The Virtual Economy

Edward Boches (Mullen's intrepid CCO) pointed out an interesting fact on Twitter Saturday night: Virtual goods will hit $1 billion in sales in 2009. Billion. With a "B."

The point provoked the usual reactions from me and others, including Jim Mitchem from Smash Communications. How could Facebook happy-face icons and pretend sweaters in PlayStation Home be making money? The "actual" retail stores are struggling and here we are are plopping down real cash for pretend items? What gives?

But then I stopped. Because really, what is virtual? What is a "virtual good?" I know what the articles covering this news are talking about with elitist disdain — Second Life outfits and the like. But what about music downloads? What about online movie rentals? What makes them so much more "tangible" than a musical greeting sent to your friend online? When you think about it, that figure is probably way too low. We just haven't accepted some basic truths of the virtual economy yet.

It's All In The Experience

As my grandparents aged and moved into a retirement home some years ago, they began asking us not to get them "things" for Christmas and birthday's anymore. "We've got enough things and we don't have any room for it anyway," they would say.

So as a family, our response was to get them gift cards to restaurants, tickets to events and the like. The object was to give them an experience, rather than another item to crowd their already cramped new apartment. The sentiment remained unchanged, but the gift itself became transitory.

This is the heart of the virtual economy that is emerging. With virtual goods, the value is not in the physical item that we own or give, but in the experience we share.

Think about all the money spent on greeting cards for the sole purpose of sharing a sentiment. For most of us, this is a disposable experience. We get a nice card with a personal note, it sits on our mantel for a few days and then it goes into a drawer or the trash can. So why shouldn't this activity go online? Sharing a sentiment is no less "real" in a virtual greeting card, right?

Same with virtual clothing or game items in online networks. These items enhance our experience and project a statement about who we are. They make us feel good. We can debate the value of it, but how can we judge a person's personal enjoyment in an experience? How is wearing a logo t-shirt any less a statement in a virtual community than it is in a real one?

My point is that most of us have always valued experiences more than things. We love our new car, but we treasure the memories of that trip to New York. We're a big fan of our game console, but we retell endlessly that time we took out 34 aliens with a single bomb in that game we were playing.

Which all, of course, brings up the next question: If a virtual good is an experience without a physical item, where do we draw the line on what is virtual?

Virtual Is Virtual

Something weird began happening over the last 10 years or so. Virtual experiences began to break their physical bounds. Movies became online rentals. Music became MP3s. Software became increasingly available in download-only formats.

So I ask again, what makes music today any more tangible than that smiley cactus you sent your friend on Facebook for her birthday?

Because of records and tapes, and then later CDs, we have been under the mis-impression for decades that music was physical. We could point to our collection of pressed discs and say, "Look, I own that." But the truth is we never owned anything. We were licensees experiencing a performance that happened elsewhere. The disc confused things for sure, but the truth is we never owned the music we thought we did.

Same with software. What's physical about a video game or even an operating system? Just because it came with a disc and a printed manual doesn't make the experience any less virtual.

So when we say that virtual goods will reach $1 billion in sales this year, we aren't so much touting the growth of an industry as much as pointing out our own ignorance of how much of the virtual economy we already engage in. $1 billion? Try maybe $1 trillion. Probably more.

It all comes down to a matter of degrees. We can say a downloaded recording of a Beethoven symphony is more valuable than a piece of virtual flair. But until we identify them both a virtual goods, we do ourselves a disservice by misunderstanding what people truly appreciate in what they buy.

We can talk about how the toaster auto-senses for a perfect piece of toast every time, but what people buy is the experience of eating a great piece of toast. We can tout a great computer, but what people buy is the experience of using the programs installed on it. We can tell people the cashmere is soft, but people buy and wear it for the luxurious feeling it gives them.

So the question isn't, "How can people waste their money on fake stuff?" The question is, "Why are we still not in touch with the fact that people buy things for the value of the experience it gives them?"