This Chinese SocNet site is doing over $1B per year -- 70% of that coming from sales of virtual goods!

Since the beginning of the Internet as we know it there has been great enthusiasm for new business models followed by little business success.  So much so that many managers today roll their eyes when presented with another online money making opportunity.  Even I can be a bit cynical — but I think there is something very powerful in this new area of “Virtual Goods”.

What is a virtual  good?

Simply put, a “virtual good” is an online object that users can consume.  For example, on Facebook I can send my friend a virtual flower as a gift.  In World of Warcraft I can buy a new sword for my character.  On Stardolls I can buy new fashions for my doll.  Even Webkinz and Club Penguin operate virtual markets where the users can buy virtual goods.  These virtual goods are purchased with points earned by the user doing specific behaviors  or when the user buys virtual currency with real dollars.

Why is this important?

Real people are spending real money for virtual goods.  It is estimated that over $2B USD was spent last year on Virtual Goods. Facebook is rumored to have made $50M USD on users sending their friends virtual gifts each costing a dollar.  This is a real online business model that can be make real profit.

What is the future of virtual currency?

• Facebook will continue to develop their virtual currency business.  Look for opportunities with Facebook Connect to bring some pof that revenue through an affiliate model.
• Kid’s don’t have credit cards -  check out PayMo (link to article).  Users can pay for Virtual Goods using their cell phone number!
• Look for new opportunities around Loyalty Programs — you’re US Air points will be transferable for virtual goods.
• Look for secondary markets to emerge.  We’ve already seen this with online games where there are “gamer farms” in China where kids get paid to play video games — earn points — then the points are sold for real cash.
• Virtual Goods are also being used as an advertising medium.  I can send my friend a virtual Starbucks coffee.  That is a very engaging behavior that connects with the consumer.