@andrewchen

Get the newsletter · 2018 essays (PDF) · Featured · Recent

Virtual goods: Who will be the Amazon.com of virtual item sales?

Web 2.0 + games
As I've previously written about, I'm hugely fascinated in the use of virtual goods to monetize social web properties. In particular, there's an increasing intersection of games and social websites as well as the people who make them. Obviously there's a lot of cross-pollination going on, particularly in the heated Facebook social gaming space. Another space where a lot of innovation is happening is the casual MMOG market, where more than a dozen venture-backed companies are coming to market in the next 12 months.

Virtual goods infrastructure
One of the opportunities that is emerging, as these companies release their product and consumers start to have a standardized set of expectations, is the virtual goods infrastructure. The interface for virtual item sales is starting to standardize. In many cases, you see common elements like:

  • Your avatar
  • A collection of items which can be navigated through
  • "Buy" buttons and other interaction with each item
  • Regardless of whether you can buy it, you can dress up your avatar with aspirational items

Yet while the interface standardizes, the rest of the process does not. In particular, how about issues like:

  • Payment policies what countries, what currencies, and how many methods?
  • Alternative payment cards (like Nexon cards in Target stores)
  • User-to-user sales
  • Number of currencies (dual? single? more?)
  • etc.

In fact, one realization is that all of this backend stuff is really just the same type of infrastructure that e-commerce sites have built for ages. And looking at the resulting analogy, one might ask: "Who's going to be the Amazon of virtual item sales?"

Let's examine what this quesiton means…

Amazon.com and where their techniques apply

Ultimately, much of Amazon's success is due to their quantitative views on personalizing the user shopping experience. This includes issues like:

  • Product recommendations
  • Price testing
  • Product bundling
  • Search, browse, and navigational hierarchy
  • Reviews, ratings, lists, and metadata
  • Affiliate programs
  • Ad targeting
  • etc.

Right now, the virtual item stores I've seen are in their infancy – there's very little sophistication relative to what's possible as shown by Amazon, at least in e-commerce.

My question: Will one particular game (or game platform) do this all right? Or will it be a third-party vendor that provides this rich set of functionality to partner games?

I'd enjoy any suggestions for companies that are looking into this space – comments and suggestions appreciated!

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments (and certain publicly traded cryptocurrencies/ digital assets) for which the issuer has not provided permission for a16z to disclose publicly. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.