A virtual good is an intangible asset traded within virtual economies, commonly found in online games. By nature, virtual goods have no physical presence, and their value is defined entirely by what users are willing to pay for them.
The market for virtual goods has witnessed tremendous growth, largely driven by the surging popularity of social media platforms.
Key Insights
- Virtual goods are intangible assets traded in virtual economies, such as in online games.
- The market for virtual goods has exploded in recent years, with annual revenues estimated to be over $52 billion.
- The line between physical and virtual goods may blur in the coming years as transactions involving the exchange of physical and virtual assets become more common.
Understanding Virtual Goods
For those unfamiliar with virtual goods, it may seem perplexing how companies can charge substantial amounts for assets that do not exist in the physical world. However, their appeal is indisputable. For instance, in 2012, the highly popular online game FarmVille directed by Zynga Inc. generated over $1 billion in revenue from the sale of virtual goods. Similarly, the free-to-play sensation Fortnite sold $1 billion worth of virtual goods in 2018. Globally, recent estimates indicate annual virtual-goods revenues exceed $52 billion.
One way to comprehend the popularity of virtual goods is by viewing them not as products but as services. These goods enhance and enrich the user’s experience within a game or online community, thereby providing added value. This is particularly apparent as many of the most popular games selling virtual goods are free to play, making the purchase of virtual items a voluntary choice.
Unique Challenges
Despite their popularity, virtual goods come with distinct challenges. Due to their digital nature, these goods are susceptible to loss from hacking or technical glitches. Furthermore, their legal status can become ambiguous, particularly when considering the multiple transaction layers they may undergo. To mitigate these risks, many platforms have embraced encryption measures for virtual goods transactions.
Inspirational Real-World Examples of Virtual Goods Advancing Into Reality
The lines separating physical goods from virtual ones are increasingly blurring. This phenomenon has already started, particularly in regions like China, where trading virtual goods for physical items had become so common that the Chinese government introduced a ban on the practice in 2009. Similarly, Zynga Inc. formed a partnership with Frito-Lay in March 2012, offering buyers of Frito-Lay chips redeemable coupon codes for virtual goods within their games’ economies.
The overall size of the virtual goods market is expected to continue rising, especially with the growth of online gaming. This trend is likely to increase the demand for virtual avatars, power-ups, and other in-game items available through in-app purchases. The convenience of these transactions is continually enhanced by app developers. Additionally, there is likely to be a higher demand for rare or prestigious virtual items. An example of this growing trend is when a user of the online science fiction game Entropia Universe spent $330,000 in 2009 to purchase a virtual space station.
Virtual goods may be intangible, but their value and impact continue to grow exponentially, making them a fascinating aspect of our increasingly digital lives.
Related Terms: intangible asset, exponential growth, social media, encryption, online gaming, digital economy.
References
- Deutsche Borse Group. “Changing the Game for the World of Games”, Page 3.
- Securities and Exchange Commission. “Form 10-K”, Page 69.
- SuperData. “Battle Royale: Taking the Game Market by Storm”, Page 6.
- Ministry of Commerce, People’s Republic of China. “China bars use of virtual money for trading in real goods”.
- Frito-Lay. “Frito-Lay Joins Forces with Zynga to Bring Five Million Online In-game Prizes to Walmart Customers”.
