Virtual Goods: the next big business model
Susan Wu
94 comments »
This guest post is written by Susan Wu, a Principal with Charles River Ventures, where she focuses on digital media, software, and infrastructure. Susan is coproducing the Virtual Goods Summit this Friday at Stanford University - most of the companies mentioned below will be presenting.
People spend over $1.5 billion on virtual items every year. Pets, coins, avatars, and bling: these virtual objects are nothing more than a series of digital 1s and 0s stored on a remote database somewhere in the ether. What could possibly possess people to spend real, hard earned cash on ‘objects’ that have no tangible substance?
The virtual worlds space has received tremendous press attention in the last year, fueled in no small part by Wild West stories of fortune and anarchy in worlds like Second Life and the plight of the Chinese gold farmer in World of Warcraft. But people aren’t paying attention to the bigger story. While people preoccupy themselves with mocking the absurdities of some of these virtual worlds, the reality is that there are many businesses out there making meaningful amounts of money in virtual goods:
- Tencent is one of the largest Internet portals in China with over 250 million active user accounts. They generated $100 million+ in Q1 of 2007 and over 65% of their revenue comes from virtual goods.
- Habbo Hotel has over 75 million registered avatars in 29 countries and 90% of their $60 million+ yearly revenue comes from virtual goods.
- Gaia Online does over 50,000 person to person auctions and 1 million message board posts a day- making them the 3rd largest auction site and the 2nd largest message board on the Internet. Their average user consumes 1200 page views a month. They employ 3 people whose sole job it is to open snail mail envelopes full of cash that people send in for virtual goods.
- There’s a commonly held misperception that virtual goods are only for online gamers. Both Dogster and HotorNot are succeeding with a hybrid ad/virtual goods business model. Currently, over 40% of HotorNot’s revenue comes from virtual goods.
- Major mainstream brands are now buying advertising in the form of virtual goods in social networks. Gaians can now purchase and pimp their virtual Scion xBs. Coca Cola and Tencent partnered to allow Tencent’s users to trade codes taken from real Coke cans for virtual objects in the Tencent network. Wangyou, a Chinese based social network, has also been extremely aggressive in experimenting with branded virtual goods.
It seems incomprehensible to many that people would spend so much money on virtual objects. A Techcrunch article on Facebook’s new virtual gifting service was met with jeers:
- “the whole virtual gift via icons idea seems tacky…i just don’t see it”
- “I think if any of my friends knew I paid $1 to post a puppy icon on a friend’s facebook profile, they would quit talking to me… that seems really creepy.”
- “Who buys money for that junk? I feel sorry for anyone who wastes their money on such futile nonsense.”
- [and that was just from the first 16 comments]
So why do people spend real money on virtual objects? There are four major reasons:
Virtual objects aren’t really objects - they’re services
Virtual objects aren’t really objects - they are graphical metaphors for packaging up behaviors that people are already engaging in. As James Hong from HotorNot tells it, his virtual flower service has 3 components: there’s the object itself represented by a graphical flower icon, there’s the gesture of someone sending the flower to their online crush, and finally, there’s the trophy effect of everyone else being able to see that you got a flower. People on HotorNot are paying $10 to send the object of their affection a virtual flower - which is a staggering 3-4x what you might pay for a real flower! Of the 3 components, the two that James says are most important to his users are the trophy effect and the meaning of the gesture itself. As the barriers between peoples’ online and offline selves continue to erode, this market for virtual goods is going to explode. People are going to continue to seek out ways to show real emotional engagement online. Virtual gifts are a particularly compelling way to package your attention.
Virtual objects create real value for people
Each day, thousands of transactions take place via markets such as eBay for virtual swords, currency, or clothing across a multitude of virtual world environments. For people who purchase virtual items such as swords or armor, buying these items increases the overall satisfaction she receives from spending time in this virtual world / online community / online game. For example, struggling along as a level 20 character might give her 20 units of personal satisfaction per hour, whereas progressing as a level 20 character with a very powerful sword could confer 50 units per hour. In this case, she would be willing to pay the equivalent of whatever amount generates an incremental 30 units of personal satisfaction for the sword.
I’m an avid player of multiplayer online games. A couple of years ago, I spent 10 real dollars to buy 1 million gold in a game [yes, it was legal and part of a world where real money trade is not prohibited.] My friends mocked me and told me I was throwing money away, so I tried to explain it to them: 1 million gold would give me 20 hours of entertainment. If I were to go to the movies, 10 real dollars would buy me 2 hours of entertainment. Assuming that 1 hour of movie watching entertainment gives me the same personal satisfaction as 2 hours of game playing enjoyment, I would have been willing to pay $50 in exchange for that 1 million of virtual currency. In fact, I felt like I had gotten a bargain paying only $10!
Probably the most powerful way that virtual objects create real value is through self expression. RockYou is now serving 150 million+ widgets a day - widgets that people put on their Facebook profiles to differentiate themselves - much as they do in the real world with accessories and bling. The US retail market for apparel is ~$300 billion - there’s good reason to believe that people’s strong drive to personalize and differentiate in the real world will proliferate online as well. Widgets are a form of virtual good - though most widget companies are ad supported today, I see widgets fueling a massively distributed microtransaction economy in the not too distant future.
The cost of buying objects can be cheaper than “earning” them
Who hasn’t heard of the Chinese gold farmers in World of Warcraft? Typically, these farmers are young students who spend up to 12-14 hours a day playing the game. They can then sell these goods or characters to US based players for US dollars. The term ‘farming’ refers to the fact that they spend hours performing the same tedious in-game action over and over again to yield a certain payoff. This industry has arisen to take advantage of arbitrage opportunities that result from the disparity in opportunity costs. The Chinese farmers value their time much less than American players. This isn’t a moral statement, it’s just one of economic fact. While it might take both players 60 hours to progress a character up to level 40, the opportunity cost for the American player could be $900 (60 hours * $15/hr,) whereas the opportunity cost for the Chinese player could be $30 (60 hours * $.50/hr). The American player is willing to pay up to $900 for a level 40 character, creating profit opportunities for the Chinese player. [Note to all the flamers: I don't sanction farming in environments where it's clearly prohibited by the game designers. I'm just trying to explain why this makes sense to some of the buyers and sellers.]
You can make money off of virtual objects
Last year we were inundated with stories about Second Life’s first real estate millionaire. Though it might seem ludicrous to spend as much money on a virtual island that you could otherwise use to purchase real acreage in the physical world, the buyer in this case could actually be quite financially savvy. Buying an island in this virtual world is accompanied by the assignation of certain rights - such as mining for other virtual assets and real estate development. The buyer could in turn subdivide the island into multiple parcels and make a healthy return reselling the land to other players. Of course, this type of investment strategy requires market liquidity; that is, a sizeable and willing market of buyers willing to pay your desired price. With the rapid growth in number of players in virtual world environments and burgeoning market infrastructure, market liquidity is likely to increase with time.
I am hosting this event, along with tremendous support from Susan Wu and my sponsors (MDV and Stanford) and think it will be fantastic. I encourage TC readers to come join us for what will be a really exciting day.
The difference between “real goods” and “virtual goods” is the same as the difference between “music on a CD” and “music you can download”. In other words, this isn’t so much new as just the latest terminology used to describe something that the tangible goods world has been struggling with since the rise of the Internet.
We are having a conference in Singapore today and tomorrow (iX Conference, Mike Arrington was invited), and yes much of the talk is about virtual worlds. Cory Ondrejka (Second Life CTO) is a consumate strategist, technologist and indeed theorist on where this is going. But the interest seems to be more on emerging platforms for enterprise applications such as Adobe AIR, Google Gears, Microsoft Silverlight and JavaFX. Maybe ’cause the audience is biased that way, but I see a shift toward more concrete benefits of the cool stuff that can be done.
Mike - Hope you enjoy Supernova and all the ‘young talent’! But you might be preaching to the converted.
“What could possibly possess people to spend real, hard earned cash on ‘objects’ that have no tangible substance?”
First, one has to understand that money isn’t “real,” isn’t “tangible.”
Then it starts to make sense.
“Boldness in business is the first, second, and third thing.”
The only thing that sucks about virtual goods, is that I can’t really just pack up my virtual stuff and leave one community and go to another. Maybe there should be some kind of standards body that creates a unified format for virtual objects and allows them to be ported to many different virtual worlds. Now THAT would protect my investments if I were purchasing virtual goods…which I’m not.
Here in the bay area there is also IMVU (http://www.imvu.com/) which is also an entirely virtual goods based model. Plus the large example of cyworld which is another huge example.
Shannon
Great article. I never though of how big business this virtual goods is.
Thanks for writing!
Good article Susan, an interesting read. I do find it a bit ironic that there is no note that you are a major sponsor of TC20 and that this could be a “thank you” push. Similar to the virgin post last week after they bought some job posts.
This sounds like a mouthpiece article for promoting CRV’s interests.
Yeah most def a medium of promotion of
CRV:
the conference:
and
- all the companies listed.
- Mike what does this type of ad cost? (I know the squares on the right are 10k; that makes this what? 20-30k ?)
Why not, if we live in a virtual world, why not having some virtual belongings?
A special ring in Swordsman Online MMOG in Vietnam sold for $5,000, and could be $8,000 next day, truly potential market.
Has anyone heard of weblo? I did not see them listed as a presenter at the conference. Richard Rosenblatt former Chairman of MySpace is on of its backers.
Smart article. The real question is when we will see a virtual president.
Susan,
Congrats on the summit. Although I won’t be able to attend I’ll leave my thoughts here. The idea of Virtual Goods is attractive but for those who own communities getting an end users to spend even $.10 or any amount for a micro-payment is always a challenge. IMO, virtual goods will be the #1 push for cost per action advertisement. The marriage between these two will be a great revenue source in the social network space.
From a user standpoint there is a clear INSTANT benefit of doing an action in order to pay for a virtual teddy bear. What’s the benefit of me click a Google ad on Myspace currently? Being a social network user myself, the benefit of disclosing my credit card information for $1.00 to send a E-gift isn’t worth it. But when presented with the option of filling out a survey in exchange for an E-gift I’d jump all over it.
From the network standpoint using CPM/CPC ads cannot encourage the users to click ads. This is NOT the case when using cost per action ads. The point is the eCPMs for cost per actions ads are generally much higher as it yields more leads/data. Of course we’ll still need to crack the delivery of the an appealing survey to the end user.
I hope its discussed at the summit but i believe we’ll see a trend of these two strategies used in conjunction with a teaspoon of “news-feed” like features can be very profitable for social networks with little to zero overhead.
-Brian | ProfileLinker.com/Brian
re: conflict of interest.
sheesh, i wish there some more of it with these companies frankly. i wouldn’t mind owning a small piece of most of these companies.
…great post…
…great virtual post…
….GOOD(s) virtual post!
wly
So many level of flaws here. If you’re married to the notion that buying gold from Chinese gold farmers is just economics, then why not tell the game makers themselves to go ahead and create new gold instantly then buy from them, let’s not waste anybody time right, you have what you want, the Chinese students have more time to contribute real stuffs to the real world, isn’t that better economics? Oh, now it’s not fun anymore?
Pimping your avatar or buying people virtual stuffs may give you satisfaction (if you’re lame), but then why charge for them, these things are next to nothing, isn’t that just shady business. Why not give them out for free or a cent a dozen, give these lamers more satisfaction by preventing them from spending more money, then gone broke, extinct and you have no more customers?
Looks like a great conference, and it even has affordable tickets!
susan & charles: congrats on lining up such a great event! apologies i won’t be able to attend since i’ll be up at foo camp, but your post & event prompted me to write up my own post on digital goods:
http://500hats.typepad.com/500.....rtual.html
i totally agree this is a huge space people in silicon valley have been overlooking. good luck with the conf!
- dave mcclure
http://500hats.typepad.com/
Smart article written by an articulate brilliant Harvard (?) MBA!
It would be great if these smart investors and virtual transactors could figure out a way to virtually feed the millions of hungry kids in the world, or help get medicine to ailing 3rd world citizens who have no hope, …..real people with non-virtual (REAL) needs!
Most of this virtual stuff is for the privleged (and we in the US happen to be so and often do not stop and think how lucky we are to be even having this dialog about virtual stuff)…rest of the real world is figuring out ways to just get some real goods.
The world is starting to look more and more like a William Gibson book.
Great article… the best i have ever read on TC.
It really defines the market and motivation behind the target audience.
Thank you
I love the digital products. And there are some newer business models that are new and remind me of lane changes - but consumers will still be driving the same car. The 9THX (http://9thx.com) out of Michigan offers digital collectibles and a platform to buy - sell - trade them.
Think - kids with cell phones and Zapruder Film…..think limited edition (viewings) of upcoming movies.
What is correct about the article is that most of the mainstream media still thinks of it as pimply faced kids playing TombRaider (which was me
)…..but in revenue dollars there are so many mroe business models started - and yet to be started.
Thanks. J.
@sickofit
Give me a break…
Not all of us have enough, some of live from paycheck to paycheck like the rest of the world.
Which is fine with me, I am surviving, just don’t lump us all into your high floatin virtual orgy.
Its easy to fake a click its harder to fake a sale….. Keeping that in mind it might be easier to fake a virtual sale
Find me a active buying online audience and I will find you a network that isn’t anal and between 25-35 and never the twain shall meet outside this golden online sale era.
May the rainmakers of online sale bless your coffers and with the coffers full their is no need for doctors.
I’m in, so long as these companies accept Shrootbucks.
@Kenney:
“let’s not waste anybody time right, you have what you want, the Chinese students have more time to contribute real stuffs to the real world”
I understand your statement, but I think it’s flawed. Let’s try to think ‘out of the box’:
- Why are virtual goods in the virtual world any less real than “real stuffs” in the “real world”?
- Why is spending all your time working for that designer wardrobe or Rolex any less a waste of time than spending all your time working to farm and sell virtual gold?
- Why should is it stupid to spend money on stuff that is ‘untangible’ (i.e. insanely highly priced in comparison to its tangible value), while it is widely accepted to spend money on stuff that is ‘unfunctional’ (i.e. insanely highly priced in comparison to its functional value)?
I play Second Life and it does have potentials. I run into a lot of people running real like businesses inside! Keep an eye on http://www.virtizens.com
-GD
How about virtual currency and the “switchbuc” we have over at SwitchPlanet.com that members pay cash for?
I guess it might not count because you do get a physical good with it.
I don’t know about anyone else, but I don’t work to buy a Rolex. I work to buy food, clothes, and a roof over my head. I’m pretty sure most people work for that reason also. Virtual food will feed no one. It is actually scary that this is such a big market. We need to be living in our REAL lives not virtual ones. Start a business that will help people. That is a noble cause, this is not.
This article is like a poster child for the clueless money grubbing studio-photo headshot VC ass-clowns. It reads like a superficial corporate marketing campaign and has about as much meaning.
I agree that we should prioritize building technologies and products that increase the quality of life for everyone. What still gets me most excited are leapfrog advancements in fundamental technologies in fields like communications, clean tech and life sciences.
Things that change our expectations of what is possible for humanity. Things that help us suffer less, feel more contentment, and help us reach heightened levels of human potential. Frankly, I wouldn’t get excited about my job in venture capital if I didn’t feel like I were contributing to something that was improving the world and opening our eyes to entirely new horizons.
Yes, this article doesn’t address the innumerable things we could be doing in the real world to ameliorate the world’s pain. But that’s not exactly the point of this article. I’m pointing out what the natural evolutionary path looks like in the world of social media. Virtual goods may be a more efficient way of monetizing the time people are already spending in online social environments. It may be a way of fostering more meaningful emotional interactions within online social environments. It may be a way of creating new conversations. Of connecting previously unconnected groups of people. Who knows what is possible? We’re just at the start of it.
People have had a tendency towards lazy consumption for a long time, long before MMOs and social networks. I applaud any technology that transforms our passive, mindless consumption into active participation. I’m not advocating that people reject their real lives and embrace an entirely virtual existence filled with virtual collections of virtual stuff. But probably there is a way to observe what’s occuring naturally, and channel that human behavior into something positive. It’s up to all of us builders to take this raw material and turn it into something sublime.
For the guy who was complaining about the fact that the virtual goods movement is a US-centric problem: if you look closely at what Tencent is up to, which is the #1 Internet portal in China, you will find ample proof that this is a global phenomenon. In fact, given the far lower disposable income levels in China and their relative rate of consumption of virtual goods and services, Tencent/QQ is really quite an interesting story.
Is possible to have 36-70 years old guy to wear Sponage bob underwear ?
Excellent analysis. Hope to see more of your commentary…
Are people running these money schemes really satisfied at the end of the day? (after wasting people’s time on a big scale and receiving $ without providing any real value or service)
I don’t necessarily agree with the comment referring to the sale of virtual goods as “money schemes.” No one is forcing anyone to pay anything. If a user sees some value in a virtual good, they are willing to pay for it - its that simple.
Famesource.com has a virtual currency called “Famebucks” which can either be earned or purchased using a credit card or paypal. Famebucks can be redeemed to “buy” more exposure, or to donate to admired talent. This type of system rewards users who use the sites features, but also provides an easy way to get famebucks if they choose to spend real money.
Allen Vartazarian
Famesource.com
http://www.famesource.com
I agree, web 2.0 initiatives are converting passive web-users into active web-contributors, which in turn helping to make this platform more resourceful. As far as virtual world over web is concerned, I think its just another aspect of entertainment. We spend $10-$15 to watch a movie and at the end what really we take home? Its essentially the cost paid for that limited hour entertainment and same is the case with virtual world.
@ThisIsAJoke:
Come on, the Rolex served just as an extreme example and you know it. Now open your fridge and take a look at the Coca Cola and the Budweiser? No way that the price you paid for those relates in any way to its functional value. A lot of the value you purchased is imaginary. And Coca Cola and Budweiser have “wasted” zillions of dollars and decades to create that imaginary value. And I don’t think that’s wrong. People are not rational creatures. For the same reason we shouldn’t too easily classify the concept of virtual goods as ’stupid’.
@Susan Wu:
I don’t think your original post reads like a “superficial corporate marketing campaign”, but your comment does. Please stop making excuses.
This look’s like the right time to set up my two domain names http://www.bazaah.com and http://www.bazah.com as virtual auction sites or to sell the domain names.
“This sounds like a mouthpiece article for promoting CRV’s interests.”
No kidding, shameless plugs. C’mon Arrington, this is starting to get ridiculous.
can i get some of this Virtual Sanity, where highly paid ‘princiipals’ take this topic seriously..
maybe i’l buy a $5 avatar to stand out from the other haters a bit more..
not publishing the comment i submitted this morning about virtual goods being completely absurd with half of the world living on less than two dollars a day - you just lost a reader/subscriber. i have read your blog for months now.. but that’s just lame and one-sided to ignore opinionated comments that aren’t agreeable with your own. adios.
I have been actively involved in the Virtual goods and services market since 1999 where I started selling Everquest Platinum on Ebay, now I am the owner and CEO of http://www.mogs.com. We have seen much growth in this market and the potential is endless, however there are many misconceptions that are found all over the net about the gold farmer, about the concepts behind a lot of what goes on in the industry.
Currently in the MMO market there is a constant battle between game developer and seller which usually ends in mass account bannings. These could cost a company such as Mogs tens of thousands of dollars of lost product in a day. I wonder when there will actually be discussion about that side of the industry, about the companies like mine that are providing a service that makes peoples experience in the game enjoyable, we keep the players playing. Yet the developers insist on battling the market and what I consider stealing money from us. If it wasn’t for our market these game companies would see a significant amount of people leave their games because the players just don’t have the time or patience to sit around and grind out levels or farm gold. Some players as well as developers will say that that the game was not meant to have this sort of activity go on. But who is it really meant for? If I enjoy playing WoW and use it as an escape from the day to day madness, almost like therapy yet I don’t have the time like my in game friends to spend on it then I should have the right to be able to play the game how I want to play it. If that includes buying Powerleveling or Gold than that is how the game was meant to be played by me. Really when you step back and think about it Blizzard is just looking at this as a payday, they know they will not get rid of the RMT market and the China gold farm. They also know that every time they ban a “farmer” that same person will buy another cdkey. Is that right? I don’t think so! Talk about Plight of the Chinese farmer, Blizzard is the biggest cause putting many of the Chinese production companies out of business and the workers back on the streets in China. I know people will argue that our market breaks the EULA of these games however this is a consumer driven market, if the demand was not there this market would not exist.
Hayden
Massive Online Gaming Sales
http://www.mogs.com
@Sickofit
It’s not really stuff for the privileged. Virtual goods have been prevalent in Korea’s online economy since 2000. With companies such as NHN (Hangame), Nexon, Cyworld (SK Telecom) and others that led the way and created the trend in throughout Asia.
The micro-pricing model that these companies learned to develop allows for price sensitivity to the consumer. Online powers, items and services range from 30 cents to $1. So some people might spend a few dollars a month while others spend $10, $50 or more.
Great example is the success of Nexon’s MapleStory in North America. Almost no marketing but within a year they are generating $1.5 million/month. This is something that U.S. companies never understood or executed on: micropayments. I believe the average user of MapleStory spends $15-$20/month. If they went the way of Pogo.com or other U.S. online ventures, they would have charged a subscription of $9.99 or more AND would have lost their tremendous growth and left a lot of money on the table.
Anyway, virtual goods will grow in the U.S. too, but I believe it will be the ones that create the right pricing models that will distance themselves from the pack… of course assuming all services are created equal
Thank you for a fine column… however, I think you have fallen into the trap of separating the “real” world from the “virtual” world and real items from virtual items. Giving someone a real flower is no different from giving someone a virtual flower - it has all of the attributes that you describe either way (though most virtual flowers don’t wilt). The entire article is true if you simply delete the word “virtual”. One could make comparable arguments about how “real” the work many people do grinding away in their cubicles every day…
Online games / virtual worlds are entertainment services. There is no shame in that, but no great cosmic meaning in them either.
I would suspect that your numbers underestimate the virtual asset purchase business model, at least from what I have seen in Asia and the fact that many businesses are not on VC radar screens.
What about Magic: The Gathering Online, etc.?
I would guess that we may be talking as much as $3 Billion if you included the unsanctioned gold farming business worldwide.
By the way, the more interesting millionaires are the real millionaires that run some gold farming enterprises.
Anyone know of any white-label virtual goods engines? If I could grab one and plug it into my Ning-powered social network, for a rev share (even three way between me, Ning and virtual good providor) that would rock.
Quite a thoughtful article - even considering the plugs for the conference and investees.
Reactions like “virtual items are so ridiculous” are utterly entertaining as the debate is over: people are buying them, full stop.
I find very surprising that no comment is given about Cyworld (the Korean version) as this super-advanced SNS (I am talking about the Korean version) makes over 70 mln USD with digital goods. How come they are not at the conference?
I had the chance to join another in Japan a month ago where the founder of Cyworld did a speech about the future of Internet, explaining how Internet could be used not only for entertainment but also for meaningful things, gradually re-engineering ‘offline’ social processes.
The whole digital scene today is largely turning users into digital addicts (MMORPGs are a very good example of this) with no purpose but entertainment. Second Life is now seen by many as a repository for the sexually frustrated.
What about meaning? What about offering more responsible environments?
Some of the latest ‘themed’ virtual worlds like Doppleganger seem to head in that direction, but it still feels limited.
I wouldn’t be surprised if the next wave was coming from Korea.
(just like Korean MMORPG and Cyworld-like virtual goods took Asia by storm).
I manage Ravenglass, the largest mainland rentals business in Second Life. It seemed curious to me that you didn’t mention the $1.5-$2 million US dollar turnover per day claimed in Second Life inworld. Perhaps you found that number inflated (it would be good to get your analysis of it after you saw the economic statistics pages) but even if it is only half that, it’s a significant amount — and that of course is a separate issue from the company Linden Lab’s revenue from selling thousands of simulators of land or islands, and then charging monthly maintenance fees. Maybe you felt a corrective was in order since so much press coverage does accrue to SL already, so that people see that other spaces and worlds have huge amounts of turnover and revenue?
I think there is still something important missing from your lists of reasons for “why the virtual life”. It’s not just some little trophy or badge, some picture hanging up in your highschool locker, some little service decorating your webpage or a means to make money. In an immersive, interactive virtual world, as distinct from a social website, there is a deep kind of communication and creativity that people often don’t achieve in real life for all kinds of reasons. So the relationships they form and the buildings and activity they create have a different kind of resonance that is really compelling. It’s not passive entertainment, it’s more about living, even though of course you are seated at your computer.
The fact is, while people may scorn and judge this, more and people people find it compelling enough simply to enter into these worlds, stay, live, spend. So companies are coming in right after them. Perhaps in the future it will be looked upon as some amazine folie à plusieurs. Yet I am convinced that in just a few years many people especially in developed urban centers will have avatars and worlds that they co-create and inhabit not only for fun but for work and school, too.
This is a really cool article.
The person in effect is the same, whether he is online, or in the “real” world. The guy punching in code, or using internet to buy goods, is also “virtually” buying goods, or a dude deep into “Instant Messaging” is also virtually communicating with the other person.
There is a emotional and a psychological quotient to it, which gets satisfied or met when a person is able to “reach out” irrespective of the medium to the world or an individual.
The technologies now, are helping the person touch the EQ, his subconscious and are powerfully able to alter his mood, (i.e .make him happy, sad, angry etc)… Does’nt this mean, the new social medium is here to stay?
The lifestyles, “time to live” is metamorhping into a fast one. Most of the work is getting done out of computers hooked to the net. The time spent on the internet is increasing. Of course, if a person is trying to use that time as “effective time” , what wrong is he doing? If virtual goods are helping him leverage his time, i think its cool..
If a guy is able to give a “v-rose” to his date, parallely watching her photo/video, has’nt he achieved the same amount of emotional belonging with her?
think about it guys… Susan is right!
~ The Sharp…
Outstanding article, second only to the phenomenon itself. We are witnessing a new commercial platform emerge before our eyes. It’s not unfair to be cynical - this is clearly motivated/encouraged by some clever tech-marketers, but this doesn’t change the fact that demand exists and will grow.
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I find it curious that someone would choose this particular article to complain about not “helping the worlds suffering” enough. I just looked through today’s articles on Techcrunch and this complaint could have been placed on any one of the posts.
The comment seems so broad as to be absurd — everyone who has not dedicated their life to a thin slice of what he terms “valuable” should be damned. Which I would imagine includes 90% of everyone, including web designers, postman, movie directors, hotel desk clerks, etc etc etc.
The reason that virtual goods are working is because a broad set of people in today’s population indeed find them VERY valuable. As people’s relationships are moving online they are also being strengthened — which I would argue is a very positive force that counters the isolationism of television.
All that is happening is the desire for the same types of social currency that they use in the real world (what makes everything from Gucci to the iPod more desirable) is moving online as their relationships do. If that correlation means they are getting real social value in their lives from the Internet, I would contend we are all in better shape or it.
Susan - great post. I share your bullishness on the virtual economy, though I’m not entirely sure what’s more exciting: the niche of MMO or the mainstream of social networks. My hypothesis is the latter is the bigger opportunity and will be lighter on virtual goods and the former is a smaller though powerful opportunity which will be heavier on virtual goods. At some point perhaps the MMO will tip and become mainstream.
Inspired by your thoughts, I wrote a blog post here: http://www.dailycilantro.com/d.....l-dev.html
Bummed to miss the conference, though I may be able to catch the tail end.
Cheers, andy
http://www.dailycilantro.com
Susan, let’s morph this virtual world phenomenon into a truly real-world social benefit.
One commenter asks why we misdirect and frivolously squander our money on self-gratification when their are starving children in this world. There are ways to redirect these “squanderers” into real reality by putting these starving children into virtual realities.
I challenge the Virtual Goods Summit exhibitors to create avatars of, say, Miranda, the starving 12 year old girl in Nigeria and put her up for adoption in the virtual world. The adopter would lead Miranda through a virtual world where there are living costs, education costs, etc. Most of the virtual moneys spent would convert to real money and go to the real Miranda. The adopter would realize benefits through a sense of pride as her virtual Miranda ascends the virtual ladder of a virtual civilization.
Meanwhile, the plight and, hopefully, progress of the real Miranda could be documented and presented in a newly created social networking site with cross-benefits to both worlds. Thus, the real game player could proudly show the real Miranda to friends via YouTube on an iPhone while enjoying their Frappaccinos. The new site would generate revenue to further this philanthropy.
This is just another way to extract hard earned money from brainwashed sheep. Nice work. It is not advancement of the human race, but the dehumanization of it. Don’t play us for stupid. We know that everything around us is an attempt to make a fast buck off of us. It has nothing to do with the bettering of or advancement of civilization. Technology and commerce’s sole intent is to make the founders and shareholders filthy rich. That’s it and nothing more. You can rationalize about this all you want, but one day when the masses have become mind-numbed robots who hand over all their hard earned money to those who have brainwashed them… wait… that day has already arrived. How pathetic…
Congratulations! You have officially arrived at the conversations people were having at GDC 2004. I guess reading power points for 6 months makes everyone an expert. Back to the future, all over again.
Actually,
Virtual 3d objects that can work cross platform and move across 3d worlds have been done for over a decade.
Beware the one year metaverse Second Life experts:) and good luck in your many empty Miami Condos on Second Life islands–;)
And Funny How PAYPAL the largest VR money “game” on the net DOES NOT back up “OTHER” v currrencies such as lindens or WOW gold when a seller is scammed and ripped. BUT they certainly TAKE each listing and FEE from the Seller and offer no first warning about not valueing these other v currencies as actual value….
sounds like one large tulip to me….
Welcome to the Future.
David Crellen, that’s a mindblowing idea! Kind of like augmented tamagotchi. I know that description will horrify some people but what I mean is that your idea can make ’sponsorship’ of a child so much more real and tangible that it currently is. Which can only be a good thing IMHO. Wow, amazing food for thought.
Virtual goods are no new concept. Virtual just means that something is composed of information instead of mater. Being virtual does not make an object un-real. Movies are virtual and no one is shocked that people spend $10+ to watch one. Music is virtual; it is composed of information, whether it’s on a CD or your hard-drive. Books are virtual (It is the information, not the paper that is significant). How is it different if you and a friend have a conversation in the same room, over the phone or in World of Warcraft? Is you conversation “fake” because if happened over the internet?
What is so shocking is that pricing no longer takes into account cost of production. Normally the price is some compromise between cost to produce and value to the consumer. My bicycle gives me a thousand+ dollars worth of value but only cost 1 or 2 hundred to produce (this number is just a guess) so I paid $330 for it. The company made a nice profit and I got a good value for my dollars. I would not have paid a thousand dollars for it because it costs so much less than that to produce. If any particular store charged that they would go out of business because another store would open with a cheaper price. For a virtual rose the cost of production is approximately $0. Some people get a $10 value from it (as evidenced by their willingness to pay), but they should not be willing to pay $10. The problem is that no other company is allowed to compete. This is monopolizing pure and simple, which is in general considered a bad thing.
Pricing is tricky with virtual items because the marginal cost of production (the cost of making another copy) is about $0, but the initial cost can be very high. Movies cost millions to make, but nothing to let another person see it. There is still a compromise that allows the movie company to turn a good profit without resorting to monopolization
As consumers we should band together and refuse to pay such prices. If we do, we will get the same virtual goods for 1/100th the price (they will make them so long as they are profitable).
Brian:
“The idea of Virtual Goods is attractive but for those who own communities getting an end users to spend even $.10 or any amount for a micro-payment is always a challenge. IMO, virtual goods will be the #1 push for cost per action advertisement. The marriage between these two will be a great revenue source in the social network space.”
Mobagatown is a popular, for mobile only, SNS site here in Japan. They are running slick ad. campaigns as well as selling virtual goods for hard cash or points (mobagold) earned. Clearly it need not be an either/or offering - imho - but the real value will come from gathering quality user profile info. to bundle targeted ad. campaigns going forward.. interesting times.
5 Million Users - 10 Billion PV per month
http://wirelesswatch.jp/2007/0.....-campaign/
Great event theme Susan.. wish I could attend!
Me and a friend once had a pipedream of writing a virtual avatars system for mobile phones. The avatars would interact with each other over bluetooth as you wandered around. Your avatars would make friends, and then introduce their owners to each other.
For this to work, you’d have to buy the avatar badges and clothes [technically they'd be digital certs] for 10-50c to give it an identity. It would be a form of social signalling. If we’ve both bought 30c KillBill badges, our avatars will find something in commons and socialise. It’s the cost that makes it work - otherwise you’d just get hacked avatar that had everything!
All this stuff seems to be so much more advanced in Asia though… maybe someones already doing it?
Although I’m skeptical of any attempt to roadmap a virtual good market evolution based on trivial successes like hotornot virtual flowers or “million dollar homepage” type concepts, the reality is that once a technology is cheap, reliable and widely embraced, consumers will often pay for additional stylistic layers on that technology. Contemporary examples include things like consumer electronics, clothing, luxury automobiles, etc. In that sense I I disagree with Ms. Wu’s assertion that virtual goods are, at core, services - rather, I believe that the examples she cites are largely ornaments that adorn existing utility. Non-game virtual worlds, avatar services do not (yet) offer much more of a compelling communication experience than text or voice — at best, they stand beside it and pretty it up a little. So I’d argue that the way to view the popularity of virtual items