Understanding the Value Virtual Goods… it’s like Luxury Goods in Real Life

Club Penguin Pets

Above: Screenshots from Club Penguin (2006) to purchase virtual pets. Many children would ask their parents to spend their real world allowance in virtual Club Penguin to decorate their igloo. There’s real money to be made too, as Disney purchase Club Penguin for $700,000,000 just a few months ago.

Last week, In Hong Kong, I gave a presentation about Virtual worlds and social media to some of Asia’s top investors. A few folks had a hard time understanding the concept of virtual goods, after speaking with Susan Wu, there are a handful of virtual goods that can be sold. She told me that there are three categories of Virtual Goods:

The Three Categories of Virtual Goods (from Susan Wu)

1 Behavioral goods (such as gifting)
2 Decorative goods (like self-expression)
3 Functional goods, (like wielding a swords that grants super powers)

These goods mean a great deal to the players that inhabit these worlds, and in many respects almost all social systems have goods (bloggers have technrorati, podcasters have downloads).
[Virtual Goods, although intangible, have been assigned personal and social value that members of a virtual world will hold it’s worth ]
For many, it’s hard to imagine that anyone would buy these things, but she also stated that such gifts were already being exchanged in Facebook, from hugs, food fights, gifts, and in a way, even the dreaded poke.

[Virtual goods, and luxury items in real life are very similiar; we’ve placed personal and social value on them, often without any additional physical utility]

In fact, there are entire industries in China that collect gold from World of Warcraft and other games, they then sell this virtual gold on the free market for US dollars. I had dinner with one of the CEOs over a year ago in San Jose.

I gave the analogy that until humans cease in giving luxury goods like Fashion Designer purses or high end watches, then virtual goods will continue on. How does that analogy work? Humans have placed personal and social value on high end gifts (like a diamond ring) that doesn’t serve a higher utilitarian purpose of a cheaper counterpart, then we’ve assigned a ‘virtual’ value to these luxury items. In it’s essence, a handbag from Gucci or Payless will serve the same purpose. Sure, some of the materials may be more rare, or cost more to produce, but that doesn’t equal to higher utility.