Beyond Facebook Gifts: Virtual Currencies 101

Reposted from Mashable

Anu Shukla is the Founder and CEO of Offerpal Media, the leading monetization solution for social applications and online communities.

The word on the street is that social networks, as popular as they are, can't make any real money. After all, who's going to click on an ad while they're in the midst of socializing with their friends?

While there's a grain of truth to this rumor, it's fast becoming an out-of-date perception. What's changed? A new economy based on social web properties that use virtual currency to capture users' imaginations.

By creating a demand for premium content such as virtual gifts or upgraded features, savvy social publishers are finding that at least a portion of their users will gladly fork over real cash in order to pay for, say, a pretend peony on (Lil) Green Patch or to buy the latest toys for their virtual babies on Make A Baby. Even better, plenty are willing to wade into the world of online surveys and advertising offers in exchange for these "must have" items in their games.

Though no one knows yet the exact size or potential of the market for virtual goods and services, conservative estimates put it at over $2 billion for this year alone. Not bad for a marketplace that barely existed a couple years ago. Even better, all signs indicate that the growth is just beginning.

As more and more social web publishers catch on to virtual currency as an incredibly effective way to not only monetize their traffic but also engage and motivate their users, the trend will only pick up steam. And as advertisers understand the channel better and realize that it is ideal for both performance-based campaigns as well as branding efforts, don't be surprised if virtual currency becomes the most sought-after ad channel on the web.

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What is virtual currency?
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Virtual currency, as you might imagine, is what you use to buy virtual goods or virtual services. It is essentially as good as real currency. The only difference is that it only applies within the realm in which it was issued. This currency has all kinds of names in the online world: it may be called "bucks," "coins," "points," "dollars," "tokens," "jewels," "rewards," "chips," "treats," "vouchers," "boosts," or "credits" (all of which we've seen), but whatever their name, virtual currencies have a definite value and can be redeemed in a number of ways.

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What are virtual goods and services?
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Ever noticed the little gift icons on Facebook lately that urge you to send a present to a friend? Virtual gifting is a reportedly $50 - $60 million a year business for the company, and that doesn't include any of the gifting that takes place on third party applications. But beyond Facebook's own virtual gifting, it's also built into a number of applications, offering revenue opportunities for the developers of these games.

Virtual worlds and avatar-based communities have been charging people for decorative types of goods like fancy upgrades for their avatars or special backgrounds for their profile pages for some time now. At WeeWorld, for example, where you can create your own personalized WeeMee and take it with you around the web, you can spend WeePoints to pimp out your avatar with just the right hair, right clothes and right accessories.

Virtual goods can also be more functional than decorative, such as the case when virtual currency is redeemed to unlock hidden features or advance within a gaming scenario. This type of virtual good is especially prevalent in MMOGs or other types of social games. For example, at Mobsters, the number one app on MySpace, users can redeem virtual currency to help them grow their mob and level up faster towards the top of this underground world.

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How is virtual currency earned?
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We've already mentioned that virtual currency can be earned by either buying it with real currency or by taking part in ads, but there are several other ways that publishers can allow their users to earn virtual currency. One is by inviting other people to the property, a tactic that also encourages viral success and growth. Another way is by simply coming back and logging in every day, which helps increase stickiness and loyalty. And yet another way is by rewarding them for completing certain tasks or quests, thereby helping build engagement and activity.

But the most monetizable way to let users earn virtual currency, by far, is for completing ad offers.

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How can advertisers tap into virtual economies?
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As advertisers know only too well, so-called "banner blindness" has become an increasing fact of life, but especially so on social networks. Wise application developers know to integrate advertising offers into their app in a way that contributes to, rather than distracts from, the overall user experience.

For example, participants in the (Lil) Green Patch application need what are called "GreenBucks" in order to choose the types of plants they want to send to friends. By signing up for Blockbuster, for example, or by participating in any number of advertising offers such as completing surveys, requesting insurance quotes, downloading ringtones, etc., they can get a hold of that foxglove they planned to give to their aunt Agatha, or a lily they hoped would brighten the day of a friend.

By tapping into the user's social activities and motivations—in this case, sending a virtual gift—advertisers' offers essentially provide the fuel that enables consumers to interact with each other within an application. The key to success, from the advertiser's point of view, is using all of the juicy demographic and behavioral data on hand in order to target their audience strategically. Do that, and they will generate new customers far more effectively than through any other channel.

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Anu Shukla is the Founder and CEO of Offerpal Media, the leading monetization solution for social applications and online communities. A serial entrepreneur, Anu is also the founder of Mybuys Inc., a venture-backed company in the eCommerce personalization market. Prior to Mybuys, Anu pioneered the category of Internet Marketing Automation as founder and CEO of Rubric, Inc. Rubric was acquired in 2000 for $366 million. Prior to Rubric, Anu held a variety of executive roles including Vice President of Worldwide Marketing and Product Management at Compuware/Uniface Corporation (CPWR).

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