stuff.

Now here’s where the cards come in. While these kids have a seemingly endless appetite for virtual goods, they don’t have credit cards. Even if they did, the stuff they’re buying costs between 20 cents and $5 — creating a problem when the cost of clearing the transaction is greater than the value of the item. The cards solve this by allowing a parent to buy their child $10 or $25 worth of virtual currency. The card company takes a fee off the top, generally somewhere in the neighborhood of 20% (nice business model, huh?) and the rest goes to the kid to spend at the virtual mall.

Now I’m guessing a few of you are wondering why on earth anyone would spend real money on virtual stuff. Let me try to explain this in truly simple terms, because I think it’s a really fundamental concept, no different than what goes on when we buy stuff in the real world.

First of all (and this is beyond fascinating), teenagers view their avatars, or characters in virtual worlds, very differently than adults. While you or I might refer to the avatar as “my avatar”, a teenage just calls it “myself” or “me”. Perhaps an equivalent for us older folks is that we’d never ask someone if they received an email from our “email account”, we’d simply say “did you read what I wrote you?” So these teens see their avatars as themselves, which makes sense when you’re spending over an hour a day communicating through that character. And when that’s the case, how your avatar looks is critical to the way in which one’s social status is perceived. So virtual goods become the markers of social hierarchy — we are social creatures after all (even non-4th graders) and that stuff really matters.

If you’re still thinking “This is beyond bizarre”, let me leave you with a little thought experiment. How much does your average pair of jeans cost? The truth is that if you bought jeans based simply on utility (in other words, discounting social perception to zero), you would spend $10. This means that the difference between what you really spend on jeans and $10 is the value you place on what other people think. In my case, it’s embarrassingly high — over $100.

Guess those 4th graders spending $2 on virtual bling aren’t so crazy after all.