Virtual goods sales soar 80% in the last year

Sales of virtual items in social games well outpace ad reveue, according to analytics company Flurry

Creating a game is one thing, making money off of it is another thing altogether. As companies begin to offer options to developers for different ways to make cold hard cash out of their digital domains, one gaping question is left. Which way is the best one to monetize a game with?

Should you rely on ad revenue? Should you be charging for the game itself? Or, should you sell in-game items, and make your money off of a users desire to advance? It is never an easy call, but one analytics company, Flurry, is putting out some new data to factor into your decision-making.

As it turns out, the sales of virtual goods account for more then 80% of iOS (iPhone operating system) apps spending.

This puts it well above revenue generated from advertising. For those of you not familiar with the concept, virtual goods are in-game items, sold by the developer, which help players to advance in the game faster. For example, if you play Farmville, and you want to grow carrots, you will need seeds first. You can spend three hours in the game looking for the seeds, or you can buy the seeds from the shop in the store. The currency in these worlds are known as, in-game credits. Those credits are bought with real life cash. User can pay for credits, either directly on the site, or by buying gift cards.

The study was conducted, with data from a variety of leading iOS social gaming applications, with a combined reach of 2.2 million daily active users. The specific apps studied were not listed in the survey. Judging by the most popular app store games, we can speculate that it included games like Mafia Wars and Farmville (both by Zynga), Undead Live (by Aftershock Innovations), Social City (by Playdom) and m:Vampire (by Fliptrack Inc.).

The study did not include Android-based phones, because these phones do not yet support in-app purchases, which are also known as micro-transactions.

Given the limited nature of this survey, one has to wonder if this model works outside of the iOS environment, or if it translates to other areas of social gaming. As it turns out, it does work outside the magic of iPhone. The sales of virtual goods represent approximately $600 million of sales in 2008, and $1 billion in sales in 2009, according to Michael Pachter, a Wedbush Morgan Securities video game analyst. He also predicts, that sales will grow to more than $4 billion by 2013.

While this data may not be compelling enough to make you use in-game item sales as your only stream of revenue, it should, at least, be enough to make you consider the investment in time and energy that it will take to add the items to your arsenal of monetization.

Flurry did not respond immediately to a request for comment.

(Image from Flurry website and Zynga)