Virtual Goods are a Major Source of Revenue for Social Game Developers

Developing games for social networks isn’t at all shocking in this day and age. Companies both big and small make thousands of applications and games year with a fair amount of these games and apps sharing the common goal of making money. Eric Eldon of VentureBeat recently posted details on how quickly virtual goods are becoming a serious income stream for both small self-funded teams and large companies building social games. Eldon writes,

Various estimates given to me by developers themselves and other sources peg some applications as making hundreds of thousands of dollars a month — this is money that a connected investor tells me Facebook itself isn’t even fully aware of.

Virtual goods (or micro-transactions as its known in some circles) have proven that small games and apps such as (fluff)friends, which works with the same principles of the popular 90’s Tamagotchi toys, can get users to pay for items, features and upgrades with real world money. If these micro-transactions are made by just a small portion of regularly engaged users, developers can see healthy margins.

Korean MMOs have been doing similar things for several years. Games such as RF Online, Archlord and World of Warcraft, which has over 12 million subscribers, can be played for free in Korea, and users only pay for items in the game world which improve character development and other status levels. Microsoft, Nintendo and Sony have also done their own brands of arcade and mini-games withadditional fee based, downloadable content. For example, Square Enix title Final Fantasy Crystal Chronicles: My Life As King charged small fees for additional content after the game was launched.

We’ll be tracking the growth of the virtual goods economy within social games as the space matures.

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8 Responses to “Virtual Goods are a Major Source of Revenue for Social Game Developers”

  1. Matt Mihaly says:

    Just a note Greg: WoW does not do virtual asset sales in Asia. There, one either pays a subscription (much less than the Western rate) or pays for time at a PC baang (internet cafe that exists for gamers). WoW gets its revenue, in the latter case, from the PC baang operator.

    It’s also worth noting that the pay-for-virtual-stuff model originated in the West (I pioneered it) in 1997. It arose slightly later (but independently) in South Korea and swept Asia.

    –matt

  2. Matt McAllister says:

    Good post Greg. We agree — the market for virtual goods within social games is big and getting bigger. But real world money isn’t the only way to pay for these virtual goods. Gamers can also take part in ad offers to earn the virtual currency they need to play the games or pay for upgrades, etc. That’s one area where my company, Offerpal Media, really excels.

  3. Daniel James says:

    Sir, we have been doing this for years (since Feb 2005) with Puzzle Pirates, in the US market, and Habbo Hotel has been doing it for longer starting in Europe and going worldwide.

    Also, World of Warcaft is not a Korean MMO and uses the subscription business model, not microtransactions.

    Excellent examples of the prevalent of microtransactions in social environments in Asia would be Cyworld in Korea (I think est. $200mm+ in 2006) and Tencent’s QQ in China. Both are very big businesses built upon ubiquitous social networking/IM platforms respectively. The astonishing thing is that Facebook and Myspace have not taken the fairly simple step of building a wallet and the other supporting pieces of a virtual economy.

  4. Facebook adds more social features to ads » VentureBeat says:

    [...] speaking, these engagement ads may be worth something. Virtual goods are already starting to make more money for third-party application developers; certainly, branded goods are an area for [...]

  5. Los mejores juegos de la semana | Facebook Noticias says:

    [...] Virtual Goods are a Major Source of Revenue for Social Game Developers [...]

  6. Inside Facebook » Facebook Selling Virtual Gifts at $30-40 Million/Year Rate says:

    [...] Virtual Goods are a Major Source of Revenue for Social Game Developers [...]

  7. Robert Tolmach says:

    $35 million a year on facebook virtual gifts!

    Now, the dollars you spend to send virtual gifts can also make the world a better place.

    A new nonprofit app on facebook, Changing The Present, makes it easy. Your dollar goes to the nonprofit you choose, and the picture your friend receives shows what you helped accomplish.

    THEN: send a picture of a cupcake
    NOW: help feed a hungry child

    THEN: send a picture of lips
    NOW: help fund cleft palate surgery for a child’s smile

    THEN: send a picture of a flower
    NOW: help preserve acres of the rainforest

    You can choose from among more than a thousand $1 donation gifts from hundreds of leading nonprofits.

    Imagine the impact we can make together as this new kind of gift catches on!

    Please help spread the word.

    Here’s the app:
    http://www.new.facebook.com/apps/application.php?id=2551062524

    And here’s the related website: http://www.ChangingThePresent.org

    ( Full disclosure: my company, WellGood LLC, consults to ChangingThePresent )

  8. Ahmad Blog » Virtual Goods are a Major Source of Revenue for Social Game Developers says:

    [...] very big businesses built upon ubiquitous social networking /IM platforms respectively. More:  Virtual Goods are a Major Source of Revenue for Social Game Developers Posted by: Ahmad No [...]

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