Jeremy Liew has a great piece in the WSJ about the central mystery of businesses that make money selling virtual goods:
Jeremy's
argument is a good one, and I'm glad to see it being advanced in such a
high-profile way. Having had a number of years to try and answer this
question at cocktail parties and social gatherings of all kinds, I
thought I'd try and expand on his framework a little, and then try and
use these answers to help make suggestions for those who are trying to
get people to buy virtual goods. Let me start by trying to convince you
that, no matter who you are, you already buy virtual goods.
My
goal, when talking to people who are new to the virtual worlds concept,
is to convince them that they already buy virtual goods. This is always
true, because modern economies have become increasingly virtual over
the years. Why do Citizens of Humanity jeans
cost $200,
when physically similar pants can be had for one-tenth the price? The
same is true of brand-name products in almost every category (and it
can be
measured).
Brands are so pervasive that even those people who want to make a
statement against it (do you build all your own software from source?)
have to invest substantial time avoiding it, which is just another kind
of premium. (Ironically, one of the best sources for insight on this
phenomenon is Naomi Klein's anti-corporate manifesto
No Logo.)
My
point is not just that brands are a form of virtual goods, although
that's true. Beyond their brand, I want to argue that every product
contains both tangible and intangible sources of value, and that
everything you buy has at least some "virtual goods" component. By
recognizing these components, we can make better sense of what's going
on in the online virtual goods market, and craft strategies that
leverage people's pre-existing experience with virtual goods. This is
why brand-based virtual goods have worked so well online. Paying a
premium for a branded pair of virtual jeans is actually a pretty
similar experience for most customers.
I dissect the value that a product gives to a customer into four sources: