Virtual Goods News

Earlier this week we noted that JP Morgan’s Net Investment Guide predicted strong growth for virtual goods in 2009. We followed up with Imran T. Khan, one of the primary authors, who believes that social networks like Facebook are likely to drive growth in the virtual goods industry in 2009. This is not so much because virtual goods need social networks, but because social networks need new revenue streams in order to maximize profitability.

"One of the things that we talked about in the report is that we think advertising models for social networking are not working," said Khan. "We think the models could be enhanced by doing many other things, including virtual goods. The virtual goods market platform could get good traction in the social networking environment."

Khan is quick to note that the virtual goods market is still a nascent one, and very little can be said in detail about how particular virtual goods revenue models are going to emerge in the following year.

"It’s like asking in 1998, 'What is the best search engine?' I’m sure there will be lots of new innovation in this market over the next few years," he commented.

Where Khan is firm is in noting that virtual goods aren't on track to displace advertising as a primary revenue stream for most outlets, in part because the virtual goods market is so young.

"I would say it’s more another source of revenue Social networking has a lot of options, and the pure advertising model just isn’t maximizing potential for those sites. If you look at the engagement on those sites by consumers, there is an opportunity to leverage their involvement," he explained. "If you have an existing platform, and you can get two businesses out of it at the same time without negative impact, why not do both? That’s maximizing your portfolio. I think that’s the better business decision." 

Not all social networking sites are going to be able to implement virtual goods successfully, though. Khan