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For the Holidays: Good Things Come in Virtual Packages

Virtual commodities such as avatar accessories and Facebook gifts are a sign of status for a new generation fixated with everything Web related



Courtesy of Linden Research, Inc.

Not sure what to get that special someone on your holiday shopping list who has everything? How about a virtual T-shirt featuring the logo of his or her favorite virtual band—or a snazzy new pair of avatar swimming trunks? Too trite? Well then, how about a prewrapped present to put under his or her Facebook Christmas tree?

Many people of a certain age may consider such gifts a waste of their hard-earned and very real money. But not so a growing number of tweens and teens as well as 20- and even some 30-somethings, who spent around $2.1 billion in 2006 on virtual goods and services, according to researchers at Finland's Helsinki Institute for Information Technology (HIIT).

The reason for the very real popularity of virtual shopping? The same as for traditional buying, says HIIT researcher Vili Lehdonvirta: Shoppers see some value in the purchase of an item even if they don't necessarily need it.

"For kids in particular this kind of consumption is a social behavior," he says. "Adults have developed conceptions about what can and cannot be valuable, but kids who don't share this rationalization will do what they subjectively feel is right. Studying this can advance the understanding of consumer behavior in general."

Lehdonvirta is the founder of the Virtual Economy Research Network, a Web site that offers news, research and discourse on the virtual purchases, which include domain names as well as clothing and accessories for online avatars and video game characters. "Today, this virtual property is being bought and sold for real money by millions of people at numerous marketplaces around the world," he says.

Indeed, spending on virtual items for social reasons is a more sustainable model than the purchase of computer-generated real estate or avatar apparel in cyber worlds such as Linden Research's Second Life. Facebook's online gifts are a way to establish and maintain friendships, Lehdonvirta says. "Look at it as a form of creativity, establishing membership in a group, identifying social classes," he notes, "and what social group you identify with."

South Korea is the leading market for virtual consumption and one of the most trendy places to spend money on virtual items is social networking site Cyworld. Unlike Facebook or MySpace, a Cyworld participant creates an avatar called a "minime," whose hair, clothing, facial expression, mood and other attributes can be changed as often as the owner wants. Much of the U.S. and European spending that can be tracked—Facebook does not provide sales figures for its virtual swag—is on massively multiplayer games, a primary example being World of Warcraft.

Adults—particularly those in their 30s—that Lehdonvirta interviewed consider social networking sites to be their "virtual front yards," he says. "The kind of car you park in your driveway, your house, your garden—these things communicate information about your status. Some people believe that if you don't spend a decent amount of money to take care of your online image, you will see the social consequences, such as feeling pressure from peers."

Rumors have surfaced in recent years of incomprehensible virtual purchases, such as that of an Australian who allegedly bought an island in the online game Entropia Universe for more than $20,000 and another of an American who supposedly paid $100,000 for an Entropia virtual space station. "These claims can't be independently verified," Lehdonvirta says, adding that they amount to little more than good publicity for Entropia.

Virtual purchases and gift-giving (and maybe even cyber re-gifting) must continue to evolve, however, if they are to continue to attract the interest of spenders and become sustainable economic models for sites such as Facebook. Many of the gifts that Facebook offers are currently freebies that the fairly immature business is hoping will shape market behavior and encourage their participants to eventually fork over money for goods.

HIIT researchers next month plan to begin studying virtual economies as part of a two-and-a-half-year project called Advanced Virtual Economy Applications, which is being financed with $964,000 (around 672,000 euros) by Finnish technology and innovation funding agency Tekes, along with Nokia Research Center, Icelandic massively multiplayer game company CCP, Swedish virtual world–maker Playdo AB and Finland's SWelcom (the electronic media division of SanomaWSOY Group). They plan to explore economic activity in large-scale virtual economies, virtual asset sales as a revenue model for online services, and cyber economies on mobile and ubiquitous platforms.

So, before dismissing requests for the latest in virtual gear, consider the time and money you could save by buying online—not to mention the cred you'll get from your kids who probably think you're a techno-dinosaur who just uses your computer to e-mail and upload digital photos.

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