Virtual goods are becoming pretty real on the iPhone. Revenue from the sale of virtual goods is now overtaking ad revenue on the iPhone, according to analytics and monetization firm Flurry.

Because a huge volume of the apps on the iPhone are free, many wags have assumed that ad revenues will dominate the platform. But Apple introduced in-app sales, a feature that allows users to buy virtual goods inside a game or app, a year ago. Now, in-app sales are going strong.

Flurry’s data is based on a sample of apps with 2.2 million daily active users on the iPhone. As you can see from the chart below, the majority of revenue from advertising occurs during the holiday season. But virtual goods revenue is now dominant in every month of the year except for December. In September, about 80 percent of revenue generated by apps on the iPhone came from virtual goods.

Flurry notes that Madison Avenue ad agencies ought to step up their efforts to put ads onto mobile platforms, since the low level of ad revenue suggests that big brands are missing out on an opportunity on the iPhone. Or, perhaps ad executives (like the fictional Don Draper, pictured, from the Mad Men show on TV) ought to start selling virtual goods instead.


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“It’s clear that virtual goods offer superior monetization opportunities for application makers, who are reaching large, engaged audiences,” said Peter Farago, Flurry vice president of marketing. “We are working with top agencies to help them harness the sheer demand consumers have for virtual goods to deliver more powerful campaigns for the brands they represent.”

Over the next two years, Flurry expects to see growth in both virtual goods and ad revenue from social games on mobile platforms. Earlier this week, Flurry noted that the audience for iPhone apps is starting to exceed the audience for major TV shows.

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