DESTINATION #2: HOW THE VIRTUAL GOODS MODEL IS GENERATING REVENUE FOR BUSINESSES

Warm welcome to those reading, I hope you’re all well and refreshed for today’s tour! 


“THE YEAR 2009, THE YEAR OF VIRTUAL GOODS”
(Mitham, 2009)

So welcome to our destination #2, which is about the Virtual Goods Model. Now you’re probably all wondering, “The Virtual Goods Model”, what is it exactly?

The virtual goods market has grown over the years, with it standing at $2.9 billion in 2012 for the US, with that, for the global market, it was a staggering $14.2 billion (KZero Worldswide, 2009)

Remember playing those games such as Candy Crush, Temple Run, FarmVille, Habbo Hotel and Club Penguin? Then remember how because you needed seeds to grow more plants, you would buy those virtual currencies such as “coins”? Well that my friend is essentially The Virtual Goods Model placed in simple terms.

virtual-goods-facebook-500x292
Here we can see that in the game Farmville, players are given the option to purchase farm cash/farm coins. The farm cash/coins will be able to help them plant more trees or purchase more animals in which they can potentially sell to earn more money. In wanting to purchase these cash/coins, you will have to use real money to receive these virtual goods money in return.

Image source

 

Businesses are potentially generating revenue by having players purchase virtual goods. That is, players are spending their real money to purchase virtual money, so that they can purchase items for the virtual game (Hamari, 2015). It may sound simple, and you may be thinking, “who would be stupid enough to actually spend real money, to buy virtual money, just for a game that isn’t even real life?”. Well my friend, you will be amazed as to how much and how many individuals actually purchase these virtual coins/money.
To show you, I have some figures which illustrates how much businesses actually make from players buying these virtual currencies.

  • Club Penguin generated $65MM in 2007
  • League of Legends generated $250M in 2010
  • Habbo Hotel had an estimated 75 million registered avatars across 29 countries, where 90% of their $60 million revenue came from virtual goods yearly
  • Tencent, one of the largest Internet portals found in China had over 250 million active user accounts. They generated an estimated $100 million in the first quarter of 2007, with over 65% of their revenue coming from virtual goods (Wauters, 2007).
sale_of_virtual_goods
Sales made from virtual goods has seen to increase from 2008 to 2013. Year by year, the virtual goods sales are increasing.

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Traditionally, games were based through subscriptions, where players had to pay a fee to play the game. Over the years however, there has been a shift and change. Games are now free, however, players are invited to enhance their playing experience, create a better virtual character, accelerate their progress or to create a space that is more visually pleasing, by simply purchasing virtual goods using real money. Additionally, selling of  virtual goods isn’t only seen in online games or virtual worlds, but is increasingly becoming familiar among social networking sites also (Lehdonvirta,2009).

 

It’s truly amazing as to how much people are willing to spend on virtual items yearly.  In 2008, people were spending a total of over $1.5 billion on pets, coins, avatars, seeds, gold, diamonds and bling (Wauters, 2007). What could possibly be the reason behind possessing individuals to spend their real hard earned money on objects which ultimately have no tangible substance?

So tell me, I’m curious to know, have you ever purchased any virtual goods? Leave your thoughts in the comment section below. I’m interested to know your views on virtual goods as well, is it worth it? Or is it not?

And for now, that’s the end of today’s tour.

I hope we all had a great time, but now it’s time to hope back onto the bus.

Until next time,

Destination #3 here we come!

Your driver,

Teresa

PS. For those would like like to know more about the purchasing patterns of virtual goods, I have a reading for those interested.

For those who still don’t understand virtual goods, here’s an extra short video on virtual goods to watch: Spending Real Money: Purchasing Patterns of Virtual Goods in an Online Social Game

For those interested in knowing how marketing ties in with virtual goods, this reading will be useful.

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2 thoughts on “DESTINATION #2: HOW THE VIRTUAL GOODS MODEL IS GENERATING REVENUE FOR BUSINESSES

  1. Hello Teresa,

    I definitely do remember playing Temple Run, Candy Crush and Habbo Hotel. I was once very obsessed with playing those games. If only I spent just abit more time studying than I was playing games back in the day.

    I didn’t realise that people actually spent real money to purchase coins for these games. I mean, I had seen the ads that if I wanted to boost my energy in a game, then I could purchase from the game store, however I always laughed it off. But turns out these virtual games do make money and generate quite a large amount actually.
    In my opinion, I would never spend real money to upgrade the virtual game. I believe it’s not worth it. It’s only a game, what can you get in return anyways, it’s fake, and not real.

    Like

  2. Hi Henry,

    Although I didn’t’ play Candy Crush and Habbo Hotel, I definitely did play Temple Run. I even have Temple Run 2 downloaded on my phone too!

    Those games were quite addicting aren’t they. First you say you’re just going to take a 5 minute break, but then that break lasts for an hour because you become so engrossed in the game that you forget about the time.

    Just like yourself, I have seen the ads towards purchasing virtual coins/golds several times, however have never been that interested to purchase any. I personally would not spend my real money to purchase virtual money, however that is not the case with everyone.

    I came across an article talking about how the added features cannot be seen in the real world, and so this factor makes it appealing towards players. Hence why they may adopt to spend real money and purchase these virtual goods/features. Here’s the link to the article : http://www.hypergridbusiness.com/2009/09/the-future-of-virtual-goods/

    As you can see the statistics I presented in the blog post, the virtual goods model was doing quite well in generating substantial amounts of revenue.

    Will virtual goods still generate large amounts of revenue in the future? I’m honestly not sure, however this article that I came across is showing that the mobile games market is growing in its total revenue. Here’s the link : https://psmag.com/virtual-economies-are-the-future-of-consumption-7b290c79d867#.bcbjyurg5

    Thanks for commenting.
    Appreciate your time.
    Regards,
    Teresa

    Like

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