Virtual goods make money
In a recent post about the profitability of online social networks in the US, China and Japan, venture capitalist Bill Gurley presents evidence that the more financially successful social network sites are those that downplay advertising revenue and focus on revenue from virtual goods. He points out that Users in Second Life are doing $450m annually in this business and taking out of Second Life $100m a year.
But why would anyone buy them?
For those who can’t understand why anyone would actually pay for virtual or digital goods, the author points out that product branding has been doing this for many decades. He gives as an example a pair of Chanel sunglasses, sellling for $329. The point is that without the prominantly displayed Chanel logo, consumers would be unlikely to pay more than $50 for them. They are buying an image, a dream, a virtual product.
Jeremy Liew gives some more great examples in his WSJ article, Why do people buy virtual goods?
Every product has several components of value
Eric Ries of social network IMVU suggests any product has a virtual component as part of what it offers and he lists the main components in rough order of significance:
- Practical utility
- Perceived value
- Social value
- Identity value
The key points are first, that the significance grows as you move down the list; and second that a product that has only one of these values will fare relatively poorly (For example what Facebook failed to learn about social objects is that almost nothing is a pure social object. Purity makes social objects less valuable, hence virtual gifts on Facebook seem like spam – though they’re still selling, proving that even social value alone has a dollar sign - whereas in Second Life they seem more genuine – read: have more types of value – and so Second Life sells more).
“when given the choice, try and move up the hierarchy of value. If given the opportunity to work with two customer segments, one of which sees your product as a basic utility and another of which sees it as a lifestyle statement, choose the latter. IMVU made that choice early on, when we abandoned some profitable customers who wanted to use our product as a regular-IM substitute. There was no way to service them while still engaging with the goths, emos and anime fans who were rapidly becoming IMVU’s top evangelists. We doubled-down on identity value, and it worked out well.”
The Greatest Story Virtual Product Ever Told Sold
What this is leading to is that the Church is a really great purveyor of virtual goods, starting with God. But because it doesn’t quite think of it in this way it may be missing a lot of opportunities.
At the start of Lent the Italian Catholic Church has been in the news for suggesting Catholics should give up texting and online activities for Lent. However, some Catholic commentators have questioned this or even ridiculed it. The UK charity Christian Aid has done the opposite and set up a ‘virtual pilgrimage‘ online, allowing users to ‘travel to’ and reflect on locations in the Holy Land.
By reflecting a bit more on the fit between virtual goods and the virtuality of the deity, Churches might do better at what they do. On the other hand, these virtual goods analysers might equally do well to watch what the church does – it’s the original and still the best…
[Danah Boyd of Microsoft Research has more about social media.]