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Visa has agreed to buy virtual goods company PlaySpan for $190 million in a big move into the market for digital goods.

PlaySpan enables game companies and video publishers to make money through the buying and selling of virtual goods. It’s a key part of the food chain in the free-to-play business model.

In free-to-play, users play online games for free, then pay real money for virtual goods such as better weapons or decorations. PlaySpan enables the game companies to issue virtual currency and create a market for digital goods.

PlaySpan will get more money in the deal if it hits performance targets. While the purchase price
itself is not a huge one, given the amount of money that PlaySpan raised, Visa’s entry into the virtual goods market is a validation of the emerging field.

The giant credit card company is a huge player alongside MasterCard in the $948 billion global electronic commerce market. As part of that sector, digital goods has become a $25 billion market on a global basis, according to PwC Global Entertainment. That market could grow to $280 billion by 2014.

PlaySpan, based in Santa Clara, Calif., has more than 150 employees and was founded by Karl Mehta, chief executive, based on a business idea that came from his son. The company has hundreds of employees and recently moved into handling transactions for video publishers. It has raised $42M in funding to date, and its investors include Vodaphone Ventures, SoftBank, Menlo Ventures, Novel TMT Ventures, STIC

PlaySpan has several different businesses layered on top of each other. It provides virtual currency and virtual goods platform, offloading the task of creating this infrastructure from game developers. It also provides the UltimatePay payment system that allows game companies to make money from their virtual goods. And it sells virtual currency Ultimate Game Card gift cards at 48,000 retailers around the world so that users who don’t have credit cards can pay cash for the cards at stores and then enter a code to get virtual currency in a game.

About four years ago, there was almost no interest in the platform. But with the success of virtual goods and micro-transactions in Asia and with the impact of the recession on U.S. gamers, the virtual goods business has skyrocketed. Inside Network estimated that virtual goods in social games grew to $1.6 billion in revenues in 2010.

PlaySpan’s biggest competitors are the internal engineering teams at big game companies. Mehta said in the past that UltimatePay has gained considerable traction as users in 180 countries use it to pay for their virtual goods in games. PlaySpan brings services such as fraud prevention, merchandising, and promotion to game companies, helping them to squeeze more money out of their games.

Millions of gamers are using the Ultimate Game Card and PlaySpan’s own PlaySpan.com marketplace. Tens of millions of gamers are using PlaySpan’s products, and revenues have grown more than 100 percent a year in the past three years.

Among the customers are Warner Bros., Nexon, Perfect World, Hello Kitty Online, Disney, Adobe, Revision3 and Nickelodeon. Rivals include Live Gamer, although PlaySpan differs in that it doesn’t do custom platforms for its customers. On the payment side of the business, rivals include PayPal. In game cards, rivals include InComm.

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