Virtual Goods Gold Rush Continues – $1.38 Billion Invested In 2009

Virtual Goods gold rush is in its early stages, however, the nascent market is showing promise to one day become a major revenue source for Social Networks and Social Games. Engage Digital Media, a market research firm with specialization in virtual goods research, is reporting that more than $1.38 billion were invested in 87 virtual goods related companies in 2009.

Although the market for virtual goods is still in its infancy, virtual goods are responsible for billions in revenues for social games and social networks. Zynga – could be quoted as a prime example in this regard. The developer of popular social games like FarmVille, Mafia Wars, FishVille etc, racked in $200 million in revenues from the sale of virtual goods within its games.

The investment activity in the virtual goods sector in 2009 has more than tripled from that of 2008. In 2008, virtual goods related startups saw a cash inflow of around $408 million. The number of companies trying to carve out a piece of the virtual goods market has also doubled to 87 in 2009 compared with 34 in 2008.

"Virtual goods was the hot tech story of 2009, driving investment that crossed over into game development, virtual currency, payment services, and social networks," said Christopher Sherman, CEO of Engage Digital Media. "In the fourth quarter alone 30 companies raised an astounding $944 million, more than double the amount raised in all four quarters of 2008. Also noteworthy was the number of acquisitions in the space – 18 of the course of the year – with half of those taking place in the 4th quarter."

Out of $1.38 billion invested during 2009, $398.3 million were acquisition related – with the acquisition of Playfish being the biggest contributor to these numbers. Playfish was acquired by EA for $300 million in Q4, 2009. Digital Sky Technologies was the pick of investors in virtual goods related startups with an investment of around $380 million in Facebook and Zynga. DST invested $200 million in Facebook in Q2, 2009 and one-upped this investment by investing $180 million in Zynga in Q4, 2009. Zynga is the most popular game developer on Facebook and is also one of the biggest advertisers on Facebook.

With acquisitions and investments in Facebook and Sina (a China-based social network) excluded, total investments in the virtual goods space reached $598 million. The performance of the virtual goods segment in 2009 is extraordinary given the fact that the year was one of economic hardship in most industries.