The sale of virtual goods for social games, such as Farmville and Mafia Wars, are set to become worth $5 billion in the next 5 years according to industry experts. Sales of virtual goods are already worth around $5 billion and still growing in Asia.
Jeremy Liew, of Lightspeed Venture Partners who have invested $10 million in virtual goods companies told the BBC that the rapid growth of the sector was unprecedented.
"This is just an exploding part of the gaming business right now," he said. "It is the most exciting area in gaming. We have seen companies go from nothing in the last 18-24 months to tens and hundreds of millions of dollars in revenue."
Playfish is just one example of this. Started two years ago, it now has 11 online games which are played by over 61 million people worldwide. Although they also sell advertising within their games, it still accounts for just a very small amount of the company's revenue - fairly typical according to Liew. "Virtual goods is the whole story in the world of social games. It accounts for 90-95% of revenue for a lot of these social game developers," he said.
Although the products only exist in pixels on a computer screen, Playfish's Tom Sarris believes the reason why people are willing to purchase virtual items for games is just for the experience. "The way we look at it is it's no different from paying money to go and see a movie or rent a dvd. What you are paying for is the experience and that notion of entertainment," Sarris told the BBC.
Social gaming doesn't look like it will die down any time soon either. Data from analytics firm AppData shows that 10 of the top 15 applications on Facebook are games, pulling in over 100 million users a month. This hasn't gone unnoticed by games giant Electronic Arts either - in November the company agreed to buy Playfish in a $400 million deal.
"We are still in the growth stage of this industry," said Liew. "We are still seeing people come out of nowhere and become a leading player. Five years down the line, it will become more stable with five to ten companies becoming more valuable."
He added, "The virtual goods industry is one of the most exciting categories of 2009 and will remain an exciting category in 2010."
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