Six Pixels of Separation - The Blog
June 3, 201010:07 PM

The Real Business Of Virtual Goods

Would you let your child buy a virtual sofa for their room in Habbo Hotel?

Let's forget about the fact that most young people don't even care about Habbo Hotel anymore (or do they?), but the thought of spending any form of "real" money on virtual goods makes many people get very uncomfortable. Today, Marketing Charts, has an eye-catching news item titled, 13% of Online Consumers Buy Virtual Goods. With close to two billion people online, that's a pretty significant number.

"On average, virtual goods buyers aged eight to 64 spent $92 on virtual goods last year. Among the 12-to-64-year-old demographic, average spend increased almost 14%, from $87 to $99, between 2009 and 2010."

The information is based on a new study from PlaySpan and Magid Associates, and they define "virtual goods" as, "non-physical objects that are purchased and exchange on the internet in games, virtual worlds and social networks. Virtual goods can be simple items such as virtual points, tokens, or more complex items such as avatars."

There's more to virtual goods than meets the eye.

It's not just about buying someone a beer on Facebook or leveling up in World of Warcraft. I'd argue that apps and more could (and should) be considered virtual goods as well. What's the difference between buying an app for the iPad or a sword in a MMORPG. When you see a headline like, "13% of Online Consumers Buy Virtual Goods," we tend to forget that as content becomes more digital (from music and TV to movies, books and software), the majority of people online are buying some form of virtual goods.

Goodbye to the physical object? 

I used to be in the music industry. I used to collect music. I have thousands (upon thousands) of LPs, cassettes and CDs. They're all in boxes somewhere. They're in storage. The music that I love is everywhere (YouTube, Pandora, satellite radio, etc...)... it is anywhere, and the physical object of it seems less important as the time rolls on. I used to think that paying for apps on the iPhone was crazy considering the cost of the device and the many free apps that are available, but once you get over that initial hurdle of paying for virtual goods, the floodgates seem to open up, and their value is as relevant as those physical thingamajigs that we all stock up on.

Virtual goods are going to play a huge part in our real economy as the days, months and years drone on. 13% is just the beginning (and it's not even all that accurate).

By Mitch Joel


Comments Comments Feed
  • Posted by Anthony
    Mitch Joel

    Real money for virtual goods is an incredibly interesting topic online. Especially when you stop and think about the legal status of the goods.

    Using the game analogy, as MMORPGs are the most mature market for these transactions, what happens when a patch changes the value of the good? What happens when the environment that it exists in gets turned off?

    Currently, it is treated as additional functionality, with no lasting economic value. The special epic flying mount in WOW is pretty useless once you decide to play EVE for instance. Even its in game value can change if another, better mount becomes available.

    The user can never actually own their virtual goods, otherwise when the supporting software is shut down, or they lose something due to a crash or malicious activity, the company may even end up being responsible.

    Reply
  • Posted by Ian M Rountree
    Mitch Joel

    iDevice apps, virtual music - that's one thing. Are these studies taking into account spend on websites, digital marketing initiatives, or even other software? All of the games I own from EA, Blizzard and Valve are virtual - I have no souvenirs for them. Do they count as virtual goods?

    Intangible objects may as well count as services at this point. Who counts a speaking engagement as a virtual good? I'm betting almost no one. Yet nothing is exchanged, except time, effort and value. It's the value that knocks over the other considerations. Anything else is a souvenir.

    I know freelance web developers who provide their clients with physical backups of all virtual goods created. CDs and flash drives containing fractions of their capacity worth of PSD files, website mockups and build files - it's just one of those extra-mile things.

    Some people appreciate the physical proof. Some people just want the value.
    It's not so much comparing a CD to an iTunes download, as comparing people who want to collect the records with people who want the music. Same media, totally different aims.

    Reply
  • Mitch Joel

    I agree with you completely. Once people get over the barrier as they did with buying anything online or online banking, At the end of the day if people get more convenient ways to buy and perceive value in the content sales of virtual goods will skyrocket. It will depend of course of perceived value as an example for virtual magazines. Currently most publishers want the same price for their virtual edition as their print version. I don't think this will fly and publishers will have to be more aggressive in their pricing model. I believe that their profit will come from expanding volume rather than higher margin.

    Reply
  • Posted by Lenny Pinkas
    Mitch Joel

    I think that the purchase of a 'virtual' good is the purchase of an experience. It is not unlike buying a gym membership or going to a spa for a massage. No one is handing you something physical or tangible - just the experience. So it is not surprising that as people seek out new experiences, they will include virtual goods as part of their discretionary purchasing mix.

    Reply
  • Posted by Siddhartha
    Mitch Joel

    I agree with Lenny, virtual goods are just experiences. Going to a basketball game is real but you don't "own" anything more than if you watched the game on TV or on the internet for that matter.

    Now go from watching the game on the internet to playing a game of basketball on the internet. You pay for the experience and if you want an upgraded version of the experience (better shoes, a ball that goes in the hoop more often) you pay more.

    I think the distinction between real and virtual goods is a false dichotomy. We pay for things which bring us enjoyment whether that's online or in the "real" world.

    Reply
  • "Virtual goods are going to play a huge part in our real economy as the days, months and years drone on. 13% is just the beginning."

    Thanks Mitch for this interesting piece of information. It only shows that there's much money to be made online, if we just know how...

    Jose

    Reply
  • Posted by Armando Alves
    Mitch Joel

    One of the interesting consequences of the rise of virtual goods is their impact on loyalty programs: one of the burdens to marketeer is the marginal cost on point redemption.

    Once you have a big ecosystem based on virtual goods (WoW, Facebook credits, etc) it will become easier to sustain long term loyalty and relationship marketing programs.

    Hopefully it will also push for innovation, with portability between programs. One day we'll be able to trade Habbo credits for Amazon gifts. Or vice versa.

    Reply
  • Mitch Joel

    Aw, this was an incredibly good post. Finding the time and actual effort to
    produce a superb article… but what can I say… I put things off a whole lot and don't seem to get anything
    done.

    Reply
  • Mitch Joel

    Aw, this was an incredibly good post. Finding the time and actual effort to
    produce a superb article… but what can I say… I put things off a whole lot and don't seem to get anything
    done.

    Reply
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