Sunday 4 July 2010

From Virtual Goods to Virtual Brands?

I must confess, for a long time, I had failed to appreciate the commercial potential of virtual goods, and the virtual currency to buy them. That changed recently, when I found myself involved in a transaction whose raison d'etre was to merge social networks with the revenue-enhancing potential of trade in virtual goods. Sure I had heard about Zynga and the wild success of its Farmville game. But only when the transaction forced me to learn more about the role of virtual goods in the social network space, did I gain insights into why, according to one report ("There's Real Money in Virtual Goods", by Gurbakash Chahal, TechCrunch, June 23rd here), "[w]ith more than 230 million unique users per month, games by Farmville publisher Zynga alone are played by half of the world's Facebook users each month."

As cogently explained to me, for gamers, the amounts expended on virtual goods have to be compared with an alternative expenditure for other forms of entertainment. Compare the $20-dollars or more (choose your exact price, local currency and exchange rate) paid for a two-hour movie with the cumulative engagement of a game such as Farmville, where each single outlay for a virtual item is a mere fraction of the cost of the movie. At the end of the day, there is no real difference between paying for two hours of pleasure via the celluloid screen and the untold hours tending to one's virtual farm and ensuring that you have the necessary implements to do so. Both are popular forms of entertainment based on the enjoyment of a vicarious reality.

One aspect of this gaming experience was tantalizingly described in the TechCrunch article mentioned above, namely, the role of trade marks and brands as a part of the effort to monetize virtual goods. Permit me to quote Chahal on this point as follows:
"Brands are already a prominent part of the social Web. Facebook users post branded gifts on each other’s walls—paid for with real money—and become fans of those brands’ pages. And why wouldn’t they? The essence of social networking is the expression and projection of one’s identity, and brand affinity is a central theme of nearly every modern consumer’s persona. Why buy a Gucci dress when you can get the same look from DKNY or even J Crew? Because it helps you express something different, and feel better doing it. Virtual goods are no different, except they are don’t cost as much. Already, branded virtual goods are clicked ten times more often than non-branded equivalents. In this light, it isn’t hard to visualize the virtual marketplace of the near future. (Emphasis added).

As more real-world brands in more categories extend into the virtual marketplace, branding will increasingly seem like the norm, pushing unbranded virtual items down in status to the level of store brands and generics. For some consumers, this provides the opportunity to replicate their existing brand relationships; for others, virtual items can help satisfy the desire for their unaffordable real equivalents. (Emphasis added). The hottest brands will command the highest prices, even if practically indistinguishable from lesser labels and knockoffs—just as in the real world."

Find the Virtual Superbrand

The thrust of these comments seems to be that the most successful brands in the virtual goods world will be derived from their three-dimensional countparts in the tactile world. Moreover, unlike the tactile world, the financial likelihood of success in the virtual world for marks that are anything less than these superbrands is slim. Assuming that I have understood Chahal point(s) here, permit me to make the following observations:

1. Superbrands are characertized by careful nurturing and monitoring of their owners. It is not clear to me how this "tender loving brand care" is supposed to be transformed in the social networks/virtual goods world. Instead of an utopian outcome, I could plausibly foresee the opposite. Thus, uncontrolled use of valuable brands in undesirable virtual settings could have a deleterious, if not worse, affect on the value of the brand, especially given the huge number of players engaged in and exposed to these brands.

2. Instead of an uncontrolled and possibly destructive nexus between brand use in the tactile and virtual worlds, might it not be the case that brands will develop solely in connection with virtual goods. That is to say, might not some enterprising entrepenuers see their ultimate product offering in the virtual world not as an array of farm implements, or virtual replications of three-dimensional luxury brands, but rather the development of brands whose sole context is the social network world. Just as with a strong fanciful mark that is successfully used in connection with a widget, so too might the day not be too far away where a strong fanciful mark is developed in connection with a virtual widget. Aldous Huxley--here we come.
More on Farmville here.
More on Aldous Huxley here.

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