[Dan Jansen is Founder and CEO of Virtual Greats, an "IP aggregator" company that specializes in organizing partnerships between brands and social game developers to provide what we term "light" level brand integration in our ongoing article series on the subject. In this guest post, Jansen explains strategies for choosing to offer either branded virtual goods (BVG) or integrated virtual goods (IVG) to make money.]
Companies like Virtual Greats broker deals between intellectual property holders and game developers to drive revenue for the brand by selling BVGs. We believe this is an emerging multi-billion dollar product category that most brands have not entered. While General Mills and McDonalds have gotten attention through their recent Zynga promotional campaigns, most brands have only begun to consider advertising in the space, let alone selling; and though an entirely new revenue stream is great, the gross margins available in this category are even better than what most brands realize in their physical products. With minimal marginal cost and almost infinite shelf space (i.e. server capacity), gross margins can exceed 90%. One of our best selling items cost approximately $200 to develop, and we have sold more than $80,000 worth of the item.
While in-game virtual items may appear similar, there are two different economic models behind them: branded virtual goods are purchased by the user, while integrated virtual goods are funded by the brand and offered for free to the user. This is analogous to the television model where some of the stations are “free,” or ad supported, and some of the stations are consumer funded (i.e. pay TV for premium content on cable or satellite). Using targeted partnerships, BVGs allow brands to unlock value and capture dollars previously uncollected or unrealized. While all brands may not be appropriate for BVGs, there are still thousands of brands that have yet to realize a new audience and consumer base in social games.
Bridging the Gap between Brands and Developers
This concept moves brands from a traditional advertising model to a consumer-funded model by turning brand’s advertising costs into a new revenue stream. Instead of brands advertising their goods, they are sold as BVGs in the social media marketplace while still achieving many of the promotional goals for free. While this model is still “light” integration, it approaches the partnership from a revenue creation point-of-view and a different source of funding (i.e. consumer paid).
Because of the massive fragmentation of the social media market, licensed IP aggregators are able to bring scale to both the brand and game developer. IP aggregators like ourselves are trying to help a brand sell itself to multiple game developers at once, and help a developer to find licensed IP from brands to include in a game. This is especially useful for developers who are trying to get access to entertainment and consumer brands.
The Business of Branded Virtual Goods
Business models vary, but the business of branded virtual goods partnerships can be structured as flat rate fees or revenue shares. In the consumer-funded model, the end user is paying for the BVG and from these funds the IP holder takes a percentage. In the brand holder funded model, the brand advertiser pays, and the end user receives a free asset. Typically, the goal for this particular model is for the brand to create awareness for its product and not to generate revenue. This is an important distinction and the business model used will depend on the brand and the brand’s primary end goal: directly drive revenue (use consumer funded model/paid for BVGs) or drive awareness to achieve other promotional goals (use brand funded model/free BVGs).
All BVG campaigns are highly customized and collaborative between the brand and platform, with both parties focused on the goal of generating user engagement to lead to additional revenue and brand recognition/awareness. This collaboration helps determine which brand assets would be most attractive to platform users and how to maximize user response. Typically, assets are designed by host platforms, based on current looks and imagery to best incorporate the true style of the brand. From a brand’s perspective, they want mass distribution and exposure to create additional revenue. Authenticity and a high level of integration are paramount when designing a successful BVG for both the brand and the platform.
Activations in the virtual goods marketplace are most profitable, if the consumer is able to integrate the brand into their social media or game playing experience. For example, if a pair of branded Skechers shoes can help an avatar get fit/change body shape, there is a compelling reason to purchase that asset versus a regular pair of shoes. The brand goal is to use the virtual good’s functionality to support the brand promise from the real world. In general, some asset types typically sell better than others; for example, we find that hats are more popular than hoodies. Our data also shows counter-intuitive findings like more expensive items selling better than less expensive ones. We find that bundling items is also a powerful sales driver.
Measuring campaign results from both the brand and platform perspective can vary greatly, however most are judged on revenue, new user acquisition, conversion of non-buyers to buyers, growth in average price points, and other levels of engagement. In our experience at Virtual Greats, there is value for all parties and our partners frequently renew, with our average platform conducting several campaigns each year. One of our leading fashion brands is launching its seventh release in one game alone.
Case Study: Garfield Goes to Brazil
Brands need to understand that this is also a global market with fewer restrictions given the lack of physical product. As an example of a successful brand integration with a social media platform, Virtual Greats brought the classic cartoon character Garfield into the popular social game Vila Magica published in Brazil on Orkut by Latin American social gaming giant Mentez.
Together, we devised an asset list and product line that reflects the best game use experience, but adheres very closely to the authentic Garfield look and style. What followed was a youth focused line of Garfield hats, shirts, and even furniture items. While Virtual Greats created product ideas with Mentez, Garfield helped refine the proposed BVGs to ensure authenticity and keep consistent with the brand so that Brazilian Garfield fans bought in.
Virtual Greats was able to launch Garfield assets with Mentez within a few weeks of Mentez’s request for the brand. With price points for this particular brand ranging from $0.15 – $1.50 in Brazil, close to one million units have already been sold during this campaign. The Garfield assets are still live on Mentez and available for purchase.
The Facebook Factor
In addition to the numerous social media platforms in the U.S. and abroad, Facebook continues to be a dominant force within the industry. Brands have been very successful on Facebook and are making tremendous use of the platform for marketing purposes. However, the Facebook canvas does not easily allow for an individual brand to sell its own BVGs because Facebook no longer sells virtual goods outside of its games and apps, as opposed to advertising, which Facebook does sell directly.
In response, many brands must scale their own campaigns outside of Facebook by creating customized integration across multiple platforms at the same time in order to achieve scale in this fragmented space. This is not like traditional media where the same thirty second spot or print ad can be rolled out across numerous outlets as each activation should be customized to a specific look and feel or game mechanics. At times a brand’s assets can be repurposed with logos being swapped out and replaced with existing assets, however, so more time and investment is not necessarily required to diversify platform options for users.
Beyond Light Integration
Light integration means more than just placement of a BVG within a game. It is a revenue driving opportunity; in addition to the brand awareness impact any particular asset creates. We see continued growth in this sector on both consumer-funded BVGs and brand-funded IVGs. Both models are thriving and can be mutually reinforcing. The science of integrating brands into social games on this level is making a match between the platform and the brand and then focusing on creating a compelling BVG that is functional, relevant and popular.
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