Viximo

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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