<b>Research Note</b>—Using Real Options to Investigate the Market Value of Virtual World Businesses
Authors: Yang, Sung-Byung; Lim, Jee-Hae; Oh, Wonseok; Animesh, Animesh; Pinsonneault, Alain
Journal: Information Systems Research (2012)
<jats:p> Virtual worlds are relatively nascent IT platforms with the potential to radically transform business processes and generate significant payoffs. However, in striving to achieve specific outcomes, firms may incur significant risks. Although many companies claim to have attained substantial benefits from their virtual world initiatives, many others have recently scaled down or even abandoned their experimental virtual world projects. This paper assesses the value proposition of virtual world initiatives from the real options perspective. Specifically, we argue that virtual worlds act as a firm's growth option, and we adopt the lens of real options to evaluate the value of this emerging and uncertain technological platform. We employ the event study method to assess the stock market's perception of the future revenue streams of 261 virtual world initiatives announced between 2006 and 2008. Our results indicate that, overall, the market reacts positively to virtual world initiatives. Our findings also show that investors' reactions to virtual world initiatives are contingent on four key characteristics of virtual world initiatives: interpretive flexibility (i.e., technologie…