Virtual goods are non-physical objects and money purchased for use in online communities or online games. Digital goods, on the other hand, may be a broader category including digital books, music, and movies. Virtual goods are intangible by definition.
Including digital gifts and digital clothing for avatars, virtual goods may be classified as services instead of goods and are usually sold by companies that operate social networking services, community sites, or online games. Sales of virtual goods are sometimes referred to as microtransactions, and the games that use this model are usually referred to as freemium games.
A key revenue driver within social media, virtual currencies are specific within each game and are used to purchase in-game goods. Characters or avatars in virtual worlds own things within the context of the virtual world and users will collect each games' virtual currency to purchase land, supplies and various items used to enhance their status and add points. Some virtual currencies are time-based, relying upon measurement of in-game achievements in order to accrue exchangeable points.
The first virtual goods to be sold were items for use in MUDs, early, graphical online multiplayer games on the PLATO system and text-only games on other computers. This practice continued with the advent of MMORPGs. Players would sell virtual goods, such as swords, coins, potions, and avatars, to each other in the informal sector. While this practice is forbidden in most blockbuster online games, such as World of Warcraft, many online games now derive revenue from the sale of virtual goods.
When Iron Realms Entertainment began auctioning items to players of its MUD, Achaea, Dreams of Divine Lands, in 1997, it became the first company to profit from the sale of virtual goods. But it wasn't until the mid-2000s, with companies like Korean Cyworld leading the way, that virtual good sales became instituted as a legitimate revenue-making scheme.
In 2009, games played on social networks such as Facebook, games that primarily derive revenue from the sale of virtual goods, brought in US$1 billion, and that is expected to increase to 1.6 billion in 2010. Worldwide, US$7.3 billion was made from virtual goods that same year.
Estimates of the future market for these small items vary wildly depending upon who is making the prediction. 2013 sales will be US$4 billion according to one analyst and a year later reach 14 billion according to a different analyst.
In 2010, a virtual space station in the game Entropia Universe sold for $330,000.
The popular, free-to-play video game Fortnite: Battle Royale generated more than $1 billion in revenue across all platforms. This revenue comes entirely from in-game purchases, which — in Fortnite's case — offer no competitive advantage to the game.
In online games, virtual goods could be lost due to some unexpected reasons. This brings problems for service providers as well as purchaser. Encryption techniques primarily used for other purposes may, here too, provide functionality. These may include access control, hashing, encryption, digital certificates, and fingerprinting.
While many companies have embraced exchanging cash for virtual goods, the practice is forbidden in most blockbuster games, which derive income from subscription fees. This doesn't deter all players from saving playing time by illicitly buying in-game currency with real-world cash from an alternate source– violating their agreement with the game's operator in the process.
Virtual goods purveyors
- Gaia online
- Habbo hotel
- Iron Realms Entertainment
- Second Life Marketplace
- Sony Online Entertainment
- World of Warcraft
- Xbox Live Marketplace
- Amazon may benefit as digital goods sales jump reuters.com, Fri Dec 23, 2011 11:32am EST
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- The World of text MMOs / MUDs – An Interview with Matt Mihaly, CEO of Iron Realms Entertainment Archived 2008-10-02 at the Wayback Machine playnoevil.com, Friday, September 8. 2006
- Cyworld ready to attack MySpace money.cnn.com, July 27, 2006: 11:35 AM EDT
- Virtual goods revenue to hit $7.3 billion this year cnet.com, November 15, 2010 9:51 AM PST
- A virtual farm turns new ground for game developers reuters.com, Thu Mar 25, 2010 7:05am EDT
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- Kaylee Fagan, "Fortnite — a free video game — is a billion- dollar money machine", "Business Insider", July 29, 2018
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- China bars use of virtual money for trading in real goods PRC Ministry of Commerce, Monday,June 29, 2009 2100 GMT
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- Unlike reality, virtual retail sales are hot, especially for avatars USA Today, 23 Dec 2009
- "Changyou Selects PlaySpan's UltimatePay for its Online Game Properties". playspan.com. PlaySpan, Inc. 2010-03-18. Retrieved June 12, 2012.
- "Facebook Blog, February 7, 2007". Blog.facebook.com. 2007-02-07. Retrieved 2012-11-26.
- The world’s most lucrative social network? China’s Tencent beats $1 billion revenue mark venturebeat.com, March 19, 2009
- ABC News March 15, 2010
- "KongZhong Corp (KONG.O): FULL DESCRIPTION". Thompson Reuters. Retrieved 2012-05-28.
- About Company Archived 2009-06-01 at the Wayback Machine Nexon Official Site
- Playdom Fuels Its Virtual Goods Business Archived 2010-12-29 at the Wayback Machine Press Release, playdom.com, September 30, 2009
- Playfish sees social games as industry driver Wed Nov 4, 2009 6:02am EST
- Second Life Marketplace Featured Items Wed April 26, 2011
- Runescape begins first microtransaction experiment Archived 2012-04-05 at the Wayback Machine develop-online.net, April 2, 2012
- Virtual Products = Real Cash cnbc.com, Oct. 09
- Trade Me founder invests in gaming tvnz.co.nz, Mar. 11
- Redefining MMOs: The massive money of microtransactions massively.com, Sep 11th 2009
- The MANN-conomy update: FAQ Valve 2010
- Xbox 360: Get the Points Archived 2009-01-23 at the Wayback Machine Microsoft's Xbox Official Site
- Zynga's Gaming Gamble forbes.com, 10.29.09, 12:40 PM EDT
- Digital tills are ringing to the sound of an unreal Christmas The Guardian, 17 Dec 2009
- Simon Coutu, "Here's How You Make $12,000 In Profit a Day Selling Virtual Guns", "Vice", June 30, 2015