Mike Arauz's Blog – The Archives

Why would a teenager pay $4 so that their little avatar can walk around the virtual world of Gaia Online dressed up in Elvis' white-rhinestone jumpsuit? How does Facebook get away with charging $1 to allow you to copy a little .gif image file onto your friend's wall? Why are virtual goods a $1.5 billion dollar world-wide industry?

Yesterday, Marta Kagan, tweeted about an interesting little article in the NYTimes about the money to be made through the sale of virtual goods. Some highlights:

Gaia Online, a youth world with seven million monthly visitors, sells more than $1 million a month of virtual goods and expects a record month in December, said its chief executive, Craig Sherman. One rival, IMVU, has also had a 15 to 20 percent increase in sales since September.

By most estimates, customers spend about $1.5 billion a year on virtual goods worldwide. Tencent Holdings, a publicly traded Internet media company based in China, is the leader, with hundreds of millions in annual revenue from virtual goods in online games and other applications.

Virtual goods have profit margins of 70 percent to 90 percent because they do not cost much to store, reproduce or distribute.

That's a pretty good profit margin, huh?

Buying certain objects to carry and pieces of clothing to wear as a way of constructing our identity isn't new. Now, that behavior is migrating into the online space. These online identities are no less meaningful to us simply because they're online. And most people's online identities are still in their early childhood or adolescence. This is the time, more than any other, where we eagerly seek out opportunities to play with badges and characters and symbols that help us to define who we want to be and how we want other people to see us. It's no wonder that this is a billion dollar industry, and growing fast.