I had the pleasure of speaking at the Virtual Goods Summit last Friday. It was a great conference with lots of great dialogue around this hot topic. Hats off to Susan Wu and Charles Hudson for putting together a great day!

One of the most interesting concepts discussed at the conference was the difference between “functional” and “decorative” goods. Functional goods are items that can give a user (or a player in the gaming worlds) additional tools or skills. For example, in a game this might be a better sword or the ability to run fast. Decorative goods are ones that help you spice up your online presence. Everyone agreed that the term “decorative good” was not the best as decorative goods definitely have a function too – they help you express yourself through your page, avatar or character. Whether it be a fly badge on a profile page or a cool hat for your Gaia avatar, these goods help you define who you are.

In our panel,”Virtual Items: Mainstream or Not?” we took this a little further with virtual gifts. Gifts really are both functional and decorative. In giving a virtual gift you are sending a message with implied or explicit meaning attached to it. The most common reasons for sending a gift on Dogster and Catster are friendship, support of sick or dying pet, acknowledgement of kindness or knowledge, reciprocating a gift given, and for tail wags to members who go out of there way to make the communities fun. Virtual gifts on your page may look great but they also represent social currency and status in that community. A person with 20 Rosettes (our most common virtual gifts) on their pet page is someone who has a lot of clout in the community.

Whether gifts and goods are functional or decorative it is very important to consider balance within the game, virtual world or community. The goods should enhance a user’s experience but not upset the balance. Other users who do not have access to these goods, should still be able to thrive in the environment.

Virtual goods are going to be huge. Some of the Asian gaming companies presenting had huge revenues ($65M per quarter from one) from virtual goods as they have been focusing on this whilst in North America we have been more focused on online advertising. But make no mistake, virtual goods are coming to all online communities. Dogster and Catster (a mainstream demographic) have had great success with virtual gifts. Our members have given away over 50 million virtual gifts (treats, bones, rosettes and stars) in the past two years. Advertisers have sponsored our virtual gifts. Members have taken to both the free and paid-for gifts in ways we could not imagine. Not only has it provided a significant revenue stream for us and contributed greatly to our expansion and profitability, but it has also has made our community more connected and made the experience more meaningful for hundreds of thousands of members.

Big thanks to everyone at the conference for coming and sharing their thoughts!