You Got My Time, Take My Money

I ran into Ben Wan at a recent Palo Alto Lunch 2.0. His company TheBroth created the enormously popular Barn Buddy facebook application. Over 3 million monthly active users for that app alone.

With the runaway success of Barn Buddy, TheBroth is taking off. People are buying virtual fertilizer, livestock and all the other virtual goods you need to run a kick-ass virtual farm.

The business model of selling virtual goods has existed for a number of years. The model is very popular in Korea where some of the largest Internet companies drive the majority of revenues through sales of virtual goods.

Initially, Facebook games and other online game communities were banking on ad revenues for monetization. With the success of social networking game companies such as TheBroth and Zynga, virtual goods seems to offer a superior path to profitability. Zynga has a number of hit apps on Facebook, and is expected to drive over $100 million in 2009 revenues.

People are spending hours a week Facebook, and have shown the willingness to pay real hard currency in order to enhance their game play. If the virtual goods monetization continues to thrive, it could save us all from being bombarded by ads while we are growing our virtual crops. This twist on the fremium model seems to be the breakout monetization strategy that social game companies are requiring to realize their full potential.

As these game providers grow their revenues, it will be interesting to see how Facebook and MySpace will respond. These platforms have had mixed success with targeted ads, and may want a piece of the action now that these app providers are making some serious dough.

A vibrant virtual goods market is good news for Silicon Valley and the VC community. VC's have boldly invested millions of dollars in companies with distribution and traffic long before a sound monetization strategy was discovered. The bet is that the entrepreuners they are investing in will rapidly experiment until a clear monetization formula develops.