With a recession looming, many online entertainment sites who currently depend on ad revenue are exploring a new source of revenue: Virtual goods.
Boston-based Viximo wants to make it as easy for publishers to earn money from selling virtual goods as it is to run ads on a website. And more profitable.
Viximo provides a plug-and play virtual goods platform that allows a publisher to offer their own version of Facebook Gifts, which are nice-looking graphical icons that you can exchange with friends. To create a virtual goods store, a publisher plugs a few lines of code into their website or Facebook application, and Viximo does the rest — handling everything from billing to keeping the inventory fresh with new virtual goods.
Many companies are competing to offer publishers access to this rich source of revenue. Some companies, like Twofish, provide the backend technology to enable the management of virtual goods sales. Others focus on providing the content, such as Virtual Greats, an agency that connects publishers to celebrity-branded virtual items. But for the moment, only Viximo offers both technology and content.
To create their virtual goods, Viximo reached out to top user-generated content creators in various virtual services, such as avatar-based chat service IMVU and virtual world Second Life. The content creators are free to create whatever they like. If the items they create are sold, the creators get a commission comparable with the commissions creators get for stock photography or 3D art.
So far, Viximo has lined up eight publishers for its beta. Two of these publishers are popular Facebook applications, Birthday Calendar and Family Tree.
But will virtual goods be a viable substitute for advertising?
According to one estimate, Facebook is earning $35 million a year from the sales of virtual gifts — Facebook has told us that this estimate was “very crude”, and didn’t include revenue from its “Sponsored Gifts” section. In China, where the virtual goods market is more mature, Internet portal Tencent earned more than $65 million on the sales of virtual goods in the first quarter of last year. Hardly a drop in the bucket, but not quite ready to match up to the estimated $8.2 billion that will be spent on online display advertising this year.
That may eventually change as more people are exposed to virtual goods. Many think that virtual goods are something that only foolish teenagers buy. Early data from Viximo punctures that myth. According to Viximo founder, Brian Balfour, women in the 30-40 age range spend nearly 10 times as much per purchase as do other demographics.
Balfour says the main reason people buy a virtual item is to send to a friend as a gift. “It’s classic merchandising, like in the real world, people send gifts around holidays, and especially birthdays.”
Viximo has raised $5 million dollars from Boston-based venture firms, North Bridge Venture Partners and Sigma Partners.
Bret Terrill writes daily about virtual goods, social games, and social networks on his blog: Bret on Social Games.
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