Would you ever spend real money on a virtual product? How about virtual money on a real product? The virtual economy is booming, and what sounded like a far-fetched concept even a couple years ago is quickly becoming accepted by the mainstream. Between 2008 and 2011, the US virtual goods market grew from half a billion dollars to an estimated $2 billion, due in large part to the rise of micropayment-based social media games like Zynga's Farmville. We've seen a lot of pundits and blog commenters paint this trend as a sign that consumers have lost touch with reality, but we think the truth is a little more complicated. It's easy to get a distorted view of the phenomenon when you focus on its extremes - virtual pet supplies in PetVille, for example, or "gold" in World of Warcraft - but we can also think of these as just the fringes of a trend that also includes the purchasing of MP3s through iTunes and Amazon, video games through PSN and Steam, and digital books through the Kindle and Nook. In all cases, we're spending our hard-earned cash (which is, itself, less tangible than ever - but that's another post) on virtual goods that only give us enjoyment when we're using a digital device. And in many cases, we're still putting trust in the vendor that our ethereal purchases will be there on their servers for us to enjoy when we wake up tomorrow.
In the upcoming second half of this post, we'll look at the other side of the virtual economy - online-only money.