What is a Virtual Good

A virtual good is a good or product traded in the non-physical or virtual realm, typically in online communities and games. A virtual good has no tangible substance or real intrinsic value; its value resides solely in what the user is willing to pay for it. The virtual good industry experienced exponential growth in recent years, in line with the surging popularity of online platforms including Facebook and other social media sites.

Breaking Down Virtual Good

Virtual goods exploded in popularity after the success of Zynga's Farmville, which requires the user to manage a virtual farm. The game owes much of its popularity to Facebook, where it has been offered as an app since June 2009. Farmville quickly became one of the most popular markets for virtual goods. In 2013, Farmville’s in-game revenue reached $1 billion in total player bookings. Other prominent merchants of virtual goods include Tencent and Activision Blizzard.

To those less familiar with popular social media and online gaming companies, it may be confusing how companies are able to charge significant sums of money for something that has little to no real value. Though they are bought and sold like a commodity in their respective platforms, virtual goods are best categorized as a service because they enhance and improve the gaming experience but aren't required for game play. The virtual nature of these services do create some challenges, however. Virtual goods can get lost due to technical issues. Given that these goods are digital in nature, tracking down and confirming ownership can be challenging compared to a physical object that must exist somewhere. Buyers and sellers alike face a new set of challenges relative to historical transactions. Encryption is one potential solution many users have turned to in order to help secure virtual goods and their associated transactions. 

Growth of Virtual Goods

The line differentiating physical goods from virtual goods may blur even more in the years ahead. There have already been cases where users paid large sums of real money to purchase virtual real estate or other virtual goods from other users. What's more, Zynga announced in March 2012 that it was engaging in a partnership with Frito-Lay. Buyers of the Frito-Lay chips and snacks would find coupon codes for virtual goods for Farmville and other Zygna platforms inside the packaging for the company's snacks. 

The gaming industry is the driving force behind the growth of virtual goods. Users purchase avatars, power-ups and other in-game items through in-app purchases made increasingly convenient by app developers. The growth in online gaming universes will only drive increased demand for items that impart prestige to a user, or are otherwise rare or usefulness; there are parallels to the sometimes astronomical prices paid for "priceless" works of art simply for the prestige the buyer gains from owning it. In fact, recent estimates put the annual revenue of virtual goods at more than $15 billion.