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Virtual Goods Replace Some Web Ad Dollars

  • Reuters, Tuesday, December 29, 2009 10:51 PM
For many Web start-ups, digital merchandise is an important source of revenue to replace scarce ad dollars. In November, video game publisher Electronic Arts Inc paid $275 million for Playfish, which makes games for social networks such as Facebook. A month later, a group of investors poured $180 million into Zynga, another social networking game company. Virtual goods account for 90% of Zynga's $300 million revenue.

U.S. Internet ad revenue fell 5.3% to $10.9 billion in the first six months of 2009 compared to the same period a year earlier, according to the Internet Advertising Bureau. For many Web entrepreneurs, virtual goods are a better fit than advertising. "The bigger companies are putting their weight behind this model," said ThinkEquity analyst Atul Bagga. He believes the U.S. market for virtual goods could double in 2010 from an estimated $1 billion in revenue in 2009.

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