Virtual Goods turn into Real Revenues for Mobile Social Networks

Posted by Christine Perey Friday, January 15th, 2010

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You know that funny little picture of a sword in the hand of your avatar? Or the animated graphic of a glass of champagne which you received on New Year’s from a friend? What about the kitten which is purring and acting cute next to your girl friend’s name in the new mobile phone book? Have you considered sending out a big bouquet of virtual roses for Valentine’s Day?

These are all examples of virtual goods. The category is expanding virally and will play an important role in generating revenue for providers of Web as well as mobile social networking applications in 2010 and beyond. Transactions for virtual goods and services in mobile communities are going to increase engagement and climb rapidly, contributing at least 25% of global revenues in the mobile social networking industry by 2013.

Small but powerful

Virtual goods and services are usually represented in small, low resolution graphics on the user’s screen. They are quickly made by a graphic artist, branded with an advertiser’s logo, and then the following week modified again. They are lightweight in terms of the bandwidth required to send and economical in terms of the memory necessary to store them locally on a user’s device.

Virtual goods in virtual worlds are not surprising or particularly novel. They have also been the mainstain of Asian video games for a decade. The first widespread use of virtual goods in social networking began in about 2004 in the Korean community service, CyWorld , which permits members of the service to decorate and personalize the features of their “mini-Hompy” (short for Mini Home Page). Other community members, the friends of the subscriber, can visit the Hompy and admire the accessories and even, in some cases, interact with the virtual objects. Pointing and clicking at a virtual pet can cause it to bark or meow.

CyWorld provider SK Communications did not disguise the fact that personalization and the sales or gifting to others of virtual goods was a key element of the service’s appeal to users and profitability so it is not surprising that community operators in Japan followed suit on both PC and mobile social networks. Today transactions for real and virtual goods contribute nearly 50% of revenues earned by Japanese mobile social networks such as Mobagetown and Mixi Mobile.

In mid-2008, Facebook developers began to experiment with the virtual goods in casual games and by the end of 2009, virtual goods were widely acknowledged as contributing to social networking industry revenues worldwide. The virtual goods market size will be increasingly large and get confused with advertising as more virtual goods on the Web are sponsored by brands. Earlier this year AdNectar, a young company which assists brands fielding advertising campaigns in social networks, announced that 2 billion virtual goods had been served from its platform.

It’s time for virtual goods to get real

Now that the virtual goods business model is proven attractive, we will see many more communities offering their members free (ad sponsored) and premium virtual goods. This is one of the important business trends which I describe in further detail in the Second Edition of the Mobile Social Networking report, published by Informa.

The extension of this trend is for familiarity with virtual goods to drive attention to real (matter, not bits) goods. In mobile communities, members will be able to send one another virtual goods or gifts which are, in essence, coupons which permit the holder to redeem a physical benefit, such as a complementary beverage, a pizza or a reduction in price on a future purchase. Social networking platforms need to be integrated with merchandizing, billing and transaction systems on the back end for this type of deal flow to be easy for the user and merchants, and profitable for various providers of value. But, as long as mobile network operators insist on high margins, this will not work for anyone. With the model of the application stores we expect a gradual maturation of mobile storefronts for other goods and services permitting physical goods to be billed to the subscriber’s mobile invoice.

To really understand how transactions will play an increasingly important role in the future of mobile social network monetization, obtain the report. To download the extract please visit this page.