Virtual Goods market still on the rise in the U.S. – $2.1 Billion predicted for 2011

Released yesterday by the Inside Network, 2011 looks to be a bumper year for the virtual goods biz. The Inside Virtual Goods report is forecasting some mighty big numbers for virtual swords, costumes and mounts, as founder Justin Smith and Virtual Goods Summit head Charles Hudson predict a gain of 40 percent – up from $1.6 billion in 2010.

“If 2010 was the year that virtual goods made a splash in western markets, 2011 will be the year that these markets begin to mature as the collective opportunity across social games, online games, virtual worlds, consoles, and mobile games reaches the $2 billion dollar mark,” said Smith.

However, Smith and Hudson do not go so far as to see the (virtual) world only through rose colored glasses, as they point out that while a large majority of this growth is/was due to Facebook, the recent restrictions on communications and updates that the social networking platform has put in place are bound to put the brakes on unlimited growth. They point out that while 2009 and 2010 saw huge growth rates, 2011 will see such an explosion in numbers.

In a CNN report, Forrester Research analyst Nick Thomas finds it difficult to put a hard number on the virtual goods market, as he finds online purchases of digital goods still outside the mainstream.

“There are a few companies doing this very well and executing this very well, so by the time you factor in ‘World of Warcraft’ and one or two others, then you’ve probably got a fair chunk of the market,” he said. “There are not hundreds and hundreds of companies doing this well.”

If by one or two others, Mr. Thomas is perhaps referring to Electronic Arts’ purchase of Playfish for up to $400 million, and Disney’s recent acquisition of Playdom for up to $763 million, then he’s right on the money. However, let’s not forget about Zynga, and their plans for global domination, as well as the hundreds, if not thousands of other successful virtual goods offering gaming firms out there today. And Android and iPhone apps – all to be considered under the virtual goods umbrella? Oh, and did I mention Xbox, PS3, and Wii?

Another page to consider under the “still outside the mainstream” argument is the notable shift to free-to-play over the past year. Spearheading this movement at the moment is Turbine. They began with flipping Dungeons and Dragons Online to a free-to-play model, and only to report massive virtual currency sales, ahead of it’s public launch date. Building on this success (and a Warner Brothers acquisition), Turbine then repeated the formula with their flagship title Lord of the Rings Online.

To summarize, Smith and Hudson’s numbers, as well as reasoning appear to be well founded. Barring any catastrophic events, it appears as though 2011 will be a great year for the virtual goods market.

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