Virtual goods an active volcano: $2.1B market

Ronny Kerr · September 28, 2010 · Short URL: https://vator.tv/n/1224

Inside Network report finds virtual goods market to double from $1.1 billion in 2009

virtual goods

Sales of virtual goods, a relatively new and wildly successful business model for mobile and social applications, are expected to soar to $2.1 billion in 2011, according to a new report published by Justin Smith and Charles Hudson of the Inside Network.

Though it had already topped $1.1 billion in 2009 and $1.6 billion this year, the market is expected to double that 2009 figure by 2011, welcome news to all the virtual good-fueled startups and businesses on social sites and mobile phones, like Zynga, Playfish, and Tapulous.

Those three companies, along with countless others developing for Facebook, iPhone, and more, rake in loads of cash by selling bonus content in their games for cheap. In Zynga’s “FarmVille,” for example, a user can either patiently accumulate money over time to purchase advanced in-game technology, like a tractor, or they can just type in their credit card and buy it instantly. In Tapulous, gamers spend money on new tunes to tap along to, since the game only comes with a set number of songs.

Likely foreseeing the rocketing value of the virtual goods market, EA acquired Playfish for $400 million last November and Disney acquired Tapulous in July. The other big player, Zynga, has no intention to be acquired or go public anytime soon; the startup is perfectly happy to expand its business globally with a half million dollars in investments and nearly that much in yearly revenue.

No matter the exit, Zynga, Playfish, and Tapulous combined will account for half of all social gaming revenue next year. All three are very good at one thing: attracting millions of users to their free, addicting games and encouraging them to buy into virtual good microtransactions.

“They’re focused on getting users more engaged and converting engaged users into paying users,” said Smith, the founder of Inside Network.

The real trick for these companies is to ensure that they can retain users in the long-term, a task that at least Zynga is already obsessed with.

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Ronny Kerr

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Playfish

Startup/Business

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Playfish is a social games company that creates games for people to play together.

Founded in October 2007 by casual and mobile games veterans and backed by $3M in seed funding, we believe games are more fun when played with friends and family. So we are working on combining the best elements of casual games, social networks, MMOGs and virtual worlds to create entirely new, more social ways of enjoying great games together.

Traditional computer games focus on standalone game play on consoles, your PC or on your mobile. Games that do allow you to play together with others online normally require you to buy the game, go online and try and find like-minded new friends who are also playing the game. This is something that usually only the most dedicated gamers are prepared to do.

Our social games are different. Social games allow you to play together with real-world friends and family using the infrastructure built by social networks. This is in some ways a return to the roots of games. You play with the same people you would play cards, board games or go bowling with in the real world. Sharing the game experience with friends makes it more compelling and fun.

At Playfish we believe social games are a big part of the future of the video games industry, and are working hard to be the leading company in this emerging sector.

Playfish is headquartered in London, UK with offices in Beijing, China and Tromsø, Norway.

Zynga

Startup/Business

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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users.  Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist.  The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel.  Zynga is headquartered at the Chip Factory in San Francisco.  For more information, please visit www.zynga.com.

Tapulous, Inc.

Startup/Business

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Tapulous is a Palo Alto, CA based startup building a family of fun and social apps for the iPhone.  We are angel funded and have released two apps for the iPhone (as of early August, 2008): Tap Tap Revenge (a music game) and Twinkle (the app that lets you connect with people nearby and your friends on Twitter).

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