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Virtual goods expected to hit 20 percent of game revenue

Virtual goods are proving to be an excellent source of new revenue for games. But is there enough substance to create sustainable revenue?

virtual goods

A new study by virtual goods provider Viximo suggests that by 2011, sales of virtual goods will amount to 20 percent of U.S. game software revenues.

According to the report (registration required), this forecast is predicated on the expectation that virtual goods will grow faster than the overall gaming software industry. In 2009, U.S. retail sales of console, portable, and PC game software generated revenues of $10.5 billion, an 11 percent decline over the $11.7 billion generated in 2008. In the meantime, virtual goods revenues are expected to hit roughly $1.6 billion in 2010 and grow further in 2011 to more than $2 billion or roughly 20 percent of the market revenue, according to Viximo.

PC game revenue has been up and down in 2010 with a dearth of hit games and a lack of new consoles such as the Nintendo Wii that drove sales in 2009.

The important thing is the idea that there are new revenue streams available for games, especially social games, that make this prediction interesting. As consoles take better advantage of Internet connectivity and consumers continue to embrace bite-size purchases, there is tremendous potential for virtual goods to provide sustained meaningful revenue.

The troubling thing is that we're started to talk about virtual goods in the same way that many people looked at advertising and offers as guaranteed money-making schemes for Web 2.0 properties. There was definitely some substance to the argument, but more often than not, online ads put money into Google's pocket while not providing much to the Web property itself.

Additionally, we've really not yet begun to see virtual goods make their way into mainstream games or advertising campaigns. At the moment they are generally parts of walled gardens, especially the games that exist only as part of the Facebook ecosystem.

It remains to be seen if virtual goods will be the savior of the gaming industry, but it's clear that there are high-margin sales to be made as long as people remain interested in furthering their in-game progress.