The Apps Economy - Redux, Redux

Thanks to one of my readers for alerting me to the New York Times cover article: “Virtual Goods Start Bringing Real Paydays”. This is my third post on this topic, so for a background, see the previous posts.

Claire Cain Miller and Brad Stone point out how rapidly “it is becoming commonplace” for users of social games to use real money to buy virtual products. I wrote about this before, saying how brilliant it is, and how profitable. Who wouldn’t want a 100% profit margin?

The NYT says the marketplace for these virtual goods is now $5 billion – yes, “billion” with a “b”.

Where do we sign up to invest?

“It is a fantastic business” says Jeremy Liew of Lightspeed Venture Partners. Yes, it certainly is. Lightspeed is a venture capital firm which has invested $10 million in virtual goods companies. Zynga, my favorite company, isn’t the only one. Playfish and Playdom are two others with “significant” revenue and profits. Asia is a place which has lead in many areas over the years, and it is no stranger to virtual goods, which are very popular there.

And, it is not just techies, everyday people cough up money for pixels.

The Apps Economy, Redux

Zynga was not only the cover story in BusinessWeek, they’ve made it into Fortune. For an explanation of Zynga, see my previous post.

What is a social game? Fortune explains it as a free online application accessed through Facebook, MySpace and similar sites. They’re free! But Zynga has cleverly thought of a way to get you to pay for them.

They will sell you components – which you have to pay for in real money – to keep playing the free game. The game never ends and you can play it in a short stretch of time. Brilliant! And it’s not just young techies who do this. Fortune profiled a 37-year-old mother of three who is a devotee of Farmville. She spent $100 in the last few months on it. Someone restrain me from starting...

Here’s my question – why don’t other free sites follow the model and start charging for something?

The Apps Economy

October 26, 2009 Apps – The BusinessWeek Cover Story
They’re here, and they are growing. Apple launched its Apps store in July, 2008, and it has taken off. It took Google three years to turn a profit, but App developer Zynga is profitable now with $100 million in revenues.

How does an app developer make money? They can sell apps, they can sell ads within apps and they can sell digital goods used in the Apps. BusinessWeek tells us about Farmville, the virtual farm, where people pay real money to buy digital crops, cattle and farmland. Amazing! I’ll say it again: people pay real money to buy fake crops for their fantasy world. I wish I had invented that – sounds like the pet rock from the 1970’s, and some brilliant person convinced others to pay real money for essentially nothing. Let’s hope for Zynga, it continues.

The market for apps is predicted to grow threefold over the next three years. Anything growing in this economy is unusual, but to grow at that rate is truly unbelievable. The barriers to entry are next to nothing, so this will be a crowded marketplace in no time flat.