Now in a website near you: the most delicious-looking apples, waxed to perfection; Polo t-shirts, branded with glittering golden thread; a replica of Snoop Dog’s favorite dog. Show off the apple on your Facebook profile, dress your digital avatar with the Polo shirt, and add the pet to your website.
Unlike their real world counterparts, these products are classified as “virtual good”. They are non-physical — and thus intangible — objects that can be purchased with real money for use online. Don’t laugh in disbelief just yet; according to research, the virtual goods market will reach $2.1 billion in 2011 in the US alone. That’s $2.1 billion real darn money spent on… nothing. Zilch. Nada.
Virtual goods were created for usage in multiplayer, online role-playing games (MMORPGs) like Second World and Entropia, which started becoming popular around 2003. MMORPGs are 3D virtual worlds where users can create their own digital identities using customizable avatars, and then engage in a stream of activities including meeting, interacting, playing, building, dating, buying and selling. Virtual buying behavior on these platforms mimics that of the real world; users consume items that signal their identities. Second Life, for example, has it’s very own store that enables players to buy branded goods in different forms like clothing, furniture, and accessories. The store’s welcome message: “Change your shoes or outfit as often as you change your mind. Here, the selection is as endless as your imagination. And it’s always in your size.”
T-shirts and couches are not the only items that users are buying and selling, there is a lot of business revolving around property. What else? After all, these avatars need a place to live. In 2004, a man named David Storey paid $26,500 for Amethera Treasure Island, an island in the virtual universe “Entropia”. At the time, it was the highest price ever paid for a virtual item. Today, Storey runs a million-dollar empire, and says that the taxes that other players spend to “explore” his land or to “rent property” on it bring in more than $100,000 in real money per year.
That’s crazy, isn’t it? Fortunately, the MMORPG virtual goods craze remains secluded to the hard-core users. The real mass appeal of virtual goods came a few years ago, with the mind-blowing popularity of social networking sites like Facebook, and the even more mind-blowing popularity of social networking games like Farmville and Pet Society.
Farmville is a free game that attracts over 60 million players. It assigns each user a plot of land for farming with the option to plant crops and trees, expand plot, as well as raise livestock. The brilliance of Farmville comes in the fact that it lets players use micropayments to speed up their progress; they need coins to buy seeds, farmhouses, horses, decorations, tools, and even fuel. While coins can be made without any real money being invested, many users are taking their credit cards out in order to increase their farms’ productivity and beat their Facebook friends. With over 60 million users, the prospect of how Farmville cash can change the way entrepreneurs think of virtual goods is fascinating. If a measly 2% of Farmville’s 60 million gamers decide to spend one dollar’s worth of fuel for their farms, Farmville’s creators will instantly make $1,200,000.
Offline use of virtual goods is also starting to take off. H&M, a popular clothing chain in Europe, is experimenting with bundling virtual goods with location-based services like Four Square and Gowalla, where users can “check-in” using a GPS or wi-fi enabled mobile device when they are in specific locations like a restaurant or a shop. In the H&M model, a virtual item such as a skirt would appear whenever a player is near an H&M location. If they check-in, they’ll get discounts and promotions for real goods on sale.
The current explosion of digital technology is profoundly changing the way we live, communicate, and identify ourselves. Already, it’s pretty clear that our behavior as consumers is changing as the lines blur even further between what is virtual and what is real. Big corporations are reacting fast to these behavioral changes. Facebook rolled out its own currency, dubbed Facebook Credit, to allow users to easily buy virtual goods. This credit is not only available on their website, but in real-life supermarkets like Wal-Mart.
Don’t be surprised if you soon hear: “Coming soon to a website near you: virtual bottled water. Solving the water crisis one pixel at a time.”
Originally published in Venture magazine
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