Virtual Goods Summit: Are Virtual Goods the Next Big Business Model?

Online advertising has been a growth drive for many of the leading properties on the web today. Is advertising the best business model in all cases or are there situations where virtual goods can be a strong complement? What does it take to build a strong business model around virtual goods? These and other topics will be the centerpiece for this panel discussion.

» Kevin Efrusy, Accel Partners
» Tim Stevens, Doppelganger
» Dan Kelly, Sparter
» Susan Wu, Charles River Ventures (moderator)

Kelly: We are in our infancy, and can't look at transactional data and look at the market size. If you listen to what the game companies are talking about, how the market was on eBay before they shut it down - it's easily a $1.5B secondary market. If you look at the subscription market, there's an imbalance in the market that includes speed-bumps. The primary market will continue to grow.

Efrusy: When we talked to Facebook about virtual goods, he thought it was too dorky. Then he thought about it, and it was an expression of social capital. It's a material revenue stream - not to the overall revenue - but if I had a startup doing that business in virtual goods, I'd be ecstatic. It's very high-margin, no cost of sales. I've gotten a dozen virtual gifts - and I'm lame - then there must be people that are getting a ton of virtual gifts.

Stevens: It's an expression of what the item means. It's an expression of affection. We enable people to buy things virtually that they might not be able to purchase in reality. It's the same power in the virtual world that they would get in the real world. It represents not little items, but social capital that you can wear, give, gift.

Kim: It's value and ease-of-use. Look at Cyworld - they make it easy to customize your page. If you get to that ease-of-use in the US for personal pages, people are going to continue to personalize and showcase themselves on their pages, including paying.

Stevens: Half our revenue is virtual goods, but over time the advertising component will become more dominant while goods will be less dominant. The content creator creates virtual goods. Over time, you'll see the blending of virtual goods and advertising. It's inevitable.

Efrusy: Gifting was experimental, and worked very well. The real opportunity is for people to take advantage of the platform. Facebook was throwing out examples, and now what people can do is take an immersive experience on top of their social graft. It'll be rocket fuel to accelerate your community. It's more than widgets, but taking advantage of the platform. Build something immersive that's still your users - you can still own it but on Facebook.


Kelly: There is no virtual, but there is only physical. We reward good content, and embrace them for spending time and money (beyond) on the products we are making. Publishers and developers are having a hard time with this market because of ownership, commerce - there's a lot to be fearful, but you can give consumers what they want and keep what the corporation needs and wants.

Efrusy: We encourage Facebook to be open - we want people to build in there, and become successful in there - and that's the goal. It's not a closed system. Foster a platform for entrepreneurship.

Efrusy: How much utility do you get out of real flowers? They are there for the good feeling, and some businesses are better suited in advertising. Some are immersive and good demographics, and can make money in advertising.

Stevens: Take advertising and make it integrated into the community. The purpose is integration - think Times Square.

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