24 comments

  1. People have, and will continue to buy virtual goods. Facebook Credits promises to be very interesting this year, with their inclusion in more games on that platform. The sale of virtual goods within games has worked in markets outside of the states for a few years, and it is starting to become more common in western markets, with additional downloadable content for single player games like Dragon Age.
    Currently it looks like most traditional retailers are being left behind by tech companies. Valve and Apple have been very good at putting their store fronts in front of people through applications such as Steam and iTunes. Apple has been especially effective in this.
    I don’t think the question is if the market will hand over money for virtual goods, but will traditional retailers be able to enter the market in some meaningful way.

  2. From what I’ve read so far, Zynga alone is making a killing. Farmville is estimated at $4billion, 90% of Zynga’s revenues come from virtual goods or points. They’re PayPal’s 2nd biggest merchant. Further, 7% of active social gamers spend an average 258$ over 4 months in virtual goods or points. This social gaming “industry” that’s just beginning is estimated to hit 2.2$Billion in 2012, 95% of which is virtual goods boughts directly (55%) or indirectly (40%).
    And that’s just social gaming. Virtual goods can extend very far.
    Good move Silverman!

  3. Agreed. Facebook Credits are going to be huge and help push virtual goods even further. I think there is a huge/current opportunity for retailers. I sure do hope they are listening.
    If they’re not, I am going to let them know when I give one of the keynote addresses at the upcoming Shop.org Annual Summit in Dallas: http://www.shop.org/summit10
    For those unsure about Facebook Credits. There is more info here: http://www.facebook.com/FacebookCredits

  4. Hi Mitch,
    One of our clients, Camshare, has been selling virtual goods within their videochat ecosystem for a couple of years. One big issue that will be faced is fraud due to the anonymity and digital nature of the gifts. It definitely is a trend that retailers need to keep an eye on now and in the coming few years. Good post.
    cheers,
    craig.

  5. I think many people confuse the valuation of social gaming companies by not understanding that most of those dollars are driven through the virtual goods within the community. Thanks for adding those stats Sam… it’s adds a ton of clarity.

  6. As with all things digital, fraud is going to play a huge part in this (and how it is managed). We had this with search engines and click fraud and – of course – with tons of bootlegging, etc… It’s depressing to see my Google Alerts for the audio book version of my book – tons of links to torrents and people grabbing it. It is what it is (sadly).

  7. Mitch I have some very futurist thoughts about online retail and why its been held back so long. Also did a patent search to see if my ideas have been patented…they have so while I won’t be a billionaire it shows some people have been working on this. But the focus of this blog is not retail. But my tie in matches yours.
    The fact is games exist that sell virtual goods. Some bought and sold using real money. So if I am going to buy a chair for my house or armor for my Orc, why aren’t more brands jumping on and customizing these items. We are all about vanity (even us humble monks are vain about our monkness).
    I think the challenge is ‘can I show it off’. I will buy Volcom Skate Armor if I know when someone views my Battle Tested Fighter that others can tell its custom/branded. Or I should say people will be more likely to pay if they can show off.
    And brands get a win win. They learn how to sell better online and in future virtual worlds that mimic real life. (the reason web retail bites right now is it does not mimic real world).

  8. Samuel. Beware of private valuations of businesses. Private businesses are very illiquid (my finance degree talking here). We never know a firms value until its public. Remember how many people bought homes in 2007 that can’t get 75% of what they paid or even sell today. (or the private equity crash) What we do know is that Zynga is making a lot of money right now and has great potential for future growth as well as potential to be gone in 2 years if they make wrong moves because they are in a ‘fad’ type business where consumer sentiment can more fast or get bored. Think Second Life.
    But the money does validate the concept! And its pure profit for brands to jump in. No worries on being stuck with 2million tickleme elmoes from China after Christmas. High upside almost zero downside.

  9. Mitch… We’re seeing more and more of our retail customers trying to monetize online tools and services that will inevitably lead the purchase of virtual and hard goods. So I’d say they are just beginning to test the waters… Michael

  10. This reminds me of the Mr. T mohawk grenade for World of Warcraft. You’re right, this isn’t a uni-directional option. We saw this in Second Life where brands created areas, products and services within the virtual world. We also have many examples of this in Habbo Hotel. Branded virtual goods within existing platforms seems logical (and super-easy) to do.

  11. Today, we pay a premium for fashion because it represents something we want to be associated with or makes a statement about our wealth or status. We buy gadgets to help us play a better game of golf or track our running progress. None of these are necessary, but allow us to advance ourselves in our chosen pastimes or careers. The same is true of virtual goods in the sense they will allow us to compete in an online game at a higher level, or give us status in a certain community. The next generation of consumers will be as comfortable buying virtual goods as we are buying the latest pair of designer jeans. Just as older generations questioned our buying choices because it was new and pointless spending in their opinion, many in our generation will question the validity and necessity of virtual goods. Many of those are running the same retail chains you are speaking about which may explain why they are not on board. This lack of understanding does not make it any less real however and the retailers that get on board first are the ones that are going to benifit. Great post Mitch.

  12. The digitization of goods continues to grow no doubt. As you stated, we only need to look at the entertainment and leisure industries to see this.
    What I’m curious about are the virtual goods that really are virtual in that their value is hard to define. How much is a foursquare badge worth? How valuable is a Farmville character?
    Will this segment become valuable and long lasting?

  13. The same is true of virtual goods in the sense they will allow us to compete in an online game at a higher level, or give us status in a certain community. The next generation of consumers will be as comfortable buying virtual goods as we are buying the latest pair of designer jeans. Just as older generations questioned our buying choices because it was new and pointless spending in their opinion, many in our generation will question the validity and necessity of virtual goods. Many of those are running the same retail chains you are speaking about which may explain why they are not on board. This lack of understanding does not make it any less real however and the retailers that get on board first are the ones that are going to benifit.
    …………………………………………………………………………………………………………..

  14. What about music, books, movies art? I do think that goods (both virtual and physical) can do things to change people… and it’s not all about status or the perception it creates to others.

  15. I think it’s safe to say that it’s worth whatever the most interested party is willing to pay for it. What is a cup of coffee worth? I bet the answer is very different from your corner gas station to Starbucks.

  16. I used to love buying and collecting books. I still like buying books, but the digital version (also a virtual good). Is there more value in it for? Strangely enough, the answer is “yes”. It’s easier to carry around (on my iPhone), I can take notes, I can see what others have found useful in the book and I carry around more than I can possibly read and buy them instantly. Huge value.

  17. I agree that there are goods that will help or change people for the better and didn’t intend to appear cynical. My point is that the reasons people buy virtual goods are the same as the reasons people buy physical goods, whether it is to improve themselves or for status or some other reason, and that virtual goods to this generation of consumers are as relevant and ‘real’ as physical goods have been to previous generations. I agree that this is in its embryonic stages with many people, myself included, still trying to wrap our heads around where it will go but I think based on the explosive success of online gaming, download-able music, videos, and books, virtual goods are here to stay. It’s exciting to watch and be a part of.

  18. Perhaps a little off base, however Fundraisers have had considerable success with virtual gifts such as “a goat that provides milk, or a “well for a community” or even “education for a child”. These allow donors to really get a sense for where their donation dollars are going.

  19. Wow! I made the big time and have been mentioned by Mitch in his blog. I’m honored! It’s great seeing the comments on the blog. Lots of great insights.
    I agree that the digitization of existing goods such as books and music are important. Virtual goods in social games are something new and different, however, and deserve some separate attention.
    It’s hard for many people to relate to the power of social games who aren’t participating in the games. But when you look at the data, it’s clear that these games are resonating with a very large swath of consumers to the tune of $1 billion spent on social games this year, which is mind boggling.
    I am very excited to be a part of this industry and get wait to get started in my new adventure.

  20. What interests me more than the social gaming aspect is how Facebook is moving towards Facebook Credits. With over 500 million accounts, it sounds to me like they are looking to create their own economy and they’re starting with their own currency. Something tells me this is going to upset the social gaming companies, as this is where the bulk of their revenue is coming from. Once other companies embrace the idea of virtual goods and/or Facebook Credits, imagine the shift that’s going to have with all consumers (not just the gamers).

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