September 2010

Microsoft & Facebook see Real Growth in Virtual Goods

Microsoft & Facebook see Real Growth in Virtual Goods

This month, Facebook, Microsoft and Zynga announced that they will be participating in the 4th annual Virtual Goods Summit, to be held in San Francisco on October 12 and 13. For the last 3 years, the Virtual Goods Summit has been an under-the-radar event with niche companies coming together for a single day to discuss the latest trends and forecasts of the virtual goods economy. But with the market growing from $1.5 billion in 2007 to over $7 billion forecast this year, the event has grown and big business now wants in.

The US virtual goods market will rise to about $2 billion this year, half of which is contributed to online gaming. Korea and China, which had 2009 virtual goods sales revenue of $3.5 - $4 billion, is expected to reach $5.5 billion by 2012. Japan's virtual goods market is also substantial, and now valued at more than $1 billion.

Virtual goods sales in Europe is also developing, with the Finnish company Sulake's online game "Habbo Hotel", drawing 15 million visitors per month. The game has generated revenue of $60 million in 2009, mainly contributed by virtual goods.

For a March 2009 study, SnipClip aggregated revenue data for 15 different virtual worlds, social games, and non-game social apps and found that the average revenue per monthly active user per year of virtual world is $8.04 compared to social games: $3.65 and non-gaming social apps: $0.37. The statistics clearly shows there are about 21.8 million active users of virtual worlds, while social games is down by 6.7 million, leading to 15.1 million active users in a year.

What are Virtual goods?

Virtual goods are non-physical, abstract objects that were popularised by the online social games community. Furcadia is an online role-playing game, where animals speak and walk upon two legs. Started in December 1996, this game can be played for free. Players contribute by purchasing 'Digos' (virtual goods) like different avatars, in-game wings, etc to show support for the game.

Facebook Gifts was started in 2007 to send virtual gifts such as pets, bling, teddy bears, flowers, etc to friends. Facebook gifts are available for $1.00 each, and you can also attach a message with the gift.

Digital gifts such as online birthday cards and flower bouquets are available on Facebook or in the dating sites like Zoosk and Virtual goods takes place as micro-transactions in the form of paying usually $1 to $3 for buying pets, coins, avatars, and bling from the internet. But in one case, Erik Novak, a player, bought "Planet Calypso Virtual Space Station" for $330,000 in the virtual world "Entropia Universe".

Some other online games or sites that sell virtual goods are FarmVille (where users can exchange gifts such as cherry tree, apple tree, chicken. sheep, pig, banana tree, etc among themselves); 2Moons (this online game enables buying swords, sabers, wheels, staffs, etc). The Habbo Hotel offers virtual furniture, pets, etc to its players.

Why Buy Vitual Goods?

Establish identity: Virtual goods play a significant role in establishing your identity in the digital world. In a virtual world for instance, you customise the look and appearance of your avatar indicating your social group/status.

Extra functionality & choice: Just like you buy a new dress when you want to, similarly you buy a virtual dress for your doll when you feel like. Just like while playing an online game, you want to buy extra weapons in order to win the game.

Develop new relationships: While presenting your friend a flower bouquet on his/her birthday, you add a virtual teddy bear with it. Your gesture will really stand out from the rest. Similarly, in Hot Or Not's dating site - MeetMe, many people can send a note to an attractive single at one go, and to be in his favourite list, sending virtual gifts such as flowers, can really make you stand out from the crowd.

Purchasing of virtual goods has proven to be popular across all age groups. Some statistics reveal that the demographic of women between the age of 30-45 purchase virtual goods at higher rate.


Facebook is the current largest social networking website, with more than 500 million active users per month and valued 11.5 billion earlier this year as per SharesPost Inc. reports.

Facebook is the first networking site to introduce virtual currency - Facebook Credits, to purchase low-value virtual goods. Starting this month, Target Corp. customers can buy gift cards to purchase virtual goods.

Facebook's official website says, "Facebook Credits are a virtual currency you can use to buy virtual goods in many games and applications on the Facebook platform". People can purchase Facebook Credits using credit cards, PayPal, Visa, MasterCard or using a mobile phone. They can use the credits for any company willing to participate in the program. Facebook will charge merchants a 30% transaction fee when using their credits. Facebook will use this new source of revenue to further invest into the facebook credit ecosystem, educating users and marketing to them about the currency, testing out incentives to get people to try the credits out.


The software giant has issued 'Microsoft Points' that are currency, players can use to buy content at the Xbox Live Marketplace. Xbox Live's transactions business, including sales of virtual goods like movies and music on the Zune Marketplace, and clothes and accessories for players' avatars, has been steadily growing and recently surpassed its subscriptions business.

In August 19, 2010, Microsoft announced launching a new game in its Freemium Age Of Empires series that will feature online play and in-game micro-transactions. According to Forbes' Oliver Chiang, Microsoft is estimated to be making at least $625 million in revenues a year from sales of virtual goods on Xbox Live.


The growth in virtual goods has risen of the back of social networking sites and games.

The social games industry has seen many acquisitions as small development firms get bought up. Earlier this year Playdom a company creating social games on Facebook, Bebo and MySpace after only operating for just two and a half years was acquired by Disney for 763.2 Million US Dollars. This trend is set to continue.

Social games usually seen on networking sites are now making their way onto games consoles such as 'Pet Society' or 'Who Has The Biggest Brain' where people will be able to buy upgrades.

Microsoft this Christmas is releasing 'Kinect' which offers a controller-free gaming and entertainment experience. Kinect monitors your movement and voice. To play the games it is necessary to create an avatar to represent yourself within whichever virtual realm.

It is becoming a increasing need to have a avatar presence online for gaming, networking and socialising opening up plenty of scope for virtual goods.

In the future, avatars may help in increasing communication and productivity between employees. Companies can use a virtual world to conduct meetings with staff sitting in any country. For example, the US software giant, IBM, has started a virtual IBM Business Center, accessible through 'Second Life' (a popular virtual world started in 2003). According to Gartner, "By the end of 2011, 80% of active internet users and Fortune 500 enterprises will have a second life", in the form of an avatar. It may even become a necessity to purchase virtual clothes!

By Suparna Sen, Smartcard & Identity News


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