The Goods On Virtual Goods

While scaling and monetizing e-commerce is still an issue for many of the top retailers in the world, those merchants should also keep an eye out on virtual goods.

News came down this week that the Executive Director of Shop.org, Scott Silverman (a close friend of the Six Pixels of Separation and Twist Image community), was leaving the organization to join a start-up focused on virtual goods (more news on that here: DM News – Shop.org executive Silverman resigns to found startup). While this news sent shockwaves through both the online merchants and retailers associated with Shop.org and the NRF (National Retail Federation), this is a very forward-thinking move for Silverman, who is joining an industry so new that we can hardly even say that it is even in its infancy.

Why aren’t all retailers seriously focused on virtual goods?

Think about the current opportunity (and where this is all going). Why wouldn’t a department store start selling digital versions of products like music, movies and books? On top of that, think of the opportunity for doing multi-channel marketing campaigns by offering up specials or exclusives on things like a tractor in FarmVille or better armor in World of Warcraft with either an online or in-store purchase. While Facebook no longer offers the buying, selling or sending of gifts (more on that here: All Facebook – Why Facebook Killed A $100 Million Baby), this was a multi-million dollar business for the company. At a more primal level, just think of the baseline affiliate marketing opportunities for retailers as an entry point.

And this is only the beginning.

Some of the major retailers (like JC Penny and Target) are already embracing celebrity-endorsed brands, so why not extend this to the online/virtual goods channel? Imagine exclusive wallpapers for your iPad and/or iPhone designed by Demi Lovato and sold through her new relationship with Target? Yesterday, it was announced that Madonna will be designing and selling a new line of accessories through Macy’s (more on that here: Wall Street Journal – Macy’s Hopes Madonna’s Line Puts Retailer On Map With Teens), this is another great opportunity to tie-in exclusive virtual goods to up the overall basket.

We tend to think with extreme shortsightedness.

The truth is that nobody can forecast the future of retail (or if virtual goods have a legitimate business leg to stand on), but as distribution gets more complex and the cost of building, maintaining and staffing individual stores continues to rise, the retailers of the future are going to have to embrace the very real reality that consumers no longer draw a hard line between their virtual goods and their physical goods. Don’t believe me? Look at the quick transition the mass public made from a physical CD of music to an iTunes library. On top of that, we also got news today that consumer’s habits are changing at the retail level. Customer service needs are dropping (they’re probably being met by empowered consumers using the digital channels for information and more) and they are becoming much more price sensitive and driven.

Digitization is as digitization does. 

While some industries are being forced into digitization (music, movies, books, software, etc…), retailers may offer the world a Digital Marketing leadership stance by embracing and encouraging the sale and distribution of more and more virtual goods. Initially, this will look much more like strategic partnerships (where a company like Warner Bros. would team up with a major retailer like Urban Outfitters to distribute their virtual goods), but it could (and should) lead to that retailer developing their own merchandising team against virtual goods, and building that new category within their business. Look no further than Apple to see a glimpse as to how this can play out (you buy your computer, iPod or whatever at the retail level, but then fill it up with content and software through their digital channel – iTunes).

What’s your take on virtual goods? Will people actually buy it?