JP Morgan Bullish on Virtual Goods in 2009

Yesterday, JP Morgan issued the 2009 edition of its Net Investment Guide, which focuses on informing investors about the pluses and pitfalls of investing in online ventures. This year's Net Investment Guide is bullish on virtual goods, citing them in discussions of online business models for social networking sites and virtual worlds.  

Sales of virtual goods offer a reliable revenue stream that both virtual worlds and social networking can use as an alternative to online advertising. Virtual goods can also "further the depth of the user experience on a social site." JP Morgan considers virtual goods sales one of the three basic possible revenue streams for a virtual world venture, citing CyWorld, Gaia Online, and Second Life as major platforms reliant at least in part on sales of virtual goods for generating revenue.

The Guide makes it clear that finding viable alternatives to online advertising revenue needs to be a priority for social networks in 2009. The coming year is expected to be soft for online advertising, with current advertisers likely to scale back budgets. Traditional advertisers looking to move into online channels are unlikely to advertise with social networks, where the user-generated content is inherently uncontrollable. Virtual goods, by contrast, cater immediately to the user-driven nature of social networks.

The  2009 Net Investment Guide presents an overall picture of virtual goods as an emergent but reliable revenue stream that offers platforms both stability and a way to increase user involvement in an online community. While 2008 was a strong year of growth for the virtual goods market, there are already signs that 2009's economic downturn may in fact offer new opportunities for growth in the virtual goods industry.