Virtual goods have finally been legitimized as a revenue model, rather than a niche (even weird) activity ignored in favor of advertising. Now the concept is spreading beyond its game / virtual world roots, and we’re seeing large numbers of companies trying to figure out a “virtual goods” strategy.
While I believe very strongly in virtual goods as an effective business model, I also think the number of folks trying to get a piece of the market will outstrip the total share of wallet possible. We shall see attempts at virtual goods revenue streams put into place without a clear understanding of the compulsion loops and triggers that drive spend.
I’ve been meaning to write a longer post about vgood compulsion loops for a while now, but time has been limited so I’m just going to start with a few bullet points. If you are thinking about a virtual goods business model, it is worth cross-examining your design against these concepts.
And what do I mean by “virtual good”? Within the context of games and virtual worlds, it is most commonly thought of as a discrete digital item upon which a user/player can exert some level of control, even if temporary. Examples include simple 2D pictures (ex: current Facebook gifts), 2D or 3D avatar or interior design accessories (ex: clothing, animations, furniture), and game pieces (ex: swords, armor, food). They can be functional or purely visual. For the purposes of simplicity, I am also going to treat digital currency and “activity points” as virtual goods.
The Right Environment
Virtual goods businesses don’t work well for hit-and-run or extremely lightweight experiences. They thrive with a game or service with one or more of the following:
- Repeat visitors (high re-playability)
- A sense of community
- A reasonable level of social or gameplay complexity
- Competition: you want to beat others, you are tired of others beating you, or you have strong self-competition and a desire to be the best, thus you purchase virtual items if it clearly helps you achieve that goal
- Impatience: this manifests in two separate ways — the first is a clever use of “activity points” that forces people to pay more to keep on playing (i.e. feed the addiction – this is an example where customer irritation tied with desire leads to opening the wallet); the second is a desire to accelerate progress to “elite” status (tied to competitive motivations).
- Self-expression: often related to aesthetic rather than functional virtual goods (but not exclusively), this ties into the human desire to show off a sense of style / identity / personality, show off an affiliation with a group, or demonstrate a loyalty to a celebrity of some kind
- Gifting: gifting is a strong motivator if you have a definite community (or lots of small sub-communities) — where humans seeks to foster relationships. As everyone knows, not all gifts are equal, so in a world of free/commodity items, motivated gifters will seek out a more valuable form of expression, either through money or through time (spent earning or creating the gift)
- Entertainment: this seems to appeal more to the female demographic, but shopping (especially if there is a social feedback loop) and/or collecting (especially if there is an overlay of social cooperation or competition) can be strong forms of entertainment
There are two approaches to building a virtual goods business: you can slap them on top of your experience and hope people buy, or you can design the requisite compulsion / motivation drivers into the core fabric of your experience. The latter strategy ensures a much greater chance of success.