The virtual goods market has grown so quickly that the closer you look at it, the larger you realize it is. It encompasses the purchases and sales of everything from virtual shoes to MMORPG (massive multiplayer online role-playing game) items and characters.
In Pictures: Consumer "Fads" That Haven't Faded.
"While I don't spend money on virtual products often, I have spent small amounts, micro-payments, buying 'Gold' which allows you to increase your production of resources, or increase your attack strength, for instance," explains Jamie Hari, a self-described casual gamer, talking about Travian, an in-browser resource management game. (Think selling virtual goods doesn't pay? Check out Play Video Games; Become A Millionaire.)
What began as a niche market generating negligible revenue in the U.S. in early 2007, has exploded to a projected $1.6 billion in 2010. There are no limits to what is being sold: only those of the developer's creativity. And the products are everywhere users are, with mammoth names like Facebook leading the charge.
What Are We Buying?
These small pictures are purchased for 10 Facebook "credits" or $1USD and then appear on the profile wall of your chosen recipient. It may sound strange, but it fulfils essentially the same function as an electronic greeting card – except with these, all of your friends can see that you received that virtual birthday hat. Facebook is estimated to be selling these gifts at an annual run rate between $28 million and $48 million, according to Jeremy Liew at Lightspeed Venture Partners.
"While I highly dislike the idea of buying a virtual cupcake or a virtual clothing outfit for a character, I suppose others would frown upon buying attack upgrades and the like," says Hari. And the virtual market agrees – while you may find what some pay for silly, another virtual product will likely catch your interest.
If you don't play yourself, you've no doubt seen the notices on your friends' Facebook accounts about finding lost sheep. FarmVille, made by Zynga, the creative force behind Mafia Wars, CaféWorld and Zynga Poker, has more than 240 million users per month according to Business Week.
Like many of these ventures, the games are free to play, but you can purchase in-game enhancements for real cash. To convert your money into FarmVille's game gold currency, you can purchase game cards in $10 or $25 denominations at stores like Target, Best Buy, 7-Eleven and GameStop. Currently, $10 USD can be redeemed for 55 Farm Cash or 15,800 Farm Coins. To entice players further, those who purchase the "Fast Cards" will have access to exclusive items.
With your new-found digital wealth, you can spend 20 Farm Cash to expand your farm to a 20x20 Plantation Farm, thus increasing your ability to earn coins. You could also purchase a FarmVille cow for 300 Coins.
Your avatar is the digital version of yourself and often that comes with a virtual "world" to hang out in. And they can both be accessorized with everything from backgrounds to designer shoes. Microsoft's Xbox 360 Live system, for example, allows you to download "themes" that change the appearance of your home game screen. Premium themes can cost 240 Microsoft Points (Xbox Live's currency) or more.
Putting your digital-self in hightop sneakers will cost you 160 points and a Texas Rangers baseball jersey will set you back 240 points. And of course, you can add virtual items for your avatar – a Disney enchanted broom will cost you 400 points to download, while a hockey stick and puck are a bargain at 240 points. For 80 points, your virtual self can be wearing Aviator sunglasses.
But how much will this take off your paycheck? For $7.25, you can get 500 Microsoft Points, $14.50 for 1000, $29 for 2000 or $72 for 5000.
How We're Buying
Depending on the platform, there are a few different ways to change cash into credits. The old standby is credit cards. Facebook gifts, Hallmark subscriptions and Xbox live points can all be purchased with plastic via the respective websites, or in Microsoft's case, straight off the Xbox 360. While the credit card option may be available for some other games, many users prefer a more secure alternative.
"Paying directly to their site via credit card would be out of the question since you can rarely trust an overseas source which has no brick-and-mortar office," explains Hari. Instead, Hari uses PayPal, which many platforms offer as a payment option. Paypal allows users to add money with a credit card or through a linked bank account.
Alternatively, FarmVille isn't the only game that has a gift card system in place. Many other platforms, including Microsoft, sell these cards like phone cards in electronics, discount and convenience stores. The upside here is that these cards can be given as gifts, and parents (or young adults without a credit card) can purchase them in a non-virtual retail environment.
More recently, the option to purchase via mobile phones has been introduced. Facebook gives the user the option to charge their cell phone for its gifts through mobile payment startup Zong. Users enter their cell phone number and a pin is sent via text to that number. The user is prompted to enter that pin on the website and the charge will appear on their monthly phone bill.
We're Off And Running
Just like how many don't realize how quickly their $1.50 morning coffee adds up to big spending, these items come with price tags that are often less than what is hiding in your couch cushions. However, left unchecked, these microtransactions could ring up a large bill without you realizing it. (Need help keeping your spending under control? Check our Budgeting 101 Feature.)
And we've only scratched the surface of the possibilities of this virtual economy. Be aware of your spending, but also remember that you've probably spent a lot more on entertainment than these small costs. And since most of these games and sites are free to join, this could be a very economical way to play.
Catch up with the week's important events in Water Cooler Finance: We're Getting Richer And Spending More.