Why virtual goods are not ‘make believe’

Today’s News.com report on the rise of virtual goods, demonstrates widely held misconceptions, if its social media expert Jules Cole’s response is anything to go by.

Commenting on the strength of the global trend, and the success of  Californian company Virtual Greats, Coles says: “If they (virtual goods) are free, I can definitely see the use of them … but they (users) are  not actually getting anything tangible for their money…If it’s an extension of games, I see that as a benefit. But I can’t see it taking off.”

It’s a comment that is almost as miscalculated as that made by Thomas Watson, chairman of IBM, who in 1943  said,  “I think there is a world market for maybe five computers.” And like Thomas, Cole’s words may well come back to haunt him.

Cole’s assertion contradicts the article’s very thrust, that the global market for  virtual goods has ‘doubled in two years to an estimated $3.3 billion, up from around $1.7 billion in 2008‘. The mismatch seems to have gone unnoticed.

In fact, virtual marketing analyst KZERO estimates trade revenue of vitual goods to be even higher, more like USD 5 billion), other evidence abounds. Take Zynga, the LA- based social games company whose titles  include Farmville and Mafia Wars. In just two years, 2007-2009, Zynga acquired 180 million active players per month across its various games titles and brought in over 500 staff to manage them. Revenue expectation for the year 2009-2010 is in excess of $(US) 100m. Moreover,  in spite of a tough financial environment,  FORBES reports that  the Company has taken $519 million in funding, the bulk of which was raised after December 2009.

Another glaring problem with the story is that it refers to  ’Make- believe items’.

Virtual Goods are not substitutes  for the real thing: no one expects a virtual umbrella to stop the rain from landing on you…but it  might be a fashion statement for an avatar; it might be a symbol for a charity you support and which you attach to your web or social network home page; it might embed a service – not a real world one, that would be rain protection,  but perhaps, like the the Penguin’s brolly in Batman, it activates something. His was shooter,  but why not a brolly as a dynamic widget casing for water consumption on your desktop?

In the virtual world, objects are editable and open to new interpretations. But while the digital goods have uses which the real world ones can not,  people’s desire to own them are the same : as  identifiers, as status, or for the service they deliver. And as research by Stanford’s Byron Reeves and Cliff Nass has shown, the same dopamine responses come into play when the cash register rings.