Tuesday, November 10, 2009

Virtual Goods Start Bringing Real Paydays

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November 7, 2009: summarized fro, New York Times -- Silicon Valley may have discovered the perfect business: charging real money for products that do not exist. These so-called virtual goods, like a $1 illustration of a Champagne bottle on Facebook or the $2.50 Halloween costume in the online game Sorority Life, are no more than a collection of pixels on a Web page. But it is quickly becoming commonplace for people to spend a few dollars on them to get ahead in an online game or to give a friend a gift on a social network.

Analysts estimate that virtual goods could bring in a billion dollars in the United States and around $5 billion worldwide this year — all for things that, aside from perhaps a few hours of work by an artist and a programmer, cost nothing to produce.

The companies that create and sell virtual goods, including Zynga, Playfish and Playdom, three online gaming start-ups in the San Francisco area, say they are recording significant revenue and profits, which have been elusive for many Web companies. In Restaurant City, a game by Playfish on Facebook, 18 million active users manage their own cafe and stock it with virtual casseroles and cakes. In Zynga’s game FarmVille, 62 million agrarian dreamers cultivate a farm, plant squash seeds and harvest their crops with tractors.

These games and many others have casual gamers reaching for their wallets, along with a few rationalizations, as they make the peculiar purchase of pixels on a computer screen. For outsiders, the selling of virtual goods — items with no actual value in the real world — might seem the very definition of a swindle. But often, strong — and somewhat rational — motives are at work. Users of social networks can buy one another gifts, like images of flowers and birthday cakes, typically for a dollar each. Facebook recently expanded its gift store to allow other companies to list their virtual wares, like greeting cards.

Game creators talk openly about their strategies to make people pay for virtual goods: get them addicted, then steer them to purchases that speed up the pace of the game and help them succeed. In FarmVille, for example, the tractors’ gasoline tanks replenish themselves slowly over the course of a day. Instead of waiting, players can pay to buy gas — something that might be considered cheating in more traditional games.

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