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Will People Really Pay Money For Virtual Goods?The Answer Is Absolutely
Many investors wonder whether Internet users will truly adoptthe emerging virtual goods model exemplified by Facebook's gifts platform and themany third party social game developers tied into social networks by paying cash toparticipate. Based on a recent survey of 332 Internet users, we believe the clearanswer is yes, and with more consumers stepping into the fray near term. Weestimate the worldwide virtual goods market to grow to $6 billion by 2013, up from$1.3 billion in 2008, and believe virtual goods will likely be the fastest growingopportunity online over the next five years.•
Internet Users Show Willingness To Spend Money On Virtual Goods.
In arecent Piper Jaffray survey of 332 Internet users (qualified by making one ormore online purchases in the last three months, which was 90% of respondents),we discovered that 8% of Internet users say they are willing to spend real moneyon virtual items. Another 9% are unsure if they are willing to spend money onvirtual items or not and the remaining 83% claim to be unwilling to spend onvirtual goods. While this is the first time we have collected data on the topic webelieve the number of Internet users willing to pay for virtual items is likelyhigher today than it was a year ago based on the extreme growth in popularity of social games like Farmville and Mafia Wars. We expect the consumer comfortlevel to grow as users spend more time playing social games and using socialnetworks.•
Virtual Goods Estimates: Most Exciting Growth Opportunity Online.
Weestimate the worldwide virtual goods market totaled $2.2 billion in 2009 and weexpect the market to grow to $6 billion by 2013. We believe a significant portionof this revenue will continue to come from the International markets. We estimateU.S. virtual goods sales will make up only 28% of total virtual goods in 2009, butgrow to 41% of the total by 2013 as social gaming and widgets become moreadvanced and more widely used. We expect consumers to become increasinglycomfortable with paying real cash for virtual items, with the near termopportunity in converting the 9% of the Internet users that are unsure if theywould be willing to pay real dollars for virtual ones. We believe ultimately, by2013, the U.S. will contribute $2.5 billion to the overall virtual goods markets.
Other Survey Highlights Regarding Virtual Goods Users:
• Currently, Internet users at the lowest and higher ends of the income spectrumseem to be purchasers of virtual goods. We believe this suggests two takeaways:teens and pre-teens are engaging in these games and finding ways to pay forgoods; and young professionals are likely also engaging heavily in social gaming.• Buyers of virtual goods seem to generally be heavy video (TV, online, etc.)consumers.• Buyers of virtual goods seem to generally be comfortable with purchasing otherdigital items online as many current buyers of virtual goods also consume paidcontent on iTunes.• Subscribing to email marketing programs appears to be popular among users of virtual goods.• Virtual goods buyers are frequent buyers of real goods online and expect to spendmore online in general and on big ticket items over the next year.
Risks to the growth of the virtual goods market include inability of companies todevelop compelling games and services utilizing virtual goods and consumer slowdown in online spending.
Industry NoteJanuary 22, 2010
Gene Munster, Sr Research Analyst
Douglas J. Clinton, Research Associate
Nicholas R. Gallus, Research Analyst
Reason for Report:
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