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The market for digital goods

Tencent, a Chinese social network, has annual revenues of $1.2billion, and for every $2 in advertising revenue, makes $17 from “other revenue streams”.This is a striking contrast with Facebook /Myspace /Orkut, all of which are struggling to monetize their users. Bill Gurley outlines how Tencent makes money:

[Pony Ma, Tencent founder was] selling virtual clothes and accessories for digital avatars that represented his users online. Think about it; this is a beautifully high gross margin business with very low marginal costs. He even told me he thought digital shirts should deteriorate over time like real ones. Pure genius. …most U.S. executives have trouble conceiving and believing in the digital item model. For starters, they simply think it’s strange. “Why would someone buy clothes for their virtual avatar? That’s weird.”

But I think we have a point here. We already have a precedent for commercial virtual goods. For-pay Wordpress themes, for instance, are an example of a purely virtual good for self-expression and self-promotion that buyers as willling to pay real money for.

In fact, you could argue that the entire SEO industry is another example of a digital good: paying to drive visitors to a virtual property of self-expression. So if the Google/website ecosystem was the Web 1.0 generation of digital good commerce, could  social networks/ social profiles be the Web 2.0 equivalent?


March 19, 2009 ·  Post to Twitter ·  Email this ·  Uncategorized ·  1 Comment


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One Comments


  1. Envelope Printing on April 22nd, 2009 6:52 pm

    I guess for those who are really into this stuff, they could afford paying real money for digital stuff like clothes for their avatar. Or maybe a really good marketing strategy plays a part too. But in these economically challenged times, its hard for me to imagine spending money on this. Thanks!

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