Ronnie05's Blog

The Real Money in Virtual Goods

Posted in Gaming by Manas Ganguly on December 1, 2010

Here’s some trend spotting on Virtual Goods and an assessment of the market for Virtual Goods
1.According to market-research firm In-Stat, revenue from sale of virtual goods is expected to touch $7.3billion in 2010. This figure exceeds estimates from many leading research and investment banking firms, and is in large part tied to the overwhelming success and growth of social games.
2.Juniper research puts the revenue figure from virtual goods to surpass $11 billion by 2015. By 2012, it predicts virtual good sales to surpass the traditional pay-per-download model for game monetization.
3.Another research by Flurry show in-game item sales rising by 80%
4.Zynga’s makes money on Virtual Goods and Ad revenues. Zynga currently has 360+ million monthly active users, and the company was valued at $5 billion in April of this year. Other companies, like Gaia, sell as much as $1 million a month in virtual items.
5.Inside network, another analytics estimates that the market for Virtual goods in US will jump to $2.1 billion in 2011 from $1.6 billion in 2010 and $1.1 billion in 2009.
6.Research reports from Live Gamer and DFC intelligence reveals that 60% of all gamers have purchased virtual goods. Among gamers surveyed 88% had purchased digital content before.This leads credence to the theory that most gamers are now comfortable with the idea of purchasing virtual goods

At this market level, virtual goods have evolved into a major revenue stream from the media and entertainment industry. As consumers spend more of their leisure time online, Virtual Goods are reaping the benefit and becoming a key aspect of lifestyle spending. Accordingly to Nielsen, U.S. consumers already spend a higher share of wallet on game content –of which VGs are a key part – than on print media, premium TV packages, movie rentals, and music.

A key factor in the growth of VGs is the explosive phenomenon of social games—games that are integrated into social networks such as Facebook. Nearly half of Facebook’s over 600 million users play social games. This mass-market success creates an excellent opportunity for publishers and marketers to create a free and diverse market—much to the benefit of both distributors and end-users.

Within this environment, marketers must master a new task: using virtual goods as the carrier for powerful, viral brand messages. Branded virtual goods can work as well as the best word-of-mouth marketing, but they also give the player the control to engage with, reject, or ignore the message. Here, we find a vehicle for extending reach into new markets and for crafting brand messages that are woven into the fabric of user’s social activities. Compared to context specificity of branding/marketing messages in social games, Virtual Goods have the advantage of being context specific already and hence marketers no longer need to look at context. They would need to focus on just the message and how it links up to the medium, the virtual product it is embedded in.

With VGs today, the market for branded goods represents a small, yet growing force and conservative forecasts put the BVGs (branded virtual goods) at $150 million in 2013, with annual revenues of $318 million by 2015. This growth in VGs and BVGs reflects significant strength in the business models of social games. Likewise, it promotes increased control by players-as-consumers.

A few real-life examples of brand orientation being integrated into social gaming:
• FarmVille is teaming up with both McDonalds (offering in-game VGs) and 7-Eleven (branding realbananas in stores)
• “Chocolatier: Sweet Society” is a Facebook game by PlayFirst with a premise of becoming an artisanal chocolatier in San Francisco. For the holiday season, PlayFirst is partnering with Charles Chocolates (a San Francisco-based chocolate company) to offer physical production of chocolates from the game.
• “Retail Therapy” is Facebook game created by the publishers of PopSugar, a popular blog featuring celebrity gossip and entertainment news. The game allows players to create a fashion boutique that sells branded virtual goods from top tier fashion brands such as French Connection and Diane von Furstenberg.
• Mertado’s Embedded Shops appear in social games and allow players to make a purchase of clothing and related items on Mertado.
• Zynga has offered branded virtual goods on behalf of Haitian hurricane victims.

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