Virtual goods enjoy real-life commercial boom

Spending on virtual goods is booming through sites such as Facebook and iPhone apps even though consumers continue to pinch pennies in the wake of the recession.

The total US market size for virtual goods will reach $2.1bn next year, up from $1.6bn this year and $1.1bn in 2009, according to a new report by Inside Network, a market research group providing news and research on Facebook and social gaming.

The near doubling of sales in two years attests to the swift growth in social games from companies such as Zynga, Playdom and Playfish.

The games, played on Facebook and other social networks, are free but allow users to buy virtual goods, such as a tractor to harvest crops on Farmville.

Justin Smith, founder of Inside Network said: “Social is the largest and fastest growing category and we expect it to be for the years to come”.

The growing market for virtual goods has sparked a wave of acquisitions in Silicon Valley.

In 2009 Electronic Arts, the world’s second-largest video game publisher, bought Playfish for $400m.In early 2010 Walt Disney bought Playdom for up to $735m.

Charles Hudson, former head of business development at Serious Business social games producer, said: “Hundreds of millions of dollars in venture investments have been injected into virtual goods so far.

“It’s now clear that virtual goods are seriously impacting businesses across all types of media.”

Google has also been buying its way into the market. In the span of a month it bought Slide, another social game maker, and Jambool, a company that makes virtual currency used on social networks.

Mr Smith said: “I do expect, as Google gets more involved, for virtual goods to be a big part of their social strategy”.

Facebook is also moving to take a sizeable cut of the virtual goods sold through applications on its site.

The network has rolled out credits, its own virtual currency, and Zynga – the largest of the social game makers – now uses the Facebook credits as its exclusive currency.

Mr Smith said: “The main idea behind credits is that it will standardise the virtual goods payments process to enable more people to become paying customers in games”.