Notes from Virtual Goods Summit: Branded and User-Generated Virtual Goods

In talking about branded virtual goods and brands, Amy Jo Kim CEO, Shufflebrain, pointed out there is a diference between virtual goods and player-created goods, though Lee Clancy, VP of Product Management and GM Direct Revenue, IMVU, added a third category, brands created by successful artists.

“People are checking to see when Ansche Chung is coming out with a new product or Racer808,” he said. “These aren’t corporate brands, but they’re brands within the virtual world.”

The bulk of goods that people talk about are clothing items or decorations for rooms: bits of customization.  Sean Ryan, CEO, Meez, pointed out that you can move beyond that. When you hold an event, the ability to sit in the front row can be thought of as a virtual good. It’s not attached to the avatar, but it is a symbol of status.

“I would encourage everyone to broaden their thinking about virtual goods, because, really, you’re about two inches high. And really, when you’re two inches high, there’s not that much difference between your shirt and mine,” said Ryan. “If you broaden past vanity items and talk about status, because really it’s about status and showing personalization, how you then do that through virtual goods or branded goods is a part of that, but always come back to status.”

In the other direction, Kim pointed to virtual goods that aren’t tied to avatar services at all. They proliferate on social networks like MySpace and Facebook, but she highlighted the success of SmileBox, a site for scrapbookers that allows users to “pimp out their scrapbooks. It’s a niche, but a very strong niche.”

90% of IMVU's revenue comes from virtual good sales (the company sells some of its own and charges for currency conversions that enable other users to sell or profit from virtual goods), but Ryan argued that they can also be used as a layer of revenue services. [Conversations I've been having recently point to a possible recession-related downturn in ad sales for virtual worlds, but stability or growth in virtual goods and/or subscriptions--a trend Forbes looked at today as well.] Part of that is that you can sell goods for a range of prices, appealing to both hardcore and casual users.

"We put out a VIP package and went out at $6 a month and found that pricing didn't matter. We could have gone $10 a month and it wouldn't have mattered," said Ryan. "But then we looked at some lesser items and they had to be less. If it doesn't show status, it's not as important. The value of branded items in the system is not always clear, so you have to look at it from what your users want."

That's especially true in "identity avatars," he explained. Users don't always want photos--they're too personal, they're not flexible, etc.--but they do want avatars that express themselves. There's room for fantasy avatars, but in personal avatars, brands have the most room.

"Because if you look around the room today, we're all wearing brands," he said.

Of course the economy came up. As it stands, virtual goods represent a $1.5 billon market, said Margaret Wallace, CEO, Rebel Monkey. And Viximo isn't seeing that go down.

"it's a much better way to monetize social communities, because sometimes advertising just doesn't work," said Brian Balfour, Founder and VP of Product, Viximo. "The demand among publishers is very high."

The change that's coming isn't in demand, said Kim, but in direction. We're moving with goods from communication to activity. From her experience, social communities trended towards females and games, especially with combat, trended male. Among user creators, females dominated. With the success of something like Rock Band, where purchases enable new gameplay options, gender lines are being split.

Ryan pointed out that in structuring economies and virtual goods systems, it's important to look at goods that enable not just self-expression, but group or community activity. Gifting is a simple example that encourages users to buy for others, but in games like Puzzle Pirates where users buy badges to form crews for their ships, the good, and purchase, is essential to the community.

"You can only buy so much for yourself," he said. "You have to find a way to get more from your heavy users."

Speaking of Meez' partnership with AEG Live, Ryan called it a success. Meez is distributing the goods, which is bringing users to branded band environments for an average of 7 minutes and clicking out at roughly 2% to purchase tickets or music, but they're not selling goods.

"Branded goods are great promotional materials," said Ryan. "It's not clear yet that it's big enough to make a dent in that brand's revenues. You might want to go premium on it, but you have to be aware that the premium branded goods business in the US is really quite small."