Consumer research firm eMarketer has cut its outlook for social network ad spending in 2009 a full 28 percent according to Silicon Alley Insider. The firm cut its estimate for 2009 from $1.8 billion to $1.3 billion–still 10.2 percent growth from 2008, but lending credibility to the argument that location-based social networks in particular need to find new revenue streams.
I’ve been really focused on the opportunity for LBS to derive dollars from virtual goods sales in 2009 and industry movement in the latter over the past few days seems to support the idea’s viability.
While not a location-based social network, hi5, very popular outside of North America has launched a virtual gift shop for the holidays. In it users can find 36 different virtual gifts that encompass the holiday cultural customs and traditions of hi5’s international user base. For instance, you can purchase a ‘dreidel’, the childrens toy popular during Jewish Hanukkah. Each gift costs 80 coins which equates to $1 in the United States.
GiveReal, a destination website and Facebook application, has also launched to the public today. Either at givereal.com or through the Facebook app, users can purchase credits for “virtual drinks” that can be redeemed for real brewskis using most major credit cards at over 500, 000 bars and restaurants in the United States. If you have a friend or family member you’ll really like to see snapped, you can purchase up to $99 worth of credits. This is an important development in the virtual goods industry because it blurs the lines between the real and virtual. That’s going to be important in the LBS industry over the next couple of years I think. GiveReal actually has been around in private beta since September 2008 and was initially started in 2007 by Princeton alumni Adam Ludwig and Patrick Ledbetter. Facebook co-founder Eduardo Saverin was an early investor.
Finally, while not directly social networking-related, GamersGate has launched a virtual sales effort in the online gaming industry.
GamersGate is releasing its Microsuite micro-transaction platform that will allow players within the worlds of any of the company’s 800 digital titles to buy or sell digital goods. The purchases can be made in the GamersGate lobby or within the games; a great idea given that players never have to leave to make a purchase enhancing the platforms ’stickiness’. Game publishers will be able to offer virtual goods such as weapons and avatar clothing, as well as game add-ons. They’ll also have full control over the transactions–GamersGate will only take a small revenue cut.
Granted, a cynic could argue that none of this has to do with location-based social networks. But in the end, human networks are human networks. While hi5 offers culturally relevant gifts aimed at its user demographic, GamersGate offers goods that are relevant to the game they’re purchased in. Location-based social networks can add a further measure of relevance: location. Especially in mobile, LBS could have a much more dynamic virtual goods industry than dot-com. As people move to new locations, they could be offered different goods. Tie this in to impulse purchasing–think of a location where a typical person would buy a souvenir–and I think this would be a pretty effective business model.
Furthermore, such activity in the span of just a few days is showing that virtual buying and selling–though nothing new–is starting to gain some real traction. I’ll lay off the virtual goods banjo for the time being, but keep your eyes on this in ‘09.
