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Tuesday, August 17, 2010

Should Online Gambling Sites Sell Virtual Goods?

I have been working with social gaming, online gaming and virtual currency properties for some time. I have also been preaching the concept of convergence of these models in an Online Gaming Ecosystem that leverages the best aspects of these models for the purpose of increasing revenue per player, volume of players and player retention. This concept is now taking hold evidenced by traditional online gambling sites creating Facebook fan pages and teaming with social gaming properties to develop brand awareness and to move players back and forth between social game sites and online gambling sites.

A coincident trend and critical part of the convergence is the increasing importance of virtual goods sales to monetize online games. Social gaming and virtual world sites have been using the sale of virtual goods to generate revenue from inception. It is estimated that 2.2 billion US dollars was generated from virtual goods in 2009. This is up from 1.3 billion in 2008 representing an increase of 90% in one year. That is phenomenal growth and a trend that is likely to continue for sometime.

Should online gambling sites start thinking about adding this form of monetization into their properties? If so what are the advantages to adding this form of monetization and what are the risks.

The online gambling business certainly generated much more gross gaming yield with a 4.7 billion dollars generation in 09. However, the growth rate predictions are 19% a year coming in much lower then virtual goods projections. If the virtual currency transaction rate continues it will overtake the total amount of revenue generated by traditional gambling revenue sources.

Virtual goods transactions are actually more profitable because there is no physical payout with the money used to purchase the goods. This results in the company that facilitated the transaction retaining more profit. Currently there is no sanctioned way to trade virtual goods back into cash on legitimate sites. There is certainly trading going on in external auction sites or through private exchanges. However, it is difficult to determine the true value of these transactions and their impact on the issuer of virtual goods.

We are experiencing a worldwide cultural shift from physical to virtual goods purchases. This was started by the virtual work community and has now become a common part of online identity and gaming.

A traditional online gambling site may be concerned that virtual goods transactions will "cannibalize" their traditional revenue sources. I find this unlikely because there is a clear distinction between the two transaction types. Also, the purchase of virtual goods is more about identity and virtual asset accumulation then cash accumulation. This can be avoided by a clear distinction between a virtual good and a good that can be exchanged for real money. Avatars, avatar accessories, badges are clearly distinct from chips.

The notable intangible, and perhaps the best reason to add virtual good sales to traditional online gambling sites is the added fun factor. The fun factor does help in terms of customer acquisition, retention and revenue per player. An example of this is the experimentation by traditional e-commerce sites with the addition of "game mechanics" to the buying experience to enhance the experience and grow an e-commerce community. I am working with several traditional online retailers integrating virtual goods and currency into their properties to make the e-commerce experience an online gaming experience. Online gambling sites should take a hint from the e-commerce world.

In conclusion, virtual goods sales are becoming an important way to monetize the online experience and a critical part of online gamer culture. Traditional online gambling companies should start thinking about how they can take advantage of this phenomena and start creating economies around their own virtual goods. Online gambling sites are well positioned to take advantage of the virtual goods phenomena. The adoption of virtual goods for online gaming sites has few risks and tremendous upside potential.


Feraz said...

i think people love the idea that their time spent in a virtual world could pay off in the real world. remember the buzz about second life a few years back when they announced a real millionaire in sl? imagine you find a valuable item online that you could sell or use for real in a game that everyone plays. Last time i had that experience was in ultima online 10 years back and never really since.

online mahjong said...

I think this is very good idea and you can spend the time for virtual world.Thanks for nice post.