A $50,000 Virtual Wedding Ring?

Peter S Magnusson ♦ June 22, 2007 ♦ 4 Comments

Well it has been an excellent day, I’ve really enjoyed the panels, and the organizers did an excellent job in getting key people to participate. It’s always nice to attend “early day” summits before 75% of the participants are there to learn the basics (e.g. Web 2.0 this year) as opposed to being actual movers and shakers in a nascent segment (and they were very much in evidence here). Again, kudos to the organizers.

The comments and discussions have moderated my opinions going into this a little bit. I’ll weave some of it into my upcoming treatise on World of Warcraft (stay tuned!).

Virtual Goods is an interesting supplementary business model, that acts as an additional source of monetization for US/EU ventures, and as a more practical alternative to paid subscriptions in Asian markets. Virtual goods essentially derive their value from scarcity, which requires a demand function to be put in place. That’s the key to any such venture: how to create a social context where scarcity of any object is valued (real or otherwise).

So for example in World of Warcraft, Gold (the currency) is in demand since it translates into less grinding, and more effective leveling (since you can buy better gear at all the levels). Blizzard happens to not want you to make that trade-off (more on that in a future posting), but there nevertheless are large secondary markets to serve that need.

So far, so good; that’s all in line with my thinking when I woke up this morning.

But was touched upon in some of the panels and that really intrigues me is the potential of creating virtual worlds with low (or negative) price elasticity for certain scarce virtual goods. For example, for dating sites, it’s well known that the single largest factor for a guy to get a response from a girl is his stated income (surprise!). Just as diamonds in the real world command high prices for something fairly useless in order to signal to the opposite fairer sex your astuteness as a wage earner (forgive the chauvinist example!), something similar will clearly happen in virtual worlds.

Why wouldn’t dating services offer very expensive virtual gifts? Say, a $50,000 diamond ring to really get the attention of a girl who is ignoring my winks and emails? I suspect it’s more a matter of timidity with respect to possible PR backlashes that has stopped current mainstream dating services to offer this. But it will clearly happen, and the sales price will be pure profit for the social site in question. (And those goods will clearly be tradeable.)

And you read it here first!

But now, off to more important things, namely the after-event drinks at Old Pro, 541 Ramona Street, Palo Alto. If you see me there, feel free to buy me a drink!

[Virtual Goods Summit 2007, Stanford, vgsummit2007]