Tim Chang, principal at Norwest Venture Partners, has immersed himself in the online games sector for some time and he says that the hottest business model for game startups in 2009 is virtual goods. With the virtual goods business model, game companies let users play online games for free. But they charge them when they want to upgrade to new capabilities such as cool clothing or better weapons. This model was pioneered in Asian online games, but it has only recently been embraced in the U.S. While ad-based games have cooled off in the recession, virtual goods is finally taking off in the U.S., with revenues expected to hit $1 billion this year. We asked him about the state of the game industry and the role of virtual goods in this interview. Chang will be a speaker at the Virtual Goods Summit, which takes place this week on Oct. 28 and 29 in San Francisco. Look for our coverage of it.