The global mobile virtual goods market is set to be worth USD4.6bn by 2016 as social gaming adoption on connected devices continues to soar, driven by the increasing penetration of smartphones, according toa new report by Juniper Research. The figure represents a 53% rise from the USD3bn forecast to be generated this year, with 2011’s total driven by early adoption of the freemium business model in China and Japan. Juniper claims that the process of buying virtual goods will quickly spread, with tablet adoption further fuelling global sales, as Juniper believes that the devices “offer a significantly better user experience for social gaming”.
However, app stores pose the biggest threat to the development of the virtual goods market, according to Juniper, with firms such as Apple, Google and Research In Motion (RIM) enforcing a 30% levy on all revenues generated by third-party developers. With virtual goods typically paid in small instalments of around USD1, over time developers face paying vast amounts to app stores. Similarly, Facebook plays a similar role with its Credits virtual currency, and also imposes a 30% tax. Virtual goods are already proving a lucrative source of revenue for Facebook, with its Credits virtual currency accounting for USD470m of its projected USD4.27bn revenues this year,according to figures from eMarketer, some three times more than the USD140m generated in 2010.
Facebook, along with the app stores, stands to benefit from the growing popularity of virtual goods, but report author Charlotte Miller suggests that developers need to find a way around surrendering revenues.
“Although developers take the lion’s share of proceeds, the real winners are the app stores. They will take 30% of all in app revenues and at the moment, the increased functionality for a native app over an HTML5 app means that virtual goods are more likely to be bought via an app than a mobile site. The app store takes on very little risk or cost when distributing the app as the content provider has to pay for the app to be developed and takes the risk that it will fail. Social media services will have to find a way of avoiding the app store fees before they can truly benefit for mobile virtual goods sales,” Miller tells StrategyEye.
The freemium model employed by social games developers appears to be suited to the mobile platform, as consumers gradually warm to the idea of spending money through their devices. Figures from mobile ad network Flurry earlier this year show that free-to-download mobile games generate more money on Apple's App Store than those which users have to pay to download, with 65% of revenues from the 100 most-downloaded games in June coming from games operating a freemium business model. The figure illustrate why social games developers such as Zynga are now making big pushes into mobile.
As social gaming gains in popularity in the US both on desktops and connected devices, virtual goods are fast-becoming a hot market. Nearly one in three US gamers has paid cash for virtual goods, according to a study by in-game purchasing service PlaySpan in August, and eMarketer forecasts that sales of virtual items will hit USD792m in 2012,up2.13% year on year from the USD653m forecast to be generated this year.