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By Simon Fuller. Avatar adds. Some $1.5 billion worth of virtual goods were sold around the globe last year. And that means items people buy for their gaming avatars, as well as food for their virtual pets, along with iPhone apps centred around a musician’s brand image.
The figure even includes virtual imitations of pop star Justin Timberlake’s fedora – for those who feel their avatar simply can’t be without such headgear.
And now many high-end brands are entering the sector to sell goods and earn good margins. “In the physical world, brand premiums are approximately 40% to 60%, and in the virtual world it’s 300% to 500%,” says Mat Small, PR director at social marketing outfit Millions of Us.
The sector is also good value. “Beyond profits, there is definite CPM value here in that brands can get in front of an attractive demographic and make money, rather than just paying for exposure,” Small explains
The environments where these goods can be bought are as varied as the types of goods themselves. Social networkers can dabble with Facebook gifts, and there’s also a sizeable market on virtual worlds like Second Life. And the destination FooPets, the virtual pet environment, features Nestlé-sponsored pet food.
“[The arenas in which virtual goods are sold] have grown exponentially over the past five years,” explains Brian Balfour, founder of virtual marketing outfit Viximo. “But users behave completely [differently] in these [areas] than they do in other online properties, such as search, editorial content, etc. Even though the user behaviour [is] totally different, no one took the time to match the business model to this behaviour.”
Instead, marketers on virtual worlds and social networking sites went for banner ads and other traditional forms of advertising, which were ignored by users of these environments, resulting in low CPMs.
“But what virtual goods do is match the business model to the user behaviour and value,” continues Balfour. “Virtual goods are basically a premium way to socialize, gain status, or gain an advantage in these communities. These are all things users value within these social environments.”
“[The virtual good sector is about being] social, about using accessories to tell people who you are, just as in the real world – when I was younger we did that at the mall, but now it’s online,” says Small. “People want to be associated with something luxurious, or to show some connection to their favourite stars, athletes, bands and so on. I think there’s an aspirational element here.”
And so brands might also be able to make a deeper connection with consumers through virtual goods. “There’s always talk about how brands can ‘be part of the conversation’ going on within… social networks – virtual goods are finally that opportunity,” says Balfour. “Take virtual gifts for example. Users send others virtual gifts as a social gesture. A brand can sponsor a virtual gift, making it free to users. [When] users opt in to sending that gift, [and] spread it virally to their friends, they are personally endorsing the brand. It gets posted on their profile and the receivers’ profile – it’s part of a conversation.
“That is much deeper engagement than you are going to get [through] any other form of sponsorship/advertising on the web,” he adds.