Not a day passes without some news about the fantastic growth in the virtual goods business. To the uninitiated, buying a digital nothing for real money seems beyond absurd. News of Zynga’s over the top billion dollar valuation, all based on their mastery of virtual goods sales or China’s Tencent, the largest global seller of virtual goods doing billions a quarter in sales seems mind boggling. But once you understand the who, what, and why of this industry, the mystery fades and a real business model is revealed.
In an attempt to justify this, much is made to show that many “traditional” digital consumables are virtual goods: movies, downloadable music, even digital news subscriptions. But all these examples fail to understand what we really mean by talking of virtual goods in a gaming sense, and why anyone would buy them. Being above a certain age does not help in seeing the value and purpose, but for arguments sake pretend that you are either a teenage boy whose nexus of entertainment revolves around the immersive games you play, OR you are a 30 something stay at home mom with a little extra time on your hands. In both cases you play games, albeit for different reasons and in different ways, but the games you play are built around a core game mechanic that challenges you to “level up” and enables you to do so faster by buying virtual goods. So fundamental to the game play are these virtual goods, and so cheap, that you dismiss the notion that it’s money for nothing and instead open your wallet. The real game mechanics and sales drivers employed are sophisticated psychological levers that reward you for buying the items and incentivize you to spread the word, through viral channels, to share the ‘news’ of your purchase.
To the buyers of these items, it’s not money for nothing. Rather these items are the small price you pay to play the game and advance in the ranks. What’s the alternative- look at ads? That’s for dummies. There is a solid, legitimate, and fast growing business in virtual goods. The salivate inducing margins aside, the business of virtual goods has enabled small developers to turn big profits. I predict (along with almost every other analyst) amazing growth over the next 3-5 years and this is just the start.
Let’s get together April 4 to discuss this in greater depth, understand the subset of virtual goods: branded virtual goods, and learn about the underlying business of this new industry.
- Brett Orlanski, Vice President, Business Development, Virtual Greats
Hear more from Brett Orlanski and Virtual Greats at “Branded Virtual Goods: Unlocking Value and Making Real Money from Your IP in a Fast Growing Social Media Marketplace,” part of the SOCIAL GAMING track at the Social Media & Communities 2.0 conference on April 4th, 2011. Register now.