the way to monetize off of virtual goods in social games

Jeremy Liew has a nice article on why people buy virtual goods here. His top reasons, attention in a noisy environment (usually digital gifts), self expression, increased functionality, and convenience is a good list of the types of virtual goods you can offer.  However, not all types of virtual goods work as successfully as others.  It could be that for users of your game, self expression is less important than convenience and hence will return less revenue.

To put into practice a successful virtual goods offering, you need to go back to business basics.  This is first identifying user demand or needs in your game product.  And then, measuring that user need.  What you are doing here is applying  a need-driven framework to your game in order to identify real monetization opportunities.

A simple example most facebook games implement revolves around “Action Points.”  Users are given a daily allotment of action points that they can spend to do in-game actions that help them progress further in the game or level up their character.  Once you’ve spent your action points, you can either wait for the points to replenish over time, or you can buy more action points with real money.  While I don’t have any hard data, I imagine that “buying action points” is one of the biggest reasons why users purchase in these games.

So in the above example, we can clearly see the user need of having a limited resource, the running out of action points.  Now, the next step is to measure how many people actually run out of action points and how often.  If you find that these situations are frequent and happen to many people, you have a great revenue opportunity.

This all sounds pretty straight forward and obvious, but if you follow through with building a need-framework, where you will most benefit is when you’re already monetizing well, but you want to increase your monetization by offering new virtual goods.  By understanding the needs driving your current virtual good sales, you will be better positioned to create new virtual goods that don’t cannabalize sales of your current goods.

Additionally, since all needs in social games are artificially created, this kind of framework can be a tool for generating new game features that have a high return.