Virtual Pets

Over the past couple of years, AI Non-Playable Characters (NPCs) have been lauded as one of the most exciting opportunities of AI technology within the gaming industry. In particular, theories of applications of this technology have focused on transforming player experiences by introducing greater complexity, unpredictability, and immersion into gaming environments. This is done primarily through agents with improved abilities to deepen relationships with players and even each other.

We have previously written about two subcategories of AI NPCs, co-workers and co-pilots. These are characters, such as Cortana in Halo and Navi in Legend of Zelda, that typically provide some degree of support or utility to the player. While practically, these NPCs functionally operate as a tool for the player, we believe that these characters have the secondary potential to ease loneliness. In these applications, the player is a receiver of help or the recipient of companionship.

This week, we want to focus on a different subcategory of AI NPCs: digital pets. These are distinct from the co-worker or co-pilot role, as the player takes on the role of a caretaker, rather than the receiver of help.

A Need to Care

Humans are born with the innate desire to be helpful (NY Times). As infants grow, the selectivity of helpfulness is shaped by cultural norms, personal experiences, and other external factors.

Societal benefits and altruistic implications aside, there is a benefit to the individual that comes from caring for others. Studies have shown that helping others can lower stress levels while increasing feelings of happiness, calmness, inspiration, and generosity by lowering cortisol (the stress hormone) while increasing oxytocin (hormone that promotes bonding and social connections).

Understanding the Declining Efficacy of Existing Outlets

Human social needs are intricate and deeply interconnected and we believe that as a whole, modern society is becoming increasingly less capable in meeting these needs. Community ties, family bonds, romantic partnerships, and friendships all play vital roles in our well-being. These relationships are not isolated; they influence and are influenced by one another in many ways. However, to effectively explore why we are becoming less capable of fulfilling the innate need to care for others, it is necessary to examine the following 3 relationship types independently.

1) Ties to local communities are low and culturally dependent: Contributing to one's community has deep historical and cultural roots, stemming from ancient practices of mutual aid and collective responsibility. Historically, human survival often depended on strong community bonds, where sharing resources and supporting one another meant ensuring the longevity of the community. Culturally, many societies emphasize the importance of charity, cooperation, and altruism. Over time, these practices have evolved into organized forms of community service and civic engagement, reinforcing the idea that individual well-being is intrinsically linked to the health and prosperity of the broader community.

However, community bonds have changed over time depending on geography and culture. Today, in the US, where individualism is celebrated, only 54% of people feel “Somewhat close” or “Very close” to their local communities compared to 74% in Canada and 89% in India (Pew Research Center).

A diminished sense of community connection directly correlates with decreased individual contributions. Inhabitants of countries with less ties to their local communities will be less likely to contribute to or help their community, leaving their innate “need to help” unfulfilled.

2) People are starting families later and having less children: While families are perhaps the most intuitive outlet for caregiving, opportunities to build a familial structure (traditionally marriage followed by children) are also becoming less prominent. There are two indicators for this. First, marriage rates globally are declining year-over-year.

Second, people are having fewer children. There has been a steady decline in the number of births per woman by country since the early-mid 1960s (World Bank). Interestingly, most countries that are considered lower-middle, upper-middle, or high income economies (by gross national income per capita) have a fertility rate below the benchmark of 2.1 (which is the replacement rate required for population growth).

When looking at aggregate birth rates by country, understanding the decline globally is a complex matter. Generally, an interesting trend is the age demographic shift for mothers. Women aged 30 and above are having more children while women 29 and under are having significantly less children per year. More than half the drop in America’s total fertility rate is explained by women under the age of 19 now having next to no children (The Economist).

3) Friendships are not bridging the gap: Despite people being more connected than ever before through texts, emails, video calls, social media feeds, live video content, and more; people are feeling more distant than ever from each other. Data in the US from The Survey Center on American Life suggests we have fewer close friendships than we did 30 years ago. In fact, 12% of US adults report that they have “no close friends” in 2021 compared to only 3% of US adults in 1990.

While they should not be considered a full replacement for any of the unfortunate trends above, digital pets can provide a welcome and potentially effective supplement for well-being.

Digital Pets are an Accessible and Scalable Option

While digital pets may seem like an unnatural answer for alternative ways to fulfill the human need to help, we believe that there is strong evidence that real-world pets are already being used for this purpose and that digital alternatives are scalable and cost-effective.

Pet ownership is rising globally with more than half of the global population are estimated to have a pet at home. In the US, ~70% of households have a pet today compared to 56% in 1988 (Humane Pro). Globally, dogs are the most popular pet, present in around one in three homes. Almost a quarter of pet owners have a cat (GFK).

Pets positively impact well-being: Interacting with animals has been shown to decrease levels of cortisol and lower blood pressure. In a study by the American Psychiatric Association, 86% of respondents said that pets have had a positive impact on their mental health, citing reduced stress and anxiety, and love / support / companionship.

Pet ownership is expensive: Despite growing adoption, there is a high cost associated with caring for pets today. The average annual cost for a dog in the US after first/one-time costs (inclusive of food, grooming, vet check ups, pet-sitting fees, etc.) is $2,500 per year. The estimated annual cost of care for cats (after the first year) is $1,424. This is 2.4 - 4.2% of the gross (pre-tax) median US income of $59,384. The high cost of pet ownership has now started to limit who is able to own pets. Households with an annual combined income of $100,000 or more are most likely to own pets: 63% of households in this income bracket own dogs and 40% own cats (Forbes).

We believe that virtual pets make a version of pet ownership more financially accessible to everyone.

The Uncanny Valley

We believe the largest barrier to consumer adoption for virtual pets is crossing the uncanny valley, or in other words, getting comfortable with the idea of owning and taking care of a digital pet with the emotional response it elicits from humans.

A tangential application of this technology that consumers are starting to use more frequently today are AI chatbots which can range from friendships to romance. However, these relationships cannot truly be reciprocal as there is only one human involved. These one-sided emotional connections can lead to isolation, unrealistic expectations when comparing to in-real-life (IRL) relationships, and diminish the user’s ability to read real-life social cues. However, like with real-life pets, care for pets is not expected to be reciprocated, making this human-to-virtual-pet dynamic unique and distinct from the more negative human-to-AI experiences in the market to date. With virtual pets, users can experience the benefits of owning a pet with lessened psychological, sociological, and emotional risk.

We have already seen positive and at-scale examples of this type of interaction between human users and digital pets over the last few decades. Franchises such as Pokémon, Digimon, Tamagotchi, and Nintendogs were some of the most popular game series, introducing companion ownership and care to hundreds of millions of people. Introducing games and the ability for players to interact with their own Pokémon is arguably one of the key factors that lead to the franchise’s longevity. This companion mechanic was a key feature of 2024’s (current) top indie release, Palworld, which surpassed >25m players this year.

Takeaway: Humans naturally have the inclination and need to care for others. Over time, opportunities for people to care for one another have declined. Connectivity to community, marriages per year, fertility rates, and the number of close friends people have are low and declining year-over-year in many developed nations. Over a similar time period, we have seen an increase in pet ownership over the last 20 years; however, accessibility to pet ownership has been limited to more affluent households. Virtual pet ownership provides the opportunity to fulfill our need to care in a scalable way. We believe virtual pet ownership and care mechanics will be a major trend in the coming years.