IMVU Making At Least $1.7M Montly With User-Made Virtual Goods

By On April 13, 2009 · Leave a Comment

Last week IMVU issued a statement touting IMVU as a way for creative people to generate supplemental income during the the ongoing economic downturn. IMVU is a virtual world with an emphasis on a graphical chat experience that goes the Second Life route, with the vast majority of the purchasable in-game virtual goods generated by users.

IMVU has proudly claimed month-over-month increases in revenue for the past six months. The company was willing to disclose to Virtual Goods News that this amounts to a total 70% growth in monthly revenue since the official beginning of the economic downturn in September. The company declined to disclose any revenue figures other than the older released statistic of over $1 million in revenue per month, but for a 70% increase to hold true then IMVU's monthly revenue should at this point be at least $1.7 million.

"We see not only actual goods that someone's avatar might wear, but also the type of goods that enhance the actual functionality of an avatar," said IMVU Vice President of Product Development and General Manager of Direct Revenue Lee Clancy. "One of the most popular categories we have from a virtual goods perspective is poses and animations that users can activate via different words in the chat experience. Those are consistently among our top sellers, ways to have your avatar do things outside of the core set of basic actions."

IMVU has long
stated that 90% of the company's monthly revenue comes from
microtransaction sales of virtual goods and currency, generated either
by direct sales to users or user-to-user transactions. The other 10% is
generated by advertising and partner revenue.

The company has
yet to spend any of the $10 million in Series D venture capital it
raised in January and Clancy expressed hopes that IMVU would not have
to raise any further rounds in the future. Instead, he stated that IMVU
expects to become profitable later this year.

Only a few days ago Second Life announced it had put $100 million into the pockets of users who were creating and selling virtual goods in that world. IMVU declined to release any similar figure of its own, but Clancy gave the impression that at least the top virtual creators on IMVU were able to make a considerable profit off of their work.

"We have folks that are making well in excess of six-figure incomes from IMVU," said Clancy. "There's another tier making sizable dollars, a living or a handsome income supplement, with IMVU. Then there's the low end where they're earning credits just to save the dollars they might spend in IMVU anyway. We're happy to have their items, too."

IMVU is designed so that when users profit from selling items to other users, IMVU profits, too. IMVU designs and sells the basic items that creators use as templates for their personal creations and charges a 10-credit "wholesale" fee for each virtual item purchase. Anything beyond that basic 10-credit price goes to the user as pure profit, and users can set their own prices based on what they think (or hope) others will pay. In addition, users can obtain the credits needed to purchase in-game items by purchasing them directly from IMVU at a rate of $1 to 1000 credits.

Editor's Note, 6/12/09: IMVU reps contacted VGN today and requested
the story include the following detailed description of the site's
price derivation formula, as the information originally provided to VGN
about IMVU item pricing was in error.

The price of an IMVU item consists of four parts:

1) Derivation cost – The sum of all profits within a derivation chain, starting with IMVU's root products
2) Profit – The profit assigned by the good's creator
3) Retail markup – A standard 10% markup fee applied to all goods
4) Final price – The summation of 1 through 3

IMVU's full pricing formula is: Final Price = Derivation Cost + Profit + ((Derivation Cost + Profit) x .10)

Of course, users selling items in IMVU don't get cash directly, they get credits. While users in IMVU can cash out their credits, the method they use to do so is cleverly structured to make sure IMVU eventually gets a piece of the revenue generated. IMVU users can't simply sell their credits back to the company, but instead have to sell credits to other users in order to obtain real money from their sales in IMVU. This usually means selling credits to others at less than IMVU's going rate. Clancy gives the impression this practice goes a long way to keeping the IMVU economy healthy.

"We're encouraging this active and viral economy here where someone who is successful can make money. We have a series of products called bundles, a set of products that creates a unique experience like a ski vacation or tropical island, and there's a recent bundle creator that has done some very good bundles in the last few weeks – and they're very very new in this system – and these people can accumulate real dollars from this attraction," said Clancy.

IMVU claims to have the world's largest catalog of virtual goods in a single application, offering over 2 million goods. Of those, 99% are user-generated, or what IMVU calls "secondary products." The primary products are the template items generated by IMVU itself. These template items can frequently take on an uncanny life of their own: the first IMVU virtual pet was the result of a user modifying the accessory template item intended to be used in the creation of jewelry for avatars.

"We have over 100,000 registered developers and around 35 million registered users. So not everyone at this point is creating products, but we really make it very easy for someone to get into it. We have an in-depth education center and set of tutorials for someone who wants to get into creating products," said Clancy. "What we've also seen is that our creators tend to be users who love the product and want to do more in the product, so they see being a creator as a way to earn credits they can then use to buy things in the product. There's both a low-end amateur that wants to get deeper into the product and then also the "professional" creators where people have their own staffs, and some of the bigger developers on Second Life are also developing in IMVU."

Clancy sees the promise of buying virtual goods that are, for the most part, developed by other users and not a central company as one of IMVU's selling points. Often when IMVU releases a new item as part of a promotion, user-created items derived from but similar to it radically outsell the original IMVU version. Clancy believes users essentially gravitate to items generated by particular creators the way real-world consumers gravitate to particular designer labels.

"If you talk about brands in virtual worlds, much of it is focused on sponsors trying to reach users in the traditional advertising model, but we're seeing brands emerging in our virtual world. We've seen creators so attuned to what people want that they can carve out entire brands for themselves," said Clancy. "There are certain creators where users know if they want great hip-hop products, they go to that user and they're loyal to those creator brands."

Another important factor in IMVU's virtual goods sales is that the shopping experience for users is seamless. In order to buy virtual goods in many games and other sorts of apps, you have to stop interacting with other aspects of the software in order to close a transaction. In IMVU, users can buy goods without having to stop chatting and interacting with the virtual world around them.

"We have for example actual products that allow users to go shopping in virtual worlds together. We see the experience is very much a social product, and if you polled our real hardcore users they'd say the power of the experience is in relationships they're building, and that is based on their ability to express themselves in this environment," said Clancy. "We think that is part of helping you find a unique you in this 3D environment."

An aspect of IMVU's initial release a few weeks back involved emphasizing that younger users tend not to distinguish the real and the virtual. What this means, essentially, is that younger users tend to approach their spending in IMVU with a set of priorities not noticeably different from the ones they bring to real shopping.

"I'd say the younger users are definitely more comfortable in this environment," said Clancy. "They've never bought CDs and they grew up with this. It's not something they have a second thought about. It's different than the older users who can't imagine why they'd want to buy a virtual Porsche."

This doesn't mean younger users are spending the most in IMVU, though. Clancy points out that disposable income affects purchase ability in the virtual world just as it does the real world. While 18-and-under users are very interested in spending time in IMVU, the usually can't spend as much on the world's virtual items as older users who hold jobs.

"Our teen audience is very active. They do a lot of things without buying because it's a freemium model," said Clancy. "Social networks are a main outlet for socializing each other, they grew up on MySpace and Facebook. To the young crowd virtual is another form of reality."