Over the past year, the hype around virtual goods as the next big thing has continued unabated. Like the hype surrounding virtual worlds, it’ll eventually ease off, but underneath that is the reality of the very significant growth that is continuing. Two recent announcements have really emphasised that growth.
The first comes Ning, who now claim to host more than 1.6 million social networks. They’ve launched Ning Virtual Gifts. Pretty much anyone can create their own gift and sell it or buy someone else’s to give as a gift. Nothing particularly new there, but Ning’s size makes it one of the more interesting market tests for monetised virtual goods.
The second interesting development comes from social game creator Zynga, who has confirmed that US $487,500 has been raised for the welfare of children living in Haiti, via the sale of virtual sweet potato seeds within the Farmville game for Facebook. More than 56 million Facebook users play Farmville each month, with 50 million users playing one of Zynga’s social games daily. For mine, the combination of fun and social good has always been one of the best hooks for involvement and Zynga are proving that in a big way.
What these two examples have in common is proof of the widespread adoption of virtual goods. Virtual environments like Second Life have demonstrated the power of virtual goods for years, but the social gaming sphere and upcoming worlds like Metaplace are speeding up the rate of adoption through simple, intuitive interfaces that in some cases are also doing good in the real world. Of course, nothing grows endlessly, but if anything is likely to exceed post-hype expectations, it’ll be the virtual goods you pay small amounts for, in the pursuit of some casual fun.
The main problem I have come to realize with the growth of virtual goods, is the lack of entry and exit barriers within virtual markets. The lack of these barriers, as compared to real life business barriers (such as capital requirements to start up a business, or sale of all its assets to pay off lenders when the party's over), leads to ever-decreasing prices of goods over time as older products never go away and their prices continually lowered until they are offered for free. How do you fairly price a new virtual product on Internet catalogs offering virtual goods, when the competition's products are never removed?
Endless growth also presents its own problem, as the range of substitute and alternative products within a market continually increases in number. In the real world, businesses that fold also have their products removed from the shelves. This allows new products (from stronger companies) to be priced more accurately to their cost and profit margin expectations because the range of substitutes is managed. There are not practices currently in Internet catalogs offering virtual goods, to provide the same level of entry and exit barrier controls. To learn more about this problem, please read my article on metaverse4biz.newsminded.com titled Competitive Forces: Virtual Product Pricing & Life-Cycle.
Thanks for your thoughtful comments Coyle – you raise some fascinating points, particularly around the fact that virtual goods may never be removed at the pricing implications. It's certainly an area that will fascinate marketers and economists alike for quite a while to come!
Thanks for your thoughtful comments Coyle – you raise some fascinating points, particularly around the fact that virtual goods may never be removed at the pricing implications. It's certainly an area that will fascinate marketers and economists alike for quite a while to come!