Will The US Virtual Goods Market Size Grow To Equal Asia’s?

While the size of the global virtual goods market is a robust $5.5 Billion, it is no secret that the majority of this is generated in Asia. Asia makes up about $5 Billion (or 90%) of the global virtual goods market. Are virtual goods an isolated occurrence in Asia? Will the size of the North American virtual goods market ever be equal to or greater then Asia’s?

We Are Still Early

North America is still in the first inning of the virtual goods ballgame. Virtual goods only started to gain serious traction in the US near the end of 2007, early 2008. The Asian virtual goods market, however, has developed over a period of almost 10 years to reach the point it is at today. Despite being new, the US virtual goods market has seen some very promising growth in just the past several years. Virtual goods revenue in the US has grown from negligible amounts in early 2007, to, a projected, over $500 million in 2009. Key road blocks, like payments, are being solved by new startups while companies like Viximo are providing expertise, and content/technology solutions, to help those new to virtual goods.

A Lot Of Room For Growth

Virtual Goods in North America still has a large amount of room for growth. The percentage of internet users that have been exposed to virtual goods in North America is still small compared to the exposure rate of the Asian internet population. In addition, the US’s internet population is 66% larger then Korea and Japan’s internet audience combined. Japan and Korea being where a significant amount of Asia’s virtual goods revenue is generated.

Atul Bagga from ThinkEquity had some interesting data comparing virtual goods purchasers in China to the US. When compared, users who buy virtual goods in China spend 3X the amount per month , then virtual goods purchasers in the US, despite the fact that Chinese users have 1/6^th the average income. Consumers in the US have much more discretionary income. As virtual goods become more prevalent, we expect per user spending to match, if not exceed that of the Chinese user .

The largest companies in the North American market have yet to fully implement virtual goods models. Facebook recently started rolling out their payment platform as a first step in an expanded virtual goods strategy. MySpace has been rumored to have virtual goods as a serious part of their near term road map. Recently, at Casual Connect in Seattle, virtual goods and social gaming was the talk of the conference by large gaming companies, with EA announcing a significant virtual goods strategy.

Mobile Is A Big Factor

The size of the internet audience isn’t the only factor. In Asia, a significant amount of virtual goods revenue comes from purchases of virtual goods on mobile phones. Largely this is due to the fact that mobile penetration is larger in Asia then North America, and the technology infrastructure, particularly in Korea, is far superior. In comparison, the North American mobile market is also in its infancy. But with innovations like Apple’s app platform, and Android, we have already seen a significant increase in virtual goods purchases on mobile phones.

Asia Leads North America In Innovation

In a must read report titled “Lessons Learned From Asia”, Benjamin Joffe of the consulting and research firm 8 Plus Star debunks two very common assumptions. One, everything in Asia is “weird,” and two, Asia is full of copy cats. But as Joffe explains in the presentation, Asia has actually lead much of the innovation on the internet citing companies such as Hozom, Qifang, Digu, that existed and were successful, before their North American counterparts Plaxo, Kiva, and Twitter. If this trend holds true, then virtual goods in Asia aren’t “weird,” but more of an indicator of where North America is headed.

Conclusion

Overall, Viximo predicts the North American virtual goods market will grow to reach, and surpass Asia’s current virtual goods market size of $5 Billion. But it is important to note that it won’t happen overnight. 2010 and 2011 will be important years for the industry. However, commitment and innovation is still required from companies subscribing to old ad driven business models.