Virtual Goods and The New Digital Retail Revolution

Earlier this week, New York City’s Jacob K. Javits Center played host to a convergence of two trade shows, as both the 107th American International Toy Fair and Engage! Expo welcomed a diverse group of exhibitors and speakers.  For certain attendees, the pairing of Toy Fair with the Engage! Expo, a conference that focused primarily on virtual goods, might have at first seemed somewhat out-of-place.  Beyond the giant stuffed animals, puzzle games, and highly popular robotic hamsters that populated much of Toy Fair, Engage! showcased  leading entrepreneurs in the new digital retail phenomenon – the virtual goods industry.

As reported by Inside Network and covered here on, this year, the virtual goods industry is projected to drive $1.6 billion in revenue in the U.S. alone.  While the ability to purchase virtual goods has existed in online communities for quite some time now, the phenomenon that is social gaming hasushered in a brand new audience for microtransaction purchases – the general consumer.

While traditional retailers and toymakers struggle to survive the stormy and rather unpredictable economic recession, the virtual goods industry is booming.  Selling non-physical items, the providers of virtual goods have seen just as much (and presumably more) success than long time brands and veterans of the physical toy industry present at the Javits Center this week.  The reason for such success is simple – the provider of the virtual good, which can be looked upon as a modern toy manufacturer, is smarter and armed with more consumer information than the producer of the antiquated physical retail toy.

The virtual goods market has thrived by directly connecting with its consumer base.  Virtual goods producers, including social gaming developers and publishers like Zynga, Playfish and Playdom, can maximize their revenue by implementing virtual economy currency platforms that help control and manage their in-game monetization systems.  Going beyond the incorporation of the basic economic principles of supply and demand and scarcity, virtual goods providers are able to quickly learn valuable information about their consumers in ways physical retailers simply cannot.

As part of the “Getting Paid: Payment Systems That Power Virtual Goods” panel at Engage!, Social Gold’s Mike Haswell elaborated on the advantages of implementing virtual currency payments systems, such as the product offered by Social Gold, to virtual goods producers.  Haswell and his fellow panel members  noted that through the creation of strong databases of consumer information and the in-depth monitoring and reporting of spending habits, data mined by virtual payments enablers offers virtual goods producers with instant feedback on how to effectively manage and maximize revenue in their virtual economies.

Mike Haswell and Chris Houtzer of Social Gold with a new (or "old") friend

By knowing how much a consumer spends on virtual goods within a social game (commonly referred to as “average revenue per user” or “ARPU”), which items are selling particularly well at different price points and during various time periods  (holidays in particular), and how these goods are selling in specific geographic locations through methods such as geotargeting, virtual good producers have an enormous advantage over retail toy manufacturers, who must wait for such data to come in over much longer periods of time.  With an arsenal of information readily at bay, virtual goods providers can quickly adjust items found in their in-game economies to ensure efficiency and growth.

While there will always be room on the major retailer’s shelf for the physical toy, the virtual good is quickly establishing itself as the faster, better, stronger option for entertainment in the digital age of retail.