Vir­tual Goods

Inc. (USA) - - DEPARTMENTS - —ZOË HENRY

A grow­ing num­ber of star­tups are sell­ing vir­tual items for ac­tual dol­lars and cents. Here’s how you too can make money from noth­ing

Just a decade ago, few would have guessed that vir­tual goods could cre­ate a real mar­ket. Then the smart­phone age sparked a whole new uni­verse of ephemeral, yet lu­cra­tive, com­merce. “Peo­ple have got­ten much more com­fort­able with the idea of pay­ing for things that are vir­tual,” says Joost van Dre­unen, the co-founder and CEO of Su­perData, a gam­ing re­search firm. For star­tups in this fast-grow­ing mar­ket, the goods may be fake, but the sales are real. Some of the most promis­ing new ar­eas of busi­ness are hid­den be­hind what can sound like Mil­len­nial smart­phone-speak: Ki­moji! Color bombs! Bit­coin! But these terms—mean­ing, re­spec­tively, Kim Kar­dashian im­ages, Candy Crush aids, and dig­i­tal cur­rency—rep­re­sent some of the big­gest break­throughs in the vir­tual goods econ­omy, which now ac­counts for more than $100 bil­lion in global sales, van Dre­unen es­ti­mates. “We’re at­tribut­ing value to things that have no in­her­ent value,” he says. Here are four ways that you, too, may be able to cap­ture the real spend­ing on fake things.

STICK­ERS AND EMOJI RE­PLACE WORDS WITH PIC­TURES

You prob­a­bly al­ready fill some of your text mes­sages with emoji, those dig­i­tal im­ages that range from sad faces and bro­ken hearts to sug­ges­tive pro­duce and party hats. Their more com­mer­cial cousins are “stick­ers,” which can be tai­lored to spe­cific events, brands, or peo­ple—like the wildly suc­cess­ful Kar­dashian line, which made more than $2.8 mil­lion in global rev­enue in 2016, ac­cord­ing to mar­ket re­searcher Sen­sor Tower.

WHO IS MAK­ING MONEY

App mak­ers, mar­keters, and brand­ing firms can most eas­ily jump into the sticker in­dus­try. HOW TO DO IT

If your core busi­ness is apps, con­sider de­sign­ing a line of stick­ers to sell via the stores run by Ap­ple and Google. Most sticker mak­ers don’t charge much, usu­ally 99 cents to $1.99 per col­lec­tion (mi­nus the stores’ 30 per­cent cut). The pay­off is slim if you’re do­ing this on your own, so many app mak­ers get in­volved only once they have a pay­ing client on board—usu­ally a com­pany or a celebrity who com­mis­sions stick­ers and the re­lated “key­board” tech­nol­ogy. WHO’S SUC­CEED­ING

Big tech com­pa­nies like Face­book dom­i­nate, but there is some room for star­tups. Vi­vian Rosen­thal, the founder of New York City-based sticker-tech firm Snaps, has worked with clients in­clud­ing Pepsi, Nike, Heidi Klum, and Kim Kar­dashian. Yet Rosen­thal says that celebrity con­tent makes up only a small por­tion of her sales: “The big­ger op­por­tu­nity we’re see­ing is for brands” to cre­ate stick­ers for ad­ver­tis­ing, she says. Since launch­ing in 2011, Snaps has signed deals with more than 100 com­pa­nies, each of which pays from $10,000 to $100,000 per month for its own tai­lored key­boards and re­lated prod­ucts.

THE RISKS

Since rev­enue per trans­ac­tion is so small, it’s a race against time to ac­quire enough cus­tomers. That’s part of what doomed Hi-Art, a New York City startup that made stick­ers for some celebrity mu­si­cians. “We still weren’t grow­ing enough that we were prof­itable on in-app pur­chases alone,” says co-founder Brian Le­d­er­man. His ad­vice: Move quickly to strike dis­tri­bu­tion deals with big mes­sag­ing ser­vices, such as Line, Kik, or WeChat. Those third par­ties may pay to li­cense your con­tent, which they can then dis­trib­ute to their hun­dreds of mil­lions of users.

$50 MIL­LION to $100 MIL­LION AN­NUAL U.S. DIG­I­TAL AD SALES FROM STICK­ERS AND EMOJI SOURCE: SNAPS

More than 138 mil­lion Amer­i­cans play mo­bile games, most of which are free to down­load—and many then pay for small in-app pur­chases that help them win those games more quickly. (Thanks, color bombs!)

WHO IS MAK­ING MONEY

Mo­bile game stu­dios. Some other de­vel­op­ers of re­cre­ational apps, in­clud­ing on­line dat­ing ser­vices and lan­guage-learn­ing pro­grams, also ben­e­fit from this free-toplay, pay-to-ad­vance model.

HOW TO DO IT

If you’ve de­signed and pub­lished a mo­bile game, you might ex­pect to earn about $25 per pay­ing player per month from in-app sales, ac­cord­ing to mo­bile mar­ket­ing com­pany Swrve. The chal­lenge is to find and keep those big spenders: Over­all, just 1.9 per­cent of play­ers make pur­chases on mo­bile games. Here, again, the app stores will take 30 per­cent off the top.

WHO’S SUC­CEED­ING

Tra­di­tional game pub­lish­ers like Elec­tronic Arts are in­vest­ing se­ri­ous cash in mo­bile games; more re­cent win­ners in­clude Ac­tivi­sion’s King, the maker of Candy Crush, and Jam City, the seven-year-old pri­vate Los Angeles game de­vel­oper pre­vi­ously known as SGN. Jam City counts 45 mil­lion users across hun­dreds of ti­tles, and says it’s on track to do $ 400 mil­lion in an­nual sales; one of its prod­ucts is Cookie Jam, a se­ries of puz­zles that charges users for ex­tra lives or moves. The com­pany has en­tire teams ded­i­cated to track­ing play­ers’ progress and com­ing up with new lev­els and ob­sta­cles, says Jam City co-founder Josh Yguado: “What’s beau­ti­ful about the mo­bile gam­ing in­dus­try is that you have so much day-to-day un­der­stand­ing of what vir­tual goods users are pur­chas­ing, and at what point they’re drop­ping out.”

THE RISKS

Re­mem­ber, a very small seg­ment of users (in Jam City’s case, fewer than 10 per­cent) choose to pur­chase dig­i­tal goods, so you need to con­sis­tently make new con­tent. “If you think you have the per­fect game, and you have a one-track de­vel­op­ment process, you will al­most by def­i­ni­tion fail,” warns Yguado.

IL­LUS­TRA­TIONS BY BEWILDER

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