Have you ever wondered who, aside from your mom, buys those $1 birthday-cake icons on Facebook? Turns out millions are willing to spend their hard-earned cash on, well, nothing. Sales on virtual items on Facebook, MySpace, and smaller social networks like Flirtomatic is expected to hit $1 billion in sales this year, a new report says.
Sales of Facebook "gifts" and virtual "goods" in games such as FarmVille are set to double from $500 million last year, according to a study by Justin Smith of Inside Network and Charles Hudson of Serious Business, and sales next year may hit $1.6 billion. Smith, who runs the blog InsideFacebook.com, says he and Hudson based the estimates on information they collected from game developers and other sources.
Somewhere between 5 percent and 15 percent of Facebook users spend money on the icons and gaming goods, Smith says. And with more than 300 million active Facebook users, that's as many as 45 million people shelling out a buck for an image of a chocolate cake with candles.
The appeal for consumers, Smith explains, is to show they care enough to do more than write "happy birthday" on a social-network wall. "One way to add meaning is to add a virtual gift," Smith says. "That means you value your relationship with them and want to add something special for them. It's almost like receiving a paper card in the mail."
And Facebook users are also spending money on third-party applications such as FarmVille, a game that lets consumers raise virtual crops on the site. The game sells "farm cash" and "farm coins" that lets players buy special items. The current FarmVille exchange rate, according to the game's site on Facebook (billed as the "farmer's best value"): $40 U.S. dollars is worth 70,600 "farm coins."
The boom in virtual-goods sales began when third-party application companies discovered that selling "items" to players was more lucrative than selling ads within the games, as ad sales have been hurt by the recession, Smith says. Given the slow economy, the virtual goods' tiny pricetags appeal to consumers.
"The ad market today is not very strong, but some players are getting really engrossed in the games," Smith says. "The transactions are very small -- usually between $1 and $2 -- and it's accessible to a lot of people. It's much less than the cost of a movie ticket, and so it's becoming a form of entertainment for lot of people."
Small Cap Investing
Learn now to invest in small companies the right way.View Course »