Virtual Goods represent a viable business

By: ispeculatornew
Date posted: 02.25.2011 (6:00 am) | Write a Comment  (5 Comments)

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It’s easy to overlook just how much virtual goods are being bought and sold and the growing impact these are having on the real economy. What are virtual goods? If you are a gamer, this would be obvious but bear with me here because for a very large portion of the population, virtual goods brings up big questions marks. In the past, I’ve discussed some of the games from a company named Zynga such as Farmville. In this game, users spend time to build their virtual farms, raise animals and improve the general look & productivity of whatever happens on the farm. Spending time is always a great help but what if you could “speed up” things by buying “virtual farming equipment”, virtual land or other goods? That is exactly what has been happening in Farmville and in hundreds of other games.

Yes it is becoming mainstream

I saw an interesting chart on Twitter the other day which detailed the “top grossing” applications in the Itunes store. Take a look and you will notice that 3 of the top 4 at that time are actually free applications!! How? Because users start playing, and become so involved that they decide to make virtual good purchases to further themselves. This is very much a real business.

What is being purchased?

You  can see a very interesting breakdown from Sillicon Valley Insider here:

Investing in virtual goods?

One thing that is not entirely clear yet is how to profit as most of the companies involved remain private. Zynga is scheduled to become public later this year and will become a great play although it will be interesting to see how expensive the company will be trading. One interesting play would be Ebay (EBAY) as its Paypal payments units has been putting a lot of energy and resources on micropayments for virtual goods among other things. The big danger for Paypal is that both Apple and Facebook are putting a lot of energy on making their applications go through their own payment systems instead of alternatives like Paypal to collect a share on the payments. The one place where Paypal remains well positioned is on Google’s Android.

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5 Comments

  1. Comment by Catarina — February 25, 2011 @ 1:36 pm

    I AM A BIG FAN OF VIRTUAL GOODS!! I will definitely check out these free games. I’m now playing with ZOMBIE CAFE and WE FARM.

    A great strategy for those companies is to give FREE toxin or gro or gold in reward to you to download their other applications (way to promote them)!!

  2. Comment by IS — February 26, 2011 @ 2:55 pm

    @Catarina – True but do you think giving away such free virtual items helps them sell more later on?

  3. Comment by Catarina — February 28, 2011 @ 7:26 am

    I think so, you get kind of addicted to the game. Free virtual items give you the incentives to stay in the game. Eventually, paying a little will not change anything if you are having lot of fun 🙂

  4. Comment by Austerity Bill — February 28, 2011 @ 2:08 pm

    I would like to look into developing an app, but they are so expensive to create. Do you have any suggestions?

  5. Comment by IS — February 28, 2011 @ 7:35 pm

    @Catarina – LOL… yes I guess!

    @Austerity Bill – there are all kinds of budgets that are possible, what kind of app exactly?

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