Virtual Goods: Market, Types, User Psychology


Virtual Goods have begun to penetrate social networks like Facebook and mobile applications like Tap Tap Revenge (by Tapulous) and I Am T-Pain (by Smule). They have spread like wildfire, with game developers itching to better understand the economics of virtual goods and the psychology of gamers. This post will explore the rapid market growth, types of virtual goods, user psychology and steps to launching virtual goods in your application or game.

Market Growth

The estimated market size has gone from a nascent space in 2008 to approximately $500 million (Aug. 2009; Source: Viximo) to over $1 billion by end 2009 (Oct. 2009; VentureBeat) only 2 months later. If you are at all surprised by this vast market size, you should know that the Asian virtual goods market is seven times bigger than US (estimated at $7 billion for 2009).

Zynga, one of the leading social games companies, launched a game called Farmville in June 2009, and has already become the most popular game application on Facebook with 62.4 million active users as of October 29, 2009 and will easily break through $150 million in 2009 revenue.

Types of Virtual Goods

Developers are very creative. So far, the types of virtual goods can largely be placed into 2 buckets:

  1. Decorative Goods: Do not affect game statistics / game play (e.g. avatars)
  2. Functional Goods: Affect game statistics / game play (e.g. Farmville tractors — did you know users bought 800,000 of them yesterday)

Since functional goods affect game play activities, game developers should give users the ability to either earn these items/goods through game play or provide a shortcut in acquiring them with a virtual currency. Functional goods can be managed to have low or high value price points; generally, the value of these functional goods can be set by carefully managing and understanding scarcity. Ensure to have some items that are very common (Developers: ensure to “prime the pump” by getting users familiar with using some free and low-cost items), and some that are very rare and expensive.

While A/B testing how much users will pay for items, understand that as the aggregate number of social interactions per user increases within an application, each rare item’s value will proportionately increase for those users. Another consideration while establishing demand for your virtual goods is whether or not you need a secondary market where users can sell, trade or profit from their virtual goods (See more from Bill Grosso’s presentation on Managing a Virtual Economy).

There are many reasons why a user would pay more for certain items. Let’s try to better understand game user psychology.

Psychology of Purchasing Virtual Goods

Users will buy virtual goods for many different reasons. Buying decisions will be based on a number of factors including user motivation, several forms of influence, boredom and competitiveness. If you’re a developer, think carefully about users of your applications: Why would they want to buy a virtual good within your application? What added value would they receive? Which other people would see they bought this good, and could they benefit as well? Below, I outline a number of different reasons why users choose to purchase virtual goods:

  • People are impatient (time = money) and want to advance through game play more quickly
  • People are competitive and want to get ahead (of friends, peers, the world)
  • People want to express themselves in unique ways (akin to the culture of decorating cell phones in Japan)
  • People want to feel good about themselves (donating to charity and publicizing)
  • Gifting allows people to foster and maintain existing relationships with others in an increasingly electronic world
  • Gifting allows people to create new relationships
  • People will return gifts due to the rule of reciprocation (influence), which prompts us to repay what someone has given us
  • Provenance (e.g. did a famous user own this item in the past?)
  • Branding (virtual goods branded by real-world companies)
  • Rarity (scarcity)

5 Key Steps for Launching Virtual Goods

In a presentation by Amy Jo Kim, CEO of Shufflebrain, about why and how virtual goods work, she outlined 5 steps for launching virtual goods.

  1. Create meaningful content
  2. Prime the pump with free goods or currency
  3. Create demand for premium content
  4. Offer fresh content at a range of price points
  5. Make it easy to purchase currency

There are many different companies that offer solutions to help with your virtual currency. If you’re looking for good vendors, try: PayPal, Gambit, boku, Zorg or $uperRewards.

Why are your users buying your goods? How did you generate interest or scarcity in your application? Please share your story and learnings about user psychology and buying decisions in the comments area below.

Video Games, Web 2.0, Upcoming Tech!


There are countless articles on the web talking about Second Life and the announcement of PlayStation Home, the new game for the Sony PlayStation 3 that allows you to put a player in Sony’s virtual world and interact within a next-generation online community. As Sony describes, it is going to be a “Free Download to Allow Broad User Interaction in Highly Detailed Community Environment; Opens Door to User-Created Content, Collaboration and Commerce”.

There is a more detailed description of the comparison and evolving world of gaming here, if you are interested.

It looks like we’re seeing a migration of Web 2.0 into Gaming 2.0. It’s going to be interesting to see what other video games are going to be released in the upcoming years that incorporate user-generated content and community-oriented structures. Which game is going to be the next blockbuster? Could gaming start to include website links and content? How integrated could these video games become with the web? Is it possible that we might see commerce systems integrated into video games, such as seen in Second Life? Who wants to guess the first day we start to see Google AdWords on the side of a video game? Or, how about a user in a gaming community advertising Amazon products in association with what attributes or “knowledge” your virtual character has developed. My guess: December 14th, 2008 at 8:37 am Eastern Standard Tiem. Random? Maybe. What do you think?

I just found a really cool innovation coming to the gaming world, and perhaps online shopping too! Researchers in Germany developed a 3D animation technique that allows a high-resolution scan of a person to be super-imposed onto another person’s or character’s movements. This technology was originally developed for use in 3D video, but it may be possible to get yourself scanned somewhere and use the generated file to integrate your own 3D scan into your own virtual world video games. Too limiting? Maybe.

Okay, how about this … online clothes shopping!

The problem with shopping for clothes online is that it is too hard to imagine how clothes are going to fit. Solution: using this 3D technology, you can use your 3D scanned shape to virually “see” these clothes on YOUR frame. (and if you’re entrepreneurial and decide that you want to develop this idea, all I ask is for an honourable mention , and a few shares of the company if you’re feeling generous…)