What Every Business Owner Needs To Know About Virtual Economies

By CJ Arlotta Comment

If you’re a business owner who does not completely understand how much impact the virtual economy has on your business, this article piece will cover the important concepts every entrepreneur should be aware of. Whether you’re new to the business world or you own an established business, comprehending material on the virtual economy is imperative for your business to thrive in our current society. Although the information below is not everything a business owner should know, the strategies and ideas will provide you with a good educational start.

What is a Virtual Economy?

Since simplicity is the key to success, let’s start with a definition:

“A virtual economy is an emergent economy existing in a virtual persistent world, usually exchanging virtual goods in the context of an Internet game.” [1]

Business leaders view the virtual economy as a profit making tool, while consumers view it as a place of refuge. In order for any business to be successful in the virtual economy, its executives must understand how this type of economy can be beneficial to a business. As an executive, you need to understand why 13 percent of internet users purchased virtual goods last year. What were the incentives that induced them to spend an average of $90 on their purchases?

An excellent example of a virtual economy is with certain Facebook games. In order for gamers to achieve higher levels, collect more money or coins and obtain tools or gifts, gamers must use virtual currency.

What is Virtual Currency?

In the American economy, we use dollars to purchase goods. The virtual economy uses a different currency, known as virtual currency. One can acquire this currency by playing a certain game or purchasing currency with real money. It’s crazy when you think about it, right? Why would anyone in their right mind purchase fake money with real money? Don’t worry it, it’s not your problem. If people want to throw money away to purchase virtual currency, don’t go questioning their money management skills.

With the growing popularity of Facebook games, people believe that virtual currency is a recent phenomenon, but this is not the case. Massively multiplayer online games (MMOG) have suckered addicted gaming into purchasing their currency on sites like eBay. Not only would these users purchase game currency, but they would also purchase higher leveled characters and rare items.

As most of you have heard, Facebook is mandating all developers to convert to their currency by July 2011 – a decision that has the gaming development community up in arms. Unfortunately for the smaller developers, like Terence McGhee, Facebook takes a 30 percent cut of a developer’s credits. 30 percent may not seem like a lot for larger developers, but this rake may have smaller developers drowning in an ocean of a never ending depth.

What are Virtual Goods?

Virtual goods are virtual objects (hence the term “virtual goods”) that can be bought with virtual currency in virtual a economy (see how I put everything all together there?). These goods can be something as simple as an avatar or a digital gift. If you want to be successful in the virtual economy, you better have goods consumers want to buy. Why should consumers buy your goods?

56 percent of people purchasing virtual goods are repeat customers, will your products bring consumers back for more?

Can Virtual Goods Be Profitable?

In 2010, social gaming revenues reached $856 million. Consumers, in the upcoming year, will spend $653 million on virtual goods[2]. More than half of social gaming revenue – 60 percent to give a more accurate figure – is generated by virtual goods. As of now, that percentage seems to be holding steady for this year as well.

Global revenue from virtual goods has reached around $7 billion dollars – $2 billion of that was generated by consumers of the United State alone. With an industry that is soaring into the billions, your business better be able to hop on for the ride.

What Makes a Profitable Virtual Good?

Gamers will only buy virtual goods that have some sort of value. For example, let’s say you’ve created a social game. In your product, gamers need compete against each other for rank. The way these users compete is through virtual battles with each other. As a developer, you need to come up with something that would be worth the gamers while.

Sure, consumers may be avatars, but what does an avatar do for them? Does it advance them in the game somehow? Is an avatar required to purchase in order to play the game? Questions like these should always be bouncing around in any executive’s head. Why would a gamer go out of his or her way to purchase my product? There needs to be an incentive for the consumer.

What’s great about a virtual good is that it’s virtual. You don’t need to have a warehouse of some sort to hold all of these items, nor do you have to hire staff to place them into inventory. They are all digital and only exist in the virtual economy. You are able to create these goods based on demand! How great of a concept is that? No more trying to sell left over items from this past Christmas sale because you need to get rid of them. In a virtual economy, there is nothing physical (besides the profit of course when making a withdrawal from the ATM).


In this article you learned about the virtual economy, virtual currency and virtual goods. As I stated earlier, this article was written to serve the purpose of informing business leaders about the virtual market. Sometimes it’s tough to find basic information on something in one place, which is why I put everything together in this article.

It is imperative to fully understand how the virtual market will make an impact on your business. Take advantage of a market that is growing by the day. If you don’t, your business may fall behind the rest of the world.

Works Cited

1. Wikpedia, . “Virtual Economy.” Wikipedia. N.p., n.d. Web. 31 Jan 2011. .

2. Clean Cut Media, $1B Social Gaming Market plus w/ $653M in Virtual Good Spend!. Clean Cut Media. 13 January 2011, n.d. Web. 31 Jan 2011. .

CJ Arlotta covers the world of social gaming for development firms as well as the average consumer. Currently, he is accumulating more knowledge of the international gaming market to follow and understand what global developers may need to compete with already striving markets.