Virtual world biz model – Virtual commerce

While social networks are focusing their business models on advertising, virtual commerce are driving the business models of virtual worlds, ex. Habbo Hotel (90% of revenue), Tencent (65%), Cyworld (43.5%) and Nexon (85%). Statistics on the current market size of virtual goods are hard to come by, but one stat puts the amount that people spend on virtual items at over $1.5bn/year.

Use cases
Jeremy Liew has a great post on the use cases for digital goods; (i) increased functionality (ii) self expression and (iii) communication. The virtual goods in citypixel.com are mostly about self expression, allowing users to personalize their apartments and other spaces.

Citypixel items

The ability to buy a car with virtual currency has introduced virtual goods that increase functionality into the world.

Citypixel car

Ultimately, to maximise the monetisation potential of the virtual world and to provide users with the greatest number of options, all 3 use cases should be provided.

Current adoption rates
Finding statistics on the current level of user adoption of virtual commerce is very difficult. Social networks and virtual worlds are using private companies and don’t have to release these figures. To get a sense of what the average number of transactions per user might be for social networks and virtual worlds, you have to really scrounge the Internet looking for numbers.

The most readily available statistic for these sites is registered users, “active users” or “unique users a month” would have been preferred but there are varying definitions and not always released. I then tried to find how many virtual transactions each social network or virtual world has a month – this was quite difficult and I was only able to find numbers for a few, and they are a bit sketchy. See the table below for my findings:

Virtual items stats

The market for virtual commerce is at its infancy so these low numbers aren’t very surprising. What is surprising is how successful Neopets has been in this area – apparently they have consistently ranked as one of the Internet’s stickiest sites, which would explain alot.

Transaction size
I tried to find the average dollar amount of a typical virtual transactions, but this was even more difficult. The average transaction size on Xbox Live is $2.78, with users spending on average $1.46/month. Maple Story transactions are on average $2.67 with users spending $0.02/month. Facebook charges $1 for each virtual gift. According to Wikipedia, Habbo hotel users who participate in virtual commerce spend $15-20 a month, no idea what average user amounts are though. I’d be interested if anyone has anymore info on how much users are spending on virtual goods

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3 Responses to Virtual world biz model – Virtual commerce

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