Virtual games account for more than 90% of the revenue for social game developers like Playfish or Zynga.
Spending $2 dollars to buy fertilizer for a virtual farm? Or $3 for decorating your virtual cafe? The idea seems so implausible to the average Internet user. Yet, that is precisely what thousands are doing on social networks like Facebook or MySpace through applications inviting the gamer to spend hard cash for virtual gains. And the idea is growing. The virtual industry in the U.S. is set to make billions over the next five years as people start to warm up to the idea of buying a digital bottle of champagne or sending an exquisite virtual bouquet to a loved one.
It is a trend that has already become popular in Asia, with the virtual economy in the region recording sales of around $5 billion. In the U.S. though, the rage is just about to takeoff as the country pulls itself out of recession, and consumers start guarding their wallets less carefully.
Sites that were struggling to generate enough ad revenue to keep them afloat have suddenly found a newer, much richer source of profit that has attracted investors interested in these new virtual cash kings. Late last year, Playfish, a company that develops virtual games for Facebook and other social networks, was bought for as much as $275 million by video game publisher Electronic Arts. How did Playfish fetch such a price? Its 60 million members are willing to pay to buy items like a rug for their pet or a new dish to serve in their café. All virtual, of course. Following the stunning acquisition of Playfish, Digital Sky Technologies bought a stake in Zynga, the creators of the popular Café World and Farmville applications on Facebook. It is a trend that appears to be on the upswing. Particularly attractive is the fact that games like Café World or Fishville draw not just seasoned gamers or teen gaming addicts but adults, many in their 30s or 40s, and a sizeable portion of women too. Applications like this focus not just on the game – but the network of interaction the game itself provides. Playing along with friends or family and buying them gifts to expand their virtual restaurant are all ways in which members seek to enhance their social connections. What gamers are ultimately looking for is entertainment. And companies are seeking to charge these gamers to provide just that entertainment. It doesn’t cost much - most virtual products are priced at anywhere between $1 to $5, driving up their attractiveness even further.
In fact, Max Levchin, one of the co-founders of Paypal, told Forbes in an interview that he envisions a future where investors might even trade virtual bonds, in what he calls a ‘shift from real economy to a completely virtual economy.’ Far-fetched as that sounds, it may well become reality some day. After all, in the fast-paced virtual world, change is often faster than the speed of light. With slipping ad revenues, which dropped 5.3% year-on-year to $10.9 billion for the first six months of 2009, this new trend could not have come at a better time. The Internet has changed the way we think, react, and conduct business. This virtual economy may just spell the beginning of a new e-revolution. But the question remains. Just how many will dole out $2 of real cash to buy some virtual biscuits to feed a hungry virtual dog? 2010 might well provide the answer.