I spent some time this morning with Rob Frasca, CEO, Viximo, a virtual goods provider. Virtual goods have been growing both in adoption and in relative importance versus advertising, especially in the down economy. Facebook appears to have done --primarily in the form of gifting.
Viximo has two main revenue streams: digital gifting and branded virtual goods. They provide a turnkey solution to sites who want to offer virtual goods or gifts. The user comes in and buys credits and can use them as they would any other giftcard. Viximo splits the revenue with the publisher and the artist.
The basic premise for virtual good sales is that they are bite-sized and therefore people are more willing to make small purchases instead of large purchases; ie. you'll buy a candy bar but not a car.
Rob called this approach "snack food" which appeals to the new generation of"digital natives", people who have far more communication with online/connected friends then they do with people in real life.
According to Rob, there is an ongoing demand for content and Viximo has created a community of creators they call "Digital DaVincis" in order to create a self-generated marketplace. They've also found that companies are willing to pay to have their brands on items that are extremely targeted and make them part of the social dynamic. The ability to brand a gift is not considered advertising but more akin to a status symbol.
The customer base is anyone that runs a socially oriented website. Big and little--it could be Yahoo IM or a coffee shop that has a community. There is a monetization opportunity for virtual goods in any socially aware environment. And the theory is that most sites won't try and do this themselves due to the inherent technology and billing complexity.
Overall, Viximo appears to be a pioneer in the market. Basically, they have the supply of goods and if there is demand then they stand to profit. And while the company's success is predicated on continued sociailly-oriented online behavior, so it is for Facebook, MySpace and so on.
Note: The cupcake pictured is used with permission and looks delicious.