Merry Virtual Christmas: $30 Million Spent on Virtual Items over Holidays

Virtual economies are the subject du jour for 2010, and the mainstream media is catching on. Could it be residual hype from the booming virtual goods market or something much more fundamental – a growing understanding that these worlds are more than mere games?

During a Christmas shopping season that disappointed most retailers, virtual goods sales had a banner year, moving tens of millions of dollars in digital loot and setting up for a solid 2010. Is the growth of the virtual goods market a long-term trend?

Pixels and Policy takes a look.

Stockings Filled with Pixels

Techcrunch recently reported on how the virtual holiday season exceeded the expectations of even tech optimists, with companies raking in over $30 million from the sales of virtual goods. Playspan, the company responsible for many of the transactions that pushed virtual sales to their high water mark, expects big things in 2010.

From the article:

PlaySpan powers micro-payments across over 1,000 video games and
virtual worlds and has virtual goods storefronts on Facebook, MySpace,
within games and on its standalone site. PlaySpan’s research found that
one in five of its digital goods buyers also gave virtual gifts. And
about 15% of all virtual gift giving occurred during the November and
December months.

Here's something to consider: The $30 million spent on virtual gifts this holiday season is only the reporting of one virtual currency exchange service. We've heard nothing yet from Offerpal, by far the largest name in the field. There are also interesting comparisons to be made between virtual and real-world gifting over the holiday season. Consumers worldwide spent around $30 billion on the holidays, a number only marginally larger than last year.

By comparison, a much smaller market of consumers purchased $30 million in virtual goods from a single company. Sure, virtual sales account for less than 1% of the real-world holiday market, but given that virtual sales came up from next to nothing last year, the trend could grow through the year. Given the novelty of social gaming websites that allow real-currency transactions for virtual goods and the growth they've seen already, those are some impressive figures.

We've already reported on how virtual economies are booming in 2010, with social gaming companies like Zynga raking in millions of dollars in preparation for a public stock offering within two years. Zynga's sudden desire to jump into the public market shows a desire for increased funding, and it's a clear indicator that the developers behind Farmville and Mafia Wars plan to be around for the long haul. Zynga has every right to feel confident – their revenue is surging into the high nine figures.

An Expanding Marketplace

With holiday sales of virtual goods setting records, it's fair to ask what the life expectancy of the virtual goods market is. We're almost certain to see a downtick in sales as social gaming surges into heavy market saturation territory.

The success of the virtual goods market has every forward-thinking company and wannabe producer rushing to develop iPhone apps and Facebook games. Every consulting and entertainment personality has an article on making money from iPhone games and social networking, and the number of "social media and gaming experts" on Twitter now includes over 15,000 people

Just like the Gold Rush, most of these companies aren't going to find Zynga's success, just like the swell of MP3 player developers failed to yield many memorable units. Who's using the Creative Labs MP3 player anyway?

We could also see the rise of companies that build a business plan around supplying virtual gifts for the holiday season. Unlike physical stores, virtual merchants like Playspan and Offerpal have no physical inventory and low overhead related to content creation. Companies like these could easily make enough money to survive the year by linking up with one or two Farmville-esque games, all while planning a holiday blitz aimed at gamers.

It's a solid market, and all evidence points to its continued growth. Now it remains to be seen how the industry digests the still-emerging holiday figures, and whether we'll see an even greater shift towards smart marketing from companies like Offerpal. It seems wholly likely 2010 will be the year of the virtual currency transaction.