A byte of magnetic code. A $7 billion business.

Would you think it clever business sense or rank insanity if you mortgaged your home to raise $100,000 to buy an virtual asteroid? Yes, you got that right, a virtual asteroid. It looks and feels like an asteroid, but rests as a lot of binary magnetic codes on an unnamed server somewhere out there in the world. At risk of electricity failures, hacking, cyberwarfare or plain vandalism.

If you thought it rank insanity, you must meet Jon Jacobs. In 2005 (way before the online multiple-player gaming fever caught the rest of us) actually mortgaged his real roof to buy an asteroid on the game Entropia. It was big news when he bought it (I suppose acts of apparent insanity always are). He spent six years developing it into Club Neverdie. That became the Mecca of the citizen avatars of Entropia, who spent a collective $200,000 every year on its dozen biodomes (no idea what those are), nightclu, stadium and mall. He sold Club Neverdie recently, earning $635,000. So here’s somebody (who lives in Hollywood and came there to try his luck in films) who earned about $1,635,000 from real people spenidng real money to play poker in cyber. Woof!

But he isn’t the first of what the BBC calls ‘virtual entrepreneurs‘, (people who make money by selling you virtual stuff, not people who are always talking about how they are going to be an entrepreneur but never come round to doing it) others have been there before. Last year’s big sale was Crystal Space Station (also on Entropia) which went on the block for $ 335,000. Indeed Entropia has seen so much trade on its portal that it applied for (and actually got) a banking licence. So now you can not just buy and sell virtual estate, you are even qualified for sub-prime loans with teaser interest rates (OK, that was just a joke).

Except that getting into debt is serious matter, even for virtual goods. After all, it is real money, to be owed by real people. And Facebook, which runs any number of games full of virtual goods (think Farmville, Mafia Wards, Restaurant City) wants to go the Wall Street way. Get you into debt by buying the goods now and paying later. That’s because a lot of gifts, that retail for a dollar or two, must right now be bought straightaway, causing the buyer to enter credit card details every time. That apparently is causing resistance. Instant gratification, followed by a consolidated bill later, might improve the situation for Facebook.

Wow! Like one recession wasn’t enough.

Why do all of this?

Because virtual goods have now become a business with a turnover of $7 billion every year. Where once computer games were the realm of hormonal teenage boys with a lot of unreleased aggression, today social games like Farmville & Restaurant City have attracted other types of people, like single-old-ladies-with-cats, murderous single mothers, and fat-copywriters-with-no-social-life-after-work (aka yours truly). These games require the exchange of a large number of virtual goods (like strawberry pigs and Viking-themed restaurant tables), the kind of activity that appeals to Asia-Pacific peoples (who drove 70% of the revenue).

Virtual goods seem to have a strong attraction. You can send your girlfriend real flowers, which she’ll have to keep in a vase in her home and throw away after withering. No one can see it unless they come to her house, so she has no social gain from it, apart from a vague notion that you care for her. Send her a virtual bouquet. It will never fade, and it stays on her social network wall for all of her friends to see. It even shows up on their feed, so there is instant social gain. She is seen as being loved and cared for. And you save a fortune on prize roses!

Indeed, you can see some interesting stats on games and virtual goods at the Penn-Olson site. Of the 53% Facebook users who play games, full 20% have actually spent moeny. (Given Facebook has 500 million members & growing, that comes to around 53 million people, that’s more than the population of Burma). With all these people paying the game developer, Facebook has chosen to tighten its grip, so that money flows its way. Games developed by Playfish, for example, must now be paid for through Facebook Credits, and not directly. That means you pay Facebook for buying stuff, and Facebook pays the developer. Did anyone say meddlesome middleman?

For all it’s lucrativeness, people who pay for games are still a tiny population. So how do game developers make money? The old-fashioned way of course. Advertising.

Game developer Wild Tangent offers you a deal – you watch somebody’s ad for 30 seconds (and you have to sit through the whole thing), in return for a prized virtual good you otherwise would have to pay real cash for. A strategy that Zynga has already perfected.

Get your brand in there

This is the part where I stop dishing data and start dishing out gyan. So people are quite willing to buy virtual goods. So why not make them yours. When they are buying virtual bags, why not put your brand label on it? Sign up with a game developer to creat limited edition virtual goods that carry your brand name. Sell a virtual Gucci bag at a virtual premium (i.e. charge $5 where the ordinary costs $1), virtual Audis, virtual Raymond suits. Your Hawkins cookware can be sold virtually on Restaurant city. Imagine!

You get your brand name right in front of eyeballs which are not staring at your billboards, press ads, TVcs or even online banners. They get the pride of associating with a luxury or aspired-for brand. They get to show off to their online peers that their avatar owns a virtual Gucci bag. Try it out – it’s a luscious $7 billion pie out there for you!

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About ozymandias

What am I? A body and brain, products of carbon concatenation chemistry, an intelligence and conscience to enable bits of DNA evolve. Maybe a pharaoh, maybe a dung-beetle, never more than a safe conduit for some genes.
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One Response to A byte of magnetic code. A $7 billion business.

  1. Eusen says:

    Is a very well written post….. Thanks so much for information. ….Sorry for my English

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