US Virtual Goods Market To Pass $2B In 2011

By Alicia Ashby On September 28, 2010 · Leave a Comment

The US market for virtual goods will reach $2.1 billion in 2011, according to a new research report issued by Inside Network. This number is up from an estimated $1.6 billion in 2010 and $1.1 billion in 2009. This means that the market for virtual goods in the US has effectively doubled over the course of the last two years.

The estimate is based on interviews conducted by the report's authors, Charles Hudson and Justin Smith, with top executives and entrepreneurs involved with the US virtual goods market. The research report also outlines the anticipated growth trends for the coming year. Facebook Credits are expected to have a major impact due to Facebook's importance to the still-growing social game sector.

"I think that social continues to be the area where there's the most activity around new companies and new companies getting large quick. Other people in adjacent business repositioning themselves, making social games the center of their activity. A lot of people are realizing that social games are a great engagement and monetization tool," said Hudson.

The report also anticipates substantial growth in virtual goods sales made on home video game consoles, particularly to users of the Xbox 360's Xbox Live network. Mobile is a third likely source of growth in upcoming years, if free-to-play games continue to gain traction on smartphone platforms, particularly Google's fast-growing Android platform and Apple's iOS platform.

Going Forward

"Last year was the first year developers could really start tinkering with in-app purchases. It takes time for developers to make them work and figure out what customers want to buy. Now they know that people will pay for this and won't pay for that. I'm bullish to see people apply that learning in this year and next year," said Hudson.

Report co-author Charles Hudson says that he expects social to ultimately drive the lion's share of growth in 2011, continuing the strong growth trend that began in 2010. While much has been made of recent Facebook platform changes slowing app virality, Hudson says the overall trend of social gaming on Facebook is still toward growth.

Hudson expects that a major question for mobile developers moving forward will be how to allocate development resources between Android and iPhone. While Hudson thinks Android has enormous potential as a platform for free-to-play games, he doesn't think the platform has produced a defining "superstar" developer that proves the platform is ready for success.

Another major question is what sort of average revenue per user (ARPU) the US market is willing to support. In a healthy virtual goods market, developers know roughly how much they can reasonably expect users to spend and then tailor the experience toward that. Hudson says that for the US market, no real "ceiling" for ARPU has emerged yet.