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Real Profits From Virtual Goods
 

Real Profits From Virtual Goods

Reporter ,  10-Nov-09

Ever hear the term “Money for Nothing?” Well, if the start-ups selling virtual gifts on online game programs like Mafia Wars and the like are to be believed, the expression has come true. Companies like Zynga, Playfish and Playdom, three online gaming companies, are reporting revenues from the sale of virtual gift items, which are in reality nothing but a few pixels on your screen. The trend has been catching on in the past year or so, with people buying virtual items online to get ahead in a game or to gift something to friends on their social media network.

Venture capital companies are getting in on the action big time, for as the spokesperson for one such company says, “What you’re selling has a one hundred per cent markup. Almost zero in cost, they’re pure profit and cost nothing to reproduce”.  Ready for a shocker? The virtual goods industry has been valued at $1 billion in the US this year, and over $5 billion worldwide. This is expected to grow at a rate of over 300% for the next two years at least.

Social networks like Facebook and apps on the iPhone are the two most common locations where virtual gifts are to be found. Players engage in a number of games on Facebook such as virtual flower patches, virtual gangland wars and the like. To progress, each player has to build up his or her resources. This is done by reciprocating gifts, adding new members and buying stuff in return for access to online advertising. This form of virtual trading has been a rage for decades in places like Japan, and is now fast catching up in the rest of the world. And those tapping into the trends are laughing their way to the bank.

The revenue model is very simple: create a gaming world centered on a theme, let people get addicted and offer merchandise for sale that will allow them to play faster. Usually the players have to pay real cash for the currency of the game which could be in the form of points or items. Legitimate forms of cheating according to those that play the games for the sheer fun. Currently, according to usage figures, only around 3 per cent of those playing the games actually buy stuff online, but the numbers are growing and the virtual cash counters are setting up a din.

So if you’re playing Mafia Wars, just waiting to buy that RPG gun, think about the millions waiting to be made…

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