Real Growth in The Virtual World

December 26, 2008

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.

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