Monday, November 09, 2009

Can you believe...? The perfect product

Starting to read this piece by Miller and Stone at first left me speechless with incredulity. This would appear to be the perfect scam (or business model) - getting people to pay real money for a product that doesn't exist. We're talking about virtual goods with a marginal cost of zero and a profit margin of 100%. The virtual goods are things like swords and spells in virtual fantasy realms, or...
In Restaurant City, a game by Playfish on Facebook, 18 million active users manage their own cafe and stock it with virtual casseroles and cakes. In Zynga’s game FarmVille, 62 million agrarian dreamers cultivate a farm, plant squash seeds and harvest their crops with tractors. (the figure shows a consumer with her cat, Demon Baby, bought for the game Pet Society.)
Crazy? Maybe not:
...strong — and somewhat rational — motives are at work. Users of social networks can buy one another gifts, like images of flowers and birthday cakes, typically for a dollar each. Facebook recently expanded its gift store to allow other companies to list their virtual wares, like greeting cards...“It’s not about the good itself, it’s about the underlying human emotion or desire,” said Moshe Koyfman, a principal at Spark Capital, which has invested in two virtual-goods start-ups. “The recipient knows the person took time, picked something meaningful and spent money on it.”

Some game fans claim that in some cases, virtual goods can be better than the real thing. Jamie Kwong, a 13-year-old in Altadena, Calif., spends hours a week on a “paper doll” site called Stardoll, buying dresses and handbags. She created Juillet606, with brown eyes and hair to match her own. Unlike the actual paper dolls she used to play with, the tabs do not rip off....“With Stardoll it all stays on there, my brother can’t get on it, and everything is good,” she said.
Maybe we should view this as the ultimate "Green" consumer product - money spent with zero environmental impact (if you accept that the energy sucking infrastructure of the internet would be there anyway).


  1. Sure - we should stop regarding virtual things as non-existent. Things are only defined by their interactions with other things. So if our interactions with a virtual flower become as rich as our interactions with a physical flower, the virtual flower is just as real.

  2. Anonymous12:13 PM

    From my perspective as a marketer, virtual goods do not surprise me at all. To paraphrase Harvard's Theodore Levitt,"people do not buy drills, they buy the expectation of a hole." Money traded for any alternative solution that delivers the hole is a fair one.

    What is the difference between a paper greeting card that costs you an outrageous $4.99 + stamp and a buck for a virtual FB heart? They both deliver the same end product - increased goodwill and loving feelings between the exchangers. What is the difference between a new pair of earrings and a virtual outfit for your avatar? They both enhance public persona - for status, for appeal, or for association.

    To me the remarkable insight is that the virtual world is affecting more physical-world markets than we had imagined. It's not just booksellers, music producers and newspapers that may need to retool.
    - Kathleen Schaub

  3. Some economist did the study of all the value of virtual goods (based on eBay auctions etc), and determined the real value of the production of virtual goods exceeded the GDP from such enterprises would aggregate to be the 72nd largest economy in the world, growing at a very rapid clip.