The Reality Check
By Azam on October 27, 2008 
The current economic environment is posing a serious threat to real world economy. The finical market turmoil has depressed market indices and share prices. As a result, firms are bracing for further fallout in economy as deteriorating demand impacts financial visibility and outlook. Companies have been cutting back on capital expenditures and operation for a new reality and economic environment. Another alternative space, the virtual economy may offer an interesting opportunity and insights for those who venture into a realm with a different version of reality and economic environment.
SecondLife
Second Life has gained significant recognition as an alternative universe with its own virtual economy.
“Despite the chaos in the world’s economies, economic indicators for Second Life remain strong,” he said. “The Second Life economy grew 84 per cent from September 2007 to September 2008 to more than $US37 million.”
Another interesting point is the Liden dollar is relatively stable despite the fluctuating currencies in world currency markets.
More on Second Life Economy: Economic Statistics
The Virtual Economy is Comprised of Virtual Goods and Services
The virtual economy produces virtual goods to be traded. These virtual goods are typically fancy clip art or digital pixels representations of items or brands. Virtual goods are quite profitable portion business for publishers of content and social networks. Facebook is expected to earn an estimated $35M off of virtual goods. Others point that the virtual good estimate on facebook is only a portion of the actual revenues generated from virtual goods from developers portion of the business is closer to $55-60M, and the total business from virtual goods on facebook is closer to $100M
Reported in VentureBeat
Facebook virtual goods revenues
Here’s a sum total of revenues produced in the virtual economy:
Facebook’s “Gifts” application: $30-$40 million
Independent applications: $55-$60 million
Total: $85-$100 million
The social networking space offers an enormous opportunity for virtual goods. According to various sources the virtual goods market is estimated to be $1.5B to $2 billion. Gaia Online and IMVU are reported to be selling $1M a month of virtual goods. Virtual goods usually sell in the $1 range and amount to sizable amount of business as online communities scale in size. Social Networks provide the ideal environment for interactivity and sharing digital media content between users.
Gaming
The videogame business at more than $18 billion a year continues to outpace the Hollywood box office with its hardware and software sales, and, according to NPD, 72 percent of the population ages 6 to 44 played videogames last year, up from 64 percent in 2006. Young adults spend an average six hours a week gaming, according to in-game ad firm IGA Worldwide. Gaming is serious business and a major source of entertainment for a large segment of the population.
Double Fusion Ad agency predicts an eye-popping 150 percent to 200 percent growth in 2009, while technology research firm Parks Associates, Dallas, estimates that what was a $54 million business in 2006 could hit $800 million in sales by 2012. Throw in virtual worlds, a host of casual online gaming, cassette and PC games, and platforms like Microsoft’s Xbox 360, Nintendo’s Wii and Sony’s PlayStation 3, and that number could jump to $2 billion in the next five years, some studies say.
New Business Models built around Virtual Economy
Just like in any economy, the virtual economy will lead to new business models in the market place to meet demand. Several firms have set out to capitalize on the virtual economy and virtual goods industry as third party services available to the virtual market place.
Viximo is a platform for publisher to sell virtual goods and serve advertising on their sites. Twofish and PlaySpan are two companies working to help managed the virtual realm by offering a solution for backend infrastructure for publishers to managed transactions of virtual goods that are traded. In gaming area, LiveGamer is a online exchange for gamers to trade virtual goods and currency involved gaming environment for greater transparency.
Investors are betting heavy in the future in the virtual realm. Investors have poured $493.5B into virtual world(s) this year, and after investing $1B in 2007,according to Virtual Worlds management. The opportunities in the virtual world and virtual marketplace for goods is promising as users continue to gain interest and become more involved in the metaverse being created. The virtual economies in virtual environments continue to grow and are evolve as users and developers find new ways to interact and share.
Virtual Reading List
VentureBeat facebooks virtual economy may be making up to 100 million this year
Light Speed Ventures facebook selling digital gifts at a 35m run rate
FT techblog virtual goods networks could rival ads
Categories : Media & AdsTags : , Gaia Online, IMVU, LiveGamer, MetaVerse Social Networks, PlaySpan, SecondLife, TwoFish, Virtual economy, Virtual Goods, Viximo