FAQ on Virtual Goods market

Vahid Dejwakh · November 29, 2010 · Short URL: https://vator.tv/n/1433

Answers from In-Stat analyst Vahid Dejwakh

1. How are social networking and online worlds (SNOWs) with virtual goods changing the way people use the Internet? How they interact?

 Virtual goods have been around for over a decade now, though they have been mostly restricted to customers in South Korea, Japan, and China.

There are four main factors that contributed to the recent rise of the virtual goods model worldwide, particularly in the Western world: 1) the emergence of gaming on social networking sites like Facebook, Hi5, and MySpace, 2) the rise of smartphones and casual gaming on the iPhone and now Android phones, 3) the fact that the virtual goods model allows people to play for free, and 4) online games are reaching a much wider target audience that now also includes teenage girls and adults. The downturn in the economy might have also encouraged some online gaming customers to cut their monthly subscriptions and substitute these with paying for virtual goods instead.
The ability to own, trade, and build off of virtual goods attracts people who would otherwise not be interested in the typical MMO or shooter games which previously dominated the online gaming market. Social games are also simpler to learn, even if they might still be complicated to master, which is the recipe for the most successful all-time games like chess and soccer.
Social games may not be drastically changing the way people use the internet, but they are certainly increasing the frequency with which they do so.
2. Why have SNOWs with virtual goods become so popular? Who is most drawn to them? Younger people? Different age groups?
See 1 above.
3. How are SNOWs impacting actual businesses? Are they being drawn in for marketing/advertising opportunities and other interests (such as in Second Life)?
Businesses who have gotten involved in the virtual goods world have done so primarily for marketing purposes, with a few exceptions using more complicated 3D platforms (like Second Life) for virtual conferencing activities. Virtual worlds like Gaia Online and Habbo present a highly efficient way for companies to launch marketing campaigns targeted to teens because of the viral impact brought on by engaged users. Movie studios have particularly taken advantage of and continue to benefit from this marketing through virtual branded goods, but consumer product companies like Coca-Cola and L’Oréal are also active in this space.
4. Do you see SNOWs affecting how some companies approach their business model? How they earn money online? Less emphasis on actual currencies and more on virtual currencies?
See 1 above.
5. Are SNOWs changing the nature of online gaming from a product to a service? Are they creating their own economies?

Yes, the virtual goods model is essentially changing online gaming from a product to a service. Obviously a subscription is already a service and some view virtual goods as a product, but when you dig deeper you ask yourself if it is a product, then who owns it? The gaming company or the consumer?
6. Are these environments raising money for social causes?

Yes, several companies are doing this…Club Penguin, Zynga, and Facebook for example. A simple Google search will probably get you lots more.
7. How will this technology likely evolve? Full immersive environments? Where do you see things going overall?
As is understandable, virtual goods have nothing to do with a new technology, but more about what an already existing technology can do. There’s some interesting developments going on in the 3D-immersive worlds, but these have less to do with virtual goods and more with the realism that 3D worlds can create.

Intellitar, for example, is building a way for people to create an eternal avatar of themselves that future generations can interact with. Microsoft’s Kinect for the XBox is already causing a wave in the gaming and drafting worlds because of the opportunities for 3D modeling that its open hardware presents.

There’s a lot of futurist enthusiasts who are eager to talk about the potentialities of Matrix-like or Iron Man-like applications, but the business realities and needs often do not mesh well with their grandiose visions. At least, not yet. The Kinect might very well be a breakthrough in the creation of a mass-market Minority Report-like technology.
8. What types of problems, if any, do SNOWs with virtual goods present? Other virtual goods environments outside gaming?

The question that I brought up in 5 touches on a few of these problems.


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