Virtual Currencies and Virtual Goods — Definitions and Revenue Streams in Social Networks

by Peg Corwin

virtual currencies as revenue streams in social networks and online communities

How can virtual currencies and virtual goods be revenue streams in a social network?

In the excellent video Virtual Currency in One Hour, Second Life’s Chief Product Officer Tom Hale shares insights about the rationale for virtual currency and virtual goods.  He also explains consumer behavior as it relates to virtual goods and describes the Second Life economy.

This post is the first in a four-part series on virtual currency and virtual goods.  Later posts describe purchase motivation, business models using virtual goods and virtual currency, and examples of their use in specific social networks.

“Virtual currency” is simply currency used to purchase virtual goods.  Wikipedia defines “virtual goods” as “non-physical objects that are purchased for use in online communities or online games. They have no intrinsic value and, by definition, are intangible.”

Market Potential for Virtual Currency and Virtual Goods

Virtual goods are a rapidly growing revenue stream, as eMarkerer tables from Virtual Goods Mean Real Dollars show.  Similarly in Virtual Goods Start Bringing Real Paydays, Claire Cain Miller states “Analysts estimate that virtual goods could bring in a billion dollars in the United States and around $5 billion worldwide this year — all for things that, aside from perhaps a few hours of work by an artist and a programmer, cost nothing to produce.”

Ben Parr envisions huge growth in virtual goods.  In The Future of Gaming: 5 Social Predictions, he says “It shocks us how big the virtual goods market has already become. The U.S. market alone is thought to be worth $1 billion and the Asian market to be worth around $7 billion.”  And he suggests there is big upside potential.

Types of Websites That Use Virtual Currency

In his video, Tom Hale explains the different uses of virtual currency in four types of websites:

Gaming — primarily for purchase of in-game goods that enhance game play.

Virtual Worlds – primarily a mechanism for exchange.

Online Communities – primarily nonmonetary, used for points, to enhance status and prestige.

Social Networking Websites– primarily non-monetary, used for points, status, and prestige as well as mechanism for exchange.

His video goes into detail about the use of virtual currencies and goods in gaming and virtual worlds.  However, in this series, I’m interested in how and why they become revenue streams in online communities and social networks.

Related Posts:

How Motivation to Purchase Works for Virtual Goods
Alternative Business Models and Applications for Virtual Goods
Examples in Virtual Goods from Facebook, Twitter and more

More on Business Models

See also this page of related posts on social network business models.