The Goods May Be Virtual, but the Profit Is Real - NYTimes.com

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Virtual Goods Start Bringing Real Paydays
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By CLAIRE CAIN MILLER and BRAD STONE
Published: November 6, 2009
SAN FRANCISCO — Silicon Valley may have discovered the perfect business: charging real money for products that do not exist.

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Joel Page for The New York Times
Sara Merrill of Parsonfield, Me., with her cat, Demon Baby, bought for the game Pet Society.
These so-called virtual goods, like a $1 illustration of a Champagne bottle on Facebook or the $2.50 Halloween costume in the online game Sorority Life, are no more than a collection of pixels on a Web page.

But it is quickly becoming commonplace for people to spend a few dollars on them to get ahead in an online game or to give a friend a gift on a social network.

Analysts estimate that virtual goods could bring in a billion dollars in the United States and around $5 billion worldwide this year — all for things that, aside from perhaps a few hours of work by an artist and a programmer, cost nothing to produce.

“It’s a fantastic business,” said Jeremy Liew of Lightspeed Venture Partners, a venture capital firm that has invested $10 million in several virtual goods companies. “Because it’s digital, the marginal cost for every one you sell is zero, so you have 100 percent margins.”

The companies that create and sell virtual goods, including Zynga, Playfish and Playdom, three online gaming start-ups in the San Francisco area, say they are recording significant revenue and profits, which have been elusive for many Web companies.

Virtual goods have been popular in Asia for years. In the United States though, only ardent video game fans spent money on them, mostly for swords and spells in virtual fantasy realms. That is rapidly changing, driven by ...

Original URL

http://www.nytimes.com/2009/11/07/technology/internet/07virtual.html?_r=1&ref=business

http://www.nytimes.com/2009/11/07/technology/internet/07virtual.html?_r=1&ref=business