Commentary

Virtual Goods Sales Slowing for Social, Casual Games

One of the largest (and most mystifying) sources of revenue for online casual and social network-based games has been the sale of "virtual goods" -- imaginary "objects" that generally confer some sort of status or special ability in the virtual world of the game. To give some idea of their popularity, virtual goods sales have contributed more than advertising revenue to the bottom line of Zynga, which operates popular games like Farmville and its variants. But virtual goods sales through casual and social games may be slumping, according to a survey of 1,006 gamers by Playspan Inc.

It's important to bear in mind casual and social games are just two of six categories addressed by Playspan in the survey, and the other categories -- including massively multiplayer online games (think World of Warcraft), free-to-play, console games with online play, and PC games with online play -- all saw virtual goods sales increase. The average amount of money spent on MMOs soared from $37 in July 2010 to $70 in July 2011; on free-to-play games from $20 to $60; console with online play from $40 to $60; and PC with online play from $40 to $50.

However, as noted casual and social network-based games were the two categories which saw average spending on virtual goods fall. Average spending on casual games fell from $40 to $25 over the same period, while average spending on social network games fell from $50 to $20.

While the Playspan survey didn't get into specific companies, the findings raise questions about previous rosy forecasts for companies like Zynga. Zynga's total revenues have indeed grown at a very healthy clip, jumping from $101 million in the first quarter of 2010 to $235 million in the first quarter of 2011. However 80% of this came from virtual goods, suggesting that Zynga's finances may be vulnerable to changing consumer behaviors... which in turn raises the possibility that the company may end up relying more on advertising (and other sources of revenue) in the long term.

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