Real Growth in The Virtual World

With a recession stifling business activity across the globe, what economy is expected to generate growth in 2009?  The virtual world economy, of course!  I believe that with consumers affording less these days, they’ll naturally spend an increasing amount of time online (in social networks and virtual worlds) and in video games.  Consider the following chart from Linden Lab:

Monthly User Hours from Second Life residents is at an all-time high.  Linden Labs’ data also shows that User to User Transactions had strong growth in 2H 2008 totalling over $100MM in Q3 2008 alone.  Strong growth should continue through 2009 for Second Life and other virtual worlds.  The virtual world platforms will benefit both from new member sign-ups, as well as increased activity from existing members.  We should see a network effect take place, where new users sign up via encouragement from their in-world friends.

Sale of virtual goods will also see strong growth.  Jeremy Liew of Lightspeed Venture Partners estimates that Facebook is generating virtual goods sales at a clip of $35MM per year.  That’s pretty good – and I expect that virtual worlds platforms can benefit from similar volume/revenue.  After all, virtual worlds are a natural venue to exchange virtual goods.  Linden Labs tracks user to user transactions and I think a trend in 2009 will be user to merchant transactions, in Second Life and elsewhere.

Another area of interest is in video games, where in-game advertising and commerce seem to be a natural fit.  I believe that gamers are more engaged in their activity compared to virtual worlds users or social networkers.  And while that may result in sensitivity to advertising, I think that relevant and useful ads can receive significant response rates and that in-game commerce can be huge.  We’ll want to watch this area in 2009 and beyond.

8 Responses to Real Growth in The Virtual World

  1. […] everyone is downbeat though. Dennis wants to convince us (and perhaps himself) that the virtual economy is likely to grow in 2009. Perhaps not coincidentally, Dennis is in the business of organising virtual trade […]

  2. dshiao says:

    In a Marketing Voices podcast hosted by Jennifer Jones, IMVU CEO Cary Rosenzweig notes that his company is generating $1MM per month from the sale of virtual goods. Quite impressive.

  3. dshiao says:

    Interesting quote from a NY Times article by CLAIRE CAIN MILLER:

    “Instead, investors are looking for sites that make money in ways other than selling ads, like selling subscriptions or virtual goods. Selling 50-cent costumes for online avatars might not seem to be much of a revenue model, but pennies add up.”

  4. rightasrain says:

    entertainment is classically counter-cyclical, but that doesn’t mean that people will automatically spend more money in virtual worlds. In fact, the hours are increasing in SL, but the number of people spending money inworld is declining slightly. This is probably due to lack of new users in SL and the existing users have bought enough stuff already.

    Big issue in difficult economic times to deliver real value to consumers–so even virtual stuff has to deliver–something like more fun, more status, more power.

  5. dshiao says:

    Good point. My hypothesis, though, is that difficult economic times may facilitate business in virtual worlds. After all, delivering something like “more fun” (at a low cost) should be easy to achieve.

  6. dshiao says:

    Another angle to this is real world to virtual world product integration (and sales). Check out what Disney has done with their Pixie Hollow virtual world, tying it in with product sales of Disney Clickables Fairy Charms (similar model to Webkinz). Relevant article here:

  7. dshiao says:

    Cory Ondrejka, former CTO of Linden Lab, projects steady growth in Second Life in 2009:

  8. dshiao says:

    Zynga, a provider of multi-player web-based games, apparently had $50MM in 2008 revenue, primarily from the sale of virtual goods:

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: