Archive for July, 2009

Virtual Goods Market: Insights from Harvard; Innovation in Asia; Inside Habbo Hotel; and more!

Friday, July 31st, 2009

Here is this week’s recap of interesting news and insight into the Virtual Goods Market.

Harvard sees success with Virtual Goods
Sunil Gupta (the Edward W. Carter Professor of Business Administration at Harvard Business School) shares the results of his study which shows that viral campaigns (including virtual goods) are the advertising model of the future for social networks.

Friendster revamps business model to include Virtual Goods
Friendster, the pioneering social network looks to add additional streams of revenue including virtual goods

Disney goes digital on Facebook with Virtual Gifts!
Disney brings its brand power into the virtual realm on their Facebook page.

Innovation abounds in Asia!
Plus Eight Star takes a look at how innovation in Asia leads to such trends as the rise of virtual goods.

Take a trip to Habbo Hotel
WorldsinMotion.biz gets an insider’s view of the inner workings of Habbo Hotel from Sulka Haro (Habbo’s lead designer for game/service).  Sulka talks about a lot of the design and how it relates to the reasons people buy virtual goods.

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Do you want to implement a virtual economy?  Already selling virtual goods and want to increase your revenue? Viximo provides publishers and brands virtual goods solutions that help them establish and grow new revenue through virtual goods. Our solutions have proven to drive more virtual goods revenue and engagement, then managing on your own. To learn more about our solutions, visit our website or email us at publishers@viximo.com.
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Viximo Study Finds Content Is King For Virtual Goods

Wednesday, July 29th, 2009

Viximo study finds content quality, relevancy, and interactivity increases virtual goods revenue.

Cambridge, MA () July 29, 2009 – Viximo, Inc. has released data from a forthcoming study, exemplifying the effects content has on virtual goods revenue. Sales and purchase conversion data were compared between highly ranked goods, finding that five star virtual gift content drove 3.7 times the amount of revenue as three star content. Virtual gifts were ranked using criteria such as production value, subject relevancy, and interactivity on a 1 – 5 star scale. Three star gifts, being the average, represented a quality similar to Facebook virtual gifts

Ravi Mehta, VP Products, concludes, “In the virtual economy, content continues to be king. Users purchase virtual goods for purely social and expressive reasons, so the quality of those goods has a profound effect on perceived value. Publishers selling virtual goods can sell more and fetch higher prices by providing their users with merchandise that is interactive, expressive, and tailored to the social dynamics of their sites.”

Viximo provides publishers access to a massive inventory of premium and branded virtual goods content through its Content Marketplace. To target and optimize sales for their publishers, Viximo recently released enhanced analytics as part of their Content Marketplace and Virtual Currency solutions. Viximo is still the only virtual goods solution that provides every aspect of a virtual economy, including content, virtual currency, and analytics.

Mehta says, “Implementing a micropayment or virtual currency system is just one part of building a viable virtual economy. Unless a site has great content, and the analytics needed to effectively merchandise that content, that site’s revenue will fall far short of its potential.” Social networks, dating sites and casual games need a broad array of merchandise and require newly replenished inventory on an ongoing basis to be successful.

Companies that offer analytics, but don’t provide the content that drives successful metrics, leave major holes for publishers . Viximo helps publishers find areas to improve revenue, but also, gives publishers the tools and assets to quickly make those improvements. Data for the study was gathered across Viximo’s network of publishers. You can receive the full study when it is released by emailing Viximo at info@viximo.com.

About Viximo:
Viximo provides Virtual Economy Solutions driven by unlimited, targeted, and premium content for consumers on social networks, online dating sites, and casual games. Coupled with their suite of analytics, currency, and payments providers, Viximo can have your virtual economy up and running in less than a week, and Viximo will work with you over time to maximize the revenue and customer engagement generated by that economy. Viximo can be found at http://viximo.com and you can access Viximo’s virtual goods strategy blog at http://blog.viximo.com/corporate.

Contact:
Brian Balfour, Founder and VP Product Marketing
Viximo Inc.
617-583-5671
info@viximo.com

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What Factors are Driving the Growth of Virtual Goods?

Tuesday, July 28th, 2009

Upward Graph

There is no question that virtual goods is the hot new business to be in. Social networks, games and virtual worlds are implementing virtual goods at an increasing rate. $408 million of venture capital was invested in virtual goods companies in 2008 , and that number already exceeds $300 million in the first two quarters of 2009.

But virtual goods have been successful in Asia since 2000. Social networks, games, and even virtual worlds such as Second Life have been around for years. This begs the question, why are virtual goods just recently becoming the new “it girl”?

Advertising, The Lazy Mans Revenue

During the “web 2.0” era, a boom of social products, especially social networks, emerged. Users were flocking to them in large numbers and companies looked for easy revenue. Like most, they turned to advertising. Little thought or innovation had to be put into the business model. Product innovation was taking place, but left behind was parallel innovation in the business model.

Around early 2007, however, the impact of such laziness started to take its toll on most companies with social products. CPM’s were dismal for all players including Facebook, and most companies were barely profitable or running at a loss. It was time to stop jamming a square peg through a round hole, and start exploring alternative revenue streams.

US Economy Falls in 2008, and with it online ad revenues

In mid 2008, the US economy saw some pretty rough times. The stock market plummeted, banks were collapsing, and it was clear that advertising revenues were going to follow a similar path. Online Ad CPM’s started to fall everywhere including “hot” social networks and games.

Companies that were breaking even or running a small profit on ad revenues started seeing red. A fire had been lit, and “exploration” around virtual goods quickly turned to “action.” This has a strong correlation to one of the key reasons virtual goods emerged in Asia. Asia never had a robust advertising industry to lean on, so they were forced to find other ways to monetize right from the start.

The Facebook Application Platform Acts as a Catalyst

In mid 2007, Facebook released the first version of its application platform. Almost overnight, three person teams in cramped apartments had millions of users using their product. And while having this level of user adoption was exciting, most developers were there for one thing, to make money. Many tried advertising, but CPM’s were even more dismal on applications than on the social networks themselves.

Virtual currencies were originally used to incentivize users to invite their friends and spread the application virally. But agile teams of developers, with nothing to lose, started to test if users would pay or complete CPA offers to redeem the currency. Sure enough, the money started rolling in along with stories of individual developers making $1 million a month off of virtual goods. Facebook had unknowingly provided the catalyst which sparked experimentation with virtual currencies and goods.

Facebook tests virtual goods model with gifts

In February 2007, Facebook launched virtual gifts and eventually (as was estimated after the fact) their virtual gifts revenue approached $15 Million. While niche sites like Dogster and Hot or Not had previously been successful with virtual goods, it wasn’t until Facebook launched their gifts that a major North American social network with mass audience appeal was doing well with the virtual goods model. This was an important step in winning over skeptics that thought the virtual goods monetization strategy was just an isolated occurrence.

Virtual Currency Reaches Critical Mass

With the growth of Facebook apps, Myspace apps, and other large social sites with virtual currencies, a critical mass of users has been exposed to virtual currencies. Users now understand “how it works” and most importantly accept the model. This has two impacts. One, the model of a currency (or stored value system) mitigates micro transaction costs where so many in the past have failed. And, two, a company can now launch a virtual currency model in their product with much less confusion and larger initial adoption from its users.

While the growth of virtual goods is exciting in general, I find it more encouraging that we are finally getting away from business models that disrupt and interfere with user behavior, but instead enhance it. We expect the next few years to be even more exciting for the virtual goods industry here in North America and abroad.

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Do you want to implement a virtual economy?  Already selling virtual goods and want to increase your revenue? Viximo provides publishers and brands virtual goods solutions that help them establish and grow new revenue through virtual goods. Our solutions have proven to drive more virtual goods revenue and engagement, then managing on your own. To learn more about our solutions, visit our website or email us at publishers@viximo.com.
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Virtual Goods Market: The Booming Virtual Economy; Benefits for Brands; Virtual Worlds & Teens

Friday, July 24th, 2009

Here is this week’s recap of interesting news and insight into the Virtual Goods Market.

Virtual Street is the new Wall Street
A comprehensive look at the emerging virtual economy and an examination of growth within the space despite “real world” economic woes.

Virtual Goods – the online answer for Brands
Brand-e.biz clearly defines the benefits of virtual goods for brands including the answer to elusive CPM value on social networking sites.

Hanging out in Virtual Worlds
The Economist takes a look at the explosion of virtual worlds aimed at teens and the massive revenue opportunity it presents via Virtual Goods.

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Who Buys Virtual Goods? It’s Not Who You Think

Wednesday, July 22nd, 2009

Everyone Buys Virtual Goods

After explaining why people buy virtual goods, I often get follow up questions around what type of people are active virtual goods buyers.   There is a common myth that virtual goods are only bought by teens or kids. But if you look at industry data you will notice that all ages, demographics, and cultures actively spend real dollars on virtual goods. Here are just a few examples in each age segment:

35 – 50 Years Old

Dogster – 67% between 35 – 50 years old. In 2007, Founder Ted Rheingold stated at the Virtual Goods Summit that over 50 million virtual gifts had been sent by 500,000 users in 2 years.

Scrapblog – 58% older than 34. In February 2009, Scrapblog moved to a virtual goods business model. Revenue figures are unknown.

Viximo Network – While I am unable to release specific data, across the Viximo network, the demographic of women between the age of 30 -45 purchase virtual goods at much higher rate than younger audiences

18 – 34 Years Old

HotorNot – 50% between 18 – 34 years old, another 35% older than 34. At its peak, HotorNot was doing around $2.5 Million a year on virtual goods.

Facebook – 46% between 18 – 34 years old. Estimated to do $75 million in virtual goods sales in 2009.

Fubar.com – 45% between 18 – 34 years old, another 37% older than 34. An “under the radar” social network, been selling virtual goods for years making at least several million per year.

12 – 17 Years Old

MyYearBook – Social Network for High School students.In May 2009, co-founder Catherine Cook stated MYB was making “over 8 figures” (that’s millions) only a few months after launching its virtual currency. (http://www.virtualgoodsnews.com/2009/05/myyearbook-making-millions-with-virtual-currency-sales.html)

Gaia Online – 60% between 12 – 17 years old.Gaia has reported that it makes over $12+ Million a year in virtual goods sales.

Stardoll – 67% between 7 – 17 years old. Stardoll is estimated to have had $30 Million in revenue in 2008 and also named one of 25 most valuable startups by Silicon Alley Insider that same year. (http://www.businessinsider.com/companies/stardoll)

12 and Younger

Club Penguin – Estimated yearly revenue of $60 – $70 Million, Bought by Disney for $700 Million in 2007. Was once the fastest growing site for kids aged 6 – 12.

Neopets – Bought by Viacom in 2005 for $160 Million

Webkinz – Most recent estimates were revenues of $700 Million. Their purchase of in store toys is just a conduit for users to redeem a code to receive virtual currency and items within the virtual world.

From the list, you can probably also see that virtual goods doesn’t gender discriminate either. In dating sites like HotorNot, males are the primary buyers of virtual goods. In environments like Scrapblog and Stardoll, women are the dominate buyers.

Each segment of audience requires different techniques to make a virtual economy successful. In future blog posts, I’ll detail the factors you need to consider when matching your virtual economy to your audience.

** All demographic statistics were pulled using Quantcast.

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Do you want to implement a virtual economy?  Already selling virtual goods and want to increase your revenue? Viximo provides publishers and brands virtual goods solutions that help them establish and grow new revenue through virtual goods. Our solutions have proven to drive more virtual goods revenue and engagement, then managing on your own. To learn more about our solutions, visit our website or email us at publishers@viximo.com.

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The Impact Of Facebook’s Payment Platform On Virtual Goods

Monday, July 20th, 2009

Last Thursday, Facebook officially announced the alpha testing of their Facebook Payment platform. While they are just rolling it out now, it certainly hasn’t hindered a virtual goods ecosystem from forming across many applications. Certain bloggers have even predicted up to $500 million in 2009 virtual goods revenue for application developers. But now that Facebook has started focusing on a key component which will accelerate the development of the virtual goods ecosystem, how will this impact virtual goods sales on Facebook?

1. Facebook Payments Will Expand The Market Of Virtual Goods Purchasers

Facebook’s Trusted Brand Among Consumers

Let’s be honest. Facebook applications don’t have the most trustworthy reputation. Users find many apps to be “spammy,” useless, and unprofessional, causing them to be nervous about submitting payment information . Facebook itself, however, has a more trusted brand and relationship with users. There will be a significant portion of the Facebook audience who don’t trust their payment information with applications, but do with Facebook.

Facebook’s Brand Leverage

Facebook’s brand leverage and overall size allows it to execute certain initiatives that application developers are unable to. For example, prepaid cards have been found to capture an additional segment of users that don’t have the ability to pay via credit card. However, due to size and cost, it doesn’t make sense for an application developer to launch a prepaid card service on their own. A Facebook branded card on store shelves could do very well in capturing that additional segment of paying users that are currently unavailable to application developers.

Ability To Capture Foreign Audiences

The fastest growing regions on Facebook are all foreign audiences. Developers have struggled monetizing Facebook users outside of North America. Advertising rates are even more dismal than usual, and there are few high payout CPA offers.

Virtual goods presents an opportunity to monetize these high growth audiences. The major road block is accepting international payments . While Credit Cards are a common payment method in North America, popular payment methods vary widely country to country. Habbo Hotel, for example,  has over 160 payment methods to cover their international audience and claims it to be one of the keys to success. This makes it very difficult for individual developers to serve those foreign audiences unless they integrate with an aggregator such as Global Collect. Even then, setup fees are in the thousands and therefore out of reach for most developers.

While it’s not economical for individual app developers to take on the burden of directly integrating with the wide range of international payment methods, it is completely within reason for Facebook to do so. In fact, Facebook has already placed an emphasis on international audiences by accepting credit card payments in 10+ currencies and I expect them to continue to expand this over time.

2. Facebook Payments Will Increase Purchase Conversion

Hundreds of Reasons To Buy Into Facebook Credits

At Viximo, we’ve found that on social networks a major motivator for users paying into a virtual currency is how many different outlets of purchase are available for that currency. The more reasons you give a user to buy into a currency, the higher the rate of success. With the ability to use Facebook credits across numerous applications, users will soon have hundreds of reasons to buy into the system.

Getting a user to buy into a currency is the majority of the battle. After that, the “monopoly money” mindset takes over. The psychology of spending “credits” instead of “dollars” impacts a user’s spending behavior. A test run by Viximo shows that users were 10X more likely to buy a virtual good when they already had stored value in the system. For example, if a user bought currency to play a game, but then ended up in a virtual gift store, that user is 10X more likely to purchase a virtual gift then if they didn’t already have currency available.

Access to Millions of Stored Credit Cards

Success of paid applications on the iPhone platform are partly attributable to the millions of credit cards Apple has stored for one click purchasing. Storing credit cards and one click buying drastically reduces the barrier of payment, and increases the ability of “impulse” buys (which many virtual goods are). Facebook, likely, already has more stored credit cards then any application developer just from their virtual gifting feature. The database of credit cards will quickly grow as more applications are able to integrate Facebook payments. Sharing that database across Facebooks apps will benefit all application developers.

In App User Flow

Some payment methods used by applications to date, such as PayPal, require a user to be taken off site and to a secure Paypal page. At Viximo, we have noticed drastic abandonment rates when this extra step is added into the user process. Facebook’s payments keep the user in the experience of the application with a standard Facebook popover. It might seem like a small difference, but this has a large impact on conversion.

3. Negative Impact on the CPA Offer ecosystem

CPA offer networks such as Gambit, Offerpal, and SuperRewards have been popular methods to monetize virtual currencies and goods on the Facebook platform. In many ways, it was a means to an end, a way to enable the virtual goods ecosystem. Users often complete CPA offers for one of a few reasons:

1. They don’t have access to a Credit Card

2. They don’t trust an application with their payment information

3. They aren’t “sold” enough on virtual goods to enter their payment info

But as mentioned previously , Facebook payments mitigate many of these issues. I have talked to many app developers recently, and over the past 3 – 6 months they have seen the trend revenue coming from offers declining, in favor of direct payments. While Facebook payments will continue to push this trend, I suspect there will always be a place for offer networks, although their market share may be somewhat diminished.

Conclusion

Many questions remain about Facebook’s Payment plans. Who will Facebook allow to use their payment product? How much will they charge developers? Payments is a complex business, so how will they manage the challenges of the industry as their payment platform scales? Will Facebook extend payments beyond their internal ecosystem with Facebook Connect? Even with these questions unanswered it is clear that Facebook has a significant opportunity with their payment platform and  application developers selling virtual goods stand to greatly benefit from the initiative.

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Do you want to implement a virtual economy?  Already selling virtual goods and want to increase your revenue? Viximo provides publishers and brands virtual goods solutions that help them establish and grow new revenue through virtual goods. Our solutions have proven to drive more virtual goods revenue and engagement, then managing on your own. To learn more about our solutions, visit our website or email us at publishers@viximo.com.
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Virtual Goods Market: 8 Virtual Goods Investments; Facebook Virtual Gifts Revenue $75M; Facebook Acknowledges Payments Alpha; and more!

Friday, July 17th, 2009

Here is this weeks recap of interesting news and insight into the Virtual Goods Market.

Investments in Virtual Goods are Booming!
As reported by Virtual Goods News, Q2 2009 marks the largest total investment in Virtual Goods businesses to date. Highlighted is the $200 million investment by Russian Firm, Digital Sky, in the Facebook Social Network — the single largest investment ever reported for a virtual goods business. Also examined is the sudden growth of investments in the mobile payment space.

Facebook Revenue Breakdown
Confused about how Facebook generates $550 million (estimated for 2009) in revenue? The Business Insider breaks down the ins and outs of the social networking giant’s revenue stream including its expected $75M from virtual gifts.

Big Business in Branded Virtual Goods
Ad Age takes a look at how brands are cashing in on the “freemium” business model now being adopted by online games and virtual worlds in the US. Far outpaced by their Asian counterparts, US gaming and virtual world companies are finally catching up (and cashing in) by moving toward this “play for free” paradigm. Along for the ride, merchandisers are more frequently inserting real world items and brands into the online universe.

Hogwarts meets Facebook
The premiere of the sixth Harry Potter movie sparks the launch of Harry Potter themed virtual goods, further demonstrating the potential for mainstream advertisers to benefit from sponsored virtual goods.

Facebook Announces Alpha Launch of Payments Platform
Facebook officially announces their alpha launch of “Facebook Credits” to enable payments on applications.

Virtual Goods for Flash Game Developers
Lost Garden takes a hard look at the revenue potential of flash games and explains why ads are orders of magnitude less successful than virtual goods (and other monetization strategies).

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Viximo provides publishers and brands virtual goods solutions that help them establish and grow new revenue through virtual goods. Our solutions have proven to drive more virtual goods revenue and engagement, then managing on your own. To learn more about our solutions, visit our website or email us at publishers@viximo.com.
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Top 3 Reasons People Buy Virtual Goods

Wednesday, July 15th, 2009

The Virtual Goods industry is growing extremely quickly. Some estimate the size of the industry to reach $5.5 billion globally this year, and it is just beginning. There is no escaping the fact that consumers spend money on virtual goods, even in economic down times.

Others in the virtual goods industry, such as Charles Hudson and Jeremy Liew, have written articles explaining the psychology behind buying virtual items. Yet, the question of why people spend money on virtual goods is still one of the most common questions I am asked. So I decided I would add an additional perspective as to why users buy virtual goods.

Overview

Virtual goods are sold in four primary arenas; Social Networks, Online Dating Sites, Games, and Virtual Worlds. Over the past 6 years, these categories of social, community driven, products have grown exponentially. A new paradigm has been created in which users behave and value things very differently in these social communities compared to other types of online properties. However, despite the rise of these social products, few matched their business model to these new behaviors and values. Instead companies tried to retrofit old business models, such as banner advertising, to no avail. As it turns out, Virtual Goods is the business model that gets to the core of what users value most within these environments. To understand virtual goods we need to understand what drives this value system:

Status – Virtual goods help you stand out from the crowd

In our offline social lives, we spend a significant amount of time and money making ourselves stand out from the crowd. The clothes we wear, the cars we drive, the restaurants we frequent are all examples of measures we take to stand out and be noticed. In online social environments with thousands, even millions, of users this social behavior is amplified.

In virtual worlds, where users are socializing, playing games, and interacting with hundreds of others in the same “room,” they don’t want to look like everyone else. Paying for avatar clothing, hair styles, and other accessories is natural to ensure you establish a visual identity that represents you. Even paying for different virtual abilities like flying or dancing helps users stand out from the crowd and express status within a community.

Another great example is online dating . Most online dating sites have a standard feature where you can send someone a free “wink” or “smile.” If you are a “hot girl” on a dating site, you probably get hundreds of these. Conversely, if you are one of the hundreds of guys vying for her attention, do you think you will stand out more if you are one of many sending a free wink, or one of the few that send a visually rich, interactive, virtual gift? Naturally, users who distinguish themselves more on online dating sites, achieve their ultimate goal of getting more dates.

Socializing – Virtual goods help you express yourself

In the offline world, we have numerous ways to socialize, communicate, and express ourselves: the tone of our voice, our facial expressions, our mannerisms, or social gestures. But online environments unfortunately restrict us from these abilities. There is only so much we can explain through text. Yet, this ability is so important to us that we have found online alternatives such as emoticons J.

In social environments where you are establishing and maintaining relationships, self expression is a very valuable commodity. For example, MySpace allows users customize their profile pages to express their personal style and interests. This feature is so popular it is widely regarded as one of a few reasons why MySpace was so successful in gaining traction. So pervasive is this need for self expression that despite the fact that MySpace has never sold customized backgrounds directly, an entire secondary black market of “Pimp My Profile” sites emerged to take advantage of user’s willingness to pay (directly or via advertising).

Users actively pay for profile designs or “bling” on the various social networks to visually express their interests, style, and “who they are.” This visual message is much more powerful and engaging than reading through text under an “interests” section.

On dating sites, a lot of time and effort goes into crafting communication and messages to potential matches. It’s difficult to be consistently witty and engaging through plain text messages. The addition of Virtual Gifts provides a rich interactive visual message which can help the sender express their humor or style much more effectively.

Winning – Virtual Goods help you gain an advantage

Virtual goods are commonly utilized as a way for users to gain an advantage to reach their end goal. In gaming, that goal is beating the computer or another player. Here too, virtual goods can be used to achieve that goal . For example, users who spend hours playing a racing game will gladly pay to add wheels to their cart which will allow them to drive faster, and in turn help them win.

But these types of goods, commonly referred to as “functional goods,” aren’t just for games. We can once again take an example from the world of online dating. Here, the ultimate end goal is to land dates. To achieve this, a user can purchase a “featured spot,” on a user page or in search results, to increase exposure to the site’s audience and thus increase their chances of being noticed by a potential mate.

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Viximo provides publishers and brands virtual goods solutions that help them establish and grow new revenue through virtual goods. Our solutions have proven to drive more virtual goods revenue and engagement, then managing on your own. To learn more about our solutions, visit our website or email us at publishers@viximo.com.
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