Virtual Currency Helps IMVU Turn A Profit

Showing the maturity of a still experimental market, virtual world IMVU says it has achieved profitability, and doubled its revenue to $25 million year-over-year.

Founded in 2004, the avatar-based virtual world says it grew revenue primarily by increasing the sale of virtual currency, which is used to purchase virtual goods like clothing, detailed facial features, and furniture.

"We're a lot like eBay. We introduce buyers and sellers of virtual goods to one another," said Cary Rosenzweig, CEO of the Palo Alto, CA.-based IMVU.

Along with 6 million unique visitors per month, the company claims to have the largest virtual goods markets of any online community, with more than 3 million items created entirely by IMVU members. In the last 30 days alone, over 35,000 developers have sold virtual goods in IMVU's catalog, while user-developers add more than 4,000 new items to the catalog every day.

The virtual goods and currency market will reach an estimated $1.8 billion this year as 12% of Americans report having bought a virtual item at some point over the last 12 months, according to a recent study by analyst firm Frank N. Magid Associates and commissioned by virtual currency provider PlaySpan.

Demographically, the market is more balanced than one might assume, as 15% of males ages 12-24 reported purchasing virtual goods, while 15% of women between the ages of 35 and 44 did so, too.

Rosenzweig says that nearly 70% of IMVU's community is female, while nearly 60% is over the age of 18.

Still, according to Mike Vorhaus, president of Magid Advisors, the boys are getting virtual swords for their MMORPGs, while the women are buying virtual flowers on Facebook.

The majority of micro-transactions are less than $1, and with minimum fees averaging 30 cents for credit and gift cards, a 30% revenue loss makes little sense, according to Woods.

Rosenzweig says the company is investing most of its profits to hire more employees and improve customer experience. Also, he expects profits to abound thanks to low operating expenses, which he attributes to extremely efficient back-end technology.

Also, according to Rosenzweig, IMVU is hardly ignoring advertising; it's just that the company was "built with advertising as icing on the cake." Significantly, the company just recently hired its first sales associate.

What took the company some five years to achieve profitability? "People don't understand how long it takes to develop a real, authentic community," Rosenzweig said.

To date, IMVU has raised nearly $30 million from investors including Best Buy Capital, Menlo Ventures, Allegis Capital and Bridgescale Partners.

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