Virtual goods a growth market

SAN FRANCISCO - The US virtual-goods market may grow more than 30 per cent in 2011 as games on consoles and mobile devices replicate the success of applications on Facebook.

Research firm Inside Network says the market will jump to US$2.1 billion ($2.8 billlion) next year from US$1.6 billion in 2010 and US$1.1 billion in 2009, the San Francisco-based research firm said.

Authors Justin Smith and Charles Hudson based their research on interviews with dozens of executives in virtual goods and gaming.

Video-game companies are mimicking a model used by Zynga Game Network whose games FarmVille and Mafia Wars make money by selling animated items such as tractors, plants and armour.

While companies like Nintendo and mobile-game maker Ngmoco are bringing more virtual goods into their games, the fastest growth is still on social networks, where developers are encouraging users to buy more items within free-to-play applications, Smith said.

"They're focused on getting users more engaged and converting engaged users into paying users," said Smith the founder of Inside Network.

The top three makers of games on social networks - Zynga, Electronic Arts and Walt Disney - will make up more than half the social-gaming market next year, Smith said.

Social gaming accounts for about 40 per cent of the total virtual-goods market.

Electronic Arts bought Playfish, maker of Pet Society, for about US$400 million last year, and Disney bought Playdom, creator of Sorority Life, for about US$763 million in August.

Electronic Arts, based in Redwood City, California, is the second-largest video-game publisher, and Burbank, California-based Disney is the biggest media company.

"It's now clear that virtual goods are seriously impacting businesses across all types of media," Hudson said.

Zynga, based in San Francisco, is the largest maker of games on Facebook, and will record revenue of as much as US$500 million this year, Inside Network predicts.

Zynga has more than 200 million monthly active users, with between 1 per cent and 3 per cent paying for virtual items.

- BLOOMBERG