Three Trends To Follow in the Virtual Goods Space

Virtual goods have been all over the digital media space of late – more than usual. We can certainly confirm a big uptick in the interest we’ve received here at Doubloon about how to use market data to make better virtual goods pricing and marketing decisions. We’ve come a long way from the original indications that virtual goods are a viable way to grow revenues and engagement back in 2007. Today, indications that the hot item next Christmas may not even have a physical form at all and that governments are placing restrictions on minors buying virtual goods. If that’s not mainstream, I don’t know what is.

Amongst all the coverage, three key trends seem to stand out:

One stream of revenue among many

Who do we think of when we think of virtual goods? Mostly, Playdom, Crowdstar, and Zynga, whose Farmville raked in $145M in 2009. But there’s a much larger player in the virtual goods space who has kept a low profile. Thanks to its approximately 10 million Xbox Live Gold level subscribers, Microsoft has earned an estimated $625 million in virtual goods. Live subscribers typically buy shiny new gear for their avatars with all that virtual coinage. Microsoft isn’t the only player in the space betting big on virtual goods: competitors PlayStation and Nintendo are as well, with Nintendo also requesting dollars for Nintendo Points, while Playstation only accepts real world money (also a viable model if done correctly – some Doubloon customers do the same).

This multiple stream of revenue model isn’t new – think about your experience at movie theaters. Bought the movie ticket for you and your date? Great, how about some popcorn, a drink or milk duds too? The premium console guys have done a terrific job of realizing that multiple streams of revenue, including virtual goods transactions, are a great way to mitigate risk.

And just wait until virtual goods includes buying tokens to see a movie online. It’s already here – and Microsoft has been inking lots of content deals of late.

Motion Controls Tip the Scales Further

There’s ultimately two reasons why players buy virtual goods – to obtain a game play advantage, or because of a sense of ownership of one’s avatar in- game (and the associated social benefits). Now consider how that sense of ownership is strengthened by the big story at this year’s E3 gaming conference:

Nintendo’s strategy has been to differentiate the Wii platform with motion detection, proving the uptake in the casual games market rather convincingly. Sony now followed suit with Move, and Microsoft upped the ante by removing the hand held controller altogether with Kinect. Touch-based tablet computers removed mouse the abstraction layer and opened up computing to people like my mom. The logic here thus is simple: if motion controlled games do the same, you’ve got a bigger market. And bigger market plus a stronger sense of avatar ownership should lead to a marked uptick in virtual goods sales. We’ll be blogging about this far more on this in future months as we continue to track market movement in the motion controlled era.

Small time no longer

Virtual goods have been historically a great way to build a big player base by removing barriers to entry (such as subscriptions). The trick was to balance out revenues and eek out a solid profit stream by making virtual goods games simple and low cost to develop. That’s beginning to change and social games are beginning to think about player crafted items, and player to player transactions. In other words, something coming close to real virtual goods economies. Per coverage on news blog Techcrunch (emphasis added):

“Zynga spent more money developing FrontierVille than any other game so far. It lets players interact with their friends’ game boards, increasing the social aspect of the game beyond simply buying someone a virtual gift…. Pincus believes there is a huge opportunity in pumping up the social aspects across all of his games. In Farmville, for instance, Zynga recently turned on a new farmer’s market feature where players can sell their produce. Up next will be craft fairs, which will allow different players to specialize in different skills such as wine making or energy production.

In other words, Farmville and other Zynga games will behave more like virtual economies, with trade centered around specialization. And where there is trade and markets there are more social interactions, just like in the real world.”

Or put another way, some publishers are racing to develop the next ebay of virtual goods. One of the reason our clients are excited about our company’s platform is that the capabilities for smaller publishers are already baked in and ready to publish.

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This entry was published on June 23, 2010 at 1:49 PM. It’s filed under Uncategorized and tagged , , , , , , , , . Bookmark the permalink. Follow any comments here with the RSS feed for this post.

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