Virtual Goods Give Brands a New Way to Play in Gaming

Games Offer Complimentary Use and Free Products in Exchange for Watching Advertisements

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SAN FRANCISCO (AdAge.com) -- Buying items that aren't real: It's already a $500 million business in the U.S., according to market-research firm Interpret, although it has yet to reach the the level of influence here that it has in Korea, where virtual-goods sales outpace online ad revenue, or China, where virtual currency is such a big deal the government is cracking down on it.

VIRTUAL MEETS REAL: Rocawear offers virtual ski apparel with special in-game attributes.
VIRTUAL MEETS REAL: Rocawear offers virtual ski apparel with special in-game attributes.
But it might, soon. That's because the "freemium"-play model popular in countries such as China and Korea, where publishers make their games or virtual worlds free to play but charge for premium content, is giving U.S. advertisers a new way to play in the gaming space.

Youth-targeted virtual worlds such as Gaia and Club Penguin have led the "freemium" trend in the U.S. -- they're free to play but users have to spend real money to get points that can be used to amass in-world virtual goods. (Check out the prepaid gift cards next time you're at Target, Walmart or Rite-Aid.)

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But games are not far behind. In some freemium games, advertising is becoming the in-game virtual currency, as players can obtain free virtual goods such as swords and armor in exchange for viewing marketer messages. By early August, gaming portal Outspark will give gamers a choice of paying for virtual goods or getting them free by watching advertising video. Up to 99% of the players will opt to watch the advertising, since people will almost always choose "free," according to said Dave Madden, exec VP of WildTangent, which will implement Outspark's ad sponsorships.

It's a sign more games are eschewing upfront payment and relying on advertising and incremental payments for premium content and virtual goods to underwrite their investment.

"The new paradigm is value exchange, and the upside is figuring out how advertising can become a form of payment to unlock game play and virtual goods," Mr. Madden said. "We're just getting to the forefront of this emerging model."

Free Realms
How popular are these games? Consider Sony Online's Free Realms, the entertainment giant's first-ever free, massively multiplayer game that's some four years in the making. It has drawn more than 3 million players since its end-of-April debut.

Sony has yet to announce an advertising program for the family-friendly adventure game, but has signed on with WildTangent to represent Free Realms to advertisers.

Some marketers are going beyond unlocking virtual goods through sponsorships and are selling branded virtual goods, associating them with attributes that play well in the fantastical context of gaming while remaining faithful to the product.

Earlier this month, Outspark began offering a line of Rocawear ski apparel that take on special in-game attributes in a snowboarding game. The virtual skiwear costs twice as much as the unbranded line, but if a player puts on Rocawear ski pants, he not only looks sharp on the slopes, he's also imbued with the magical powers of performing more snowboarding tricks, which earn him extra points. In the four days since Outspark launched the Rocawear products, four of them cracked the game's 10 best-sellers, out of some 60 virtual items for sale in the game.

Under this model, not only is the advertiser ringing up incremental revenue through the virtual-goods sale, it is also potentially creating positive brand perceptions, however far-flung, that could translate to greater affinity in the offline world.

Back to reality
"If the equity associated with the brand that are created in the virtual world can translate to the real world -- i.e., when I buy these shoes, I can jump higher or run faster -- think of what that could do to shoe sales in the real world," said Dan Jansen, CEO of Virtual Greats, a business that helps brands create virtual extensions.

As Virtual Greats sets about convincing other developers to allow branded items to take on special in-game functions, Mr. Jansen said one challenge has been getting these gaming upstarts to better understand brands and be successful online retailers.

"A lot of these communities are young businesses and they're evolving their revenue model," Mr. Jansen said. "I need them to be world-class retailers. Bringing best practices from the real world into online communities is something we're working with them to be better at. It's merchandising, it's organizing the shelves, it's learning how to drive consumers to higher-price items, it's pricing experiments. All of this is a challenge for our partners and us."

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