Two weeks ago I received a slinky as a gift, but it wasn’t real; I had received a second virtual gift within the realm of Facebook and someone sent it to me anonymously.

It seems like virtual items wouldn’t be that appealing to a lot of people. The item doesn’t exist in the real world, but is confined to the walls of the digital world. Who would find satisfaction in an unreal item and who would spend money on it to give it to someone else?

The reality is that people and companies are spending real money on very unreal things and virtual economies have emerged as a result of that. People are paying for virtual real estate and even $25,000 virtual paintings. Many companies have established a virtual presence in the virtual world of Second Life.

I started to realize that maybe there is something to this especially after reading a post on TechCrunch about virtual goods as the next business model written by Susan Wu, a Principal at Charles River Ventures where she cites four major reasons people spend money on virtual goods:

1. Virtual objects aren’t really objects - they’re services
2. Virtual objects create real value for people
3. The cost of buying objects can be cheaper than “earning” them
4. You can make money off of virtual objects

Susan Wu was also the co-producer of the first ever Virtual Goods Summit which I unfortunately could not attend.

Three things that surprised me from the Virtual Goods Summit were:

1. There’s already a significant virtual goods market in Asia, despite having read about The Life of the Chinese Gold Farmer
2. People are spending $10 on HotorNot virtual flowers that “die” (disappear) after 2 weeks
3. A real life bank has gotten into the business of granting a loan for real money to pay for a virtual painting in a virtual world. I’m wondering, what’s the collateral?

Prior to the summit, I had several conversations with others about this phenomenon. Some points from the discussions:

• Virtual gifts are like online greeting cards. Even though there’s a for-pay market, most people seem to give the free ones.
• Virtual gifts make people feel better. A friend of mine updated her Facebook status to indicate that she was feeling sad. The virtual gift someone gave her to cheer her up actually made her feel better.
• Virtual gifts for the younger generation are more convenient. They don’t have to wrap it up, go to the post office, and send it to their friend/boyfriend/girlfriend. My friend’s 13 year old cousin is one of the teenagers who are giving virtual gifts like crazy.

A virtual gift doesn’t vary much with a tangible gift in terms of factors that contribute to the meaning of the gift:

1. The effort required to give the gift: selection and the process on the site
2. The cost of the gift: free vs. $1 or more
3. The reason for the gift: accompanying message
4. The person sending you the gift: known, anonymous, friend, “special” friend

And still, a message with the gift increases the meaning of a gift more than the other factors for many people; it’s the most personal requiring more thought and expression. After all, it is the thought that counts, right?

The Virtual Goods Summit sessions were recorded and can be found here. Some of the interesting sessions:

Mainstream or Not?:
(In this session various people share their thoughts on whether or not virtual goods are mainstream and James Hong of HotOrNot talks about the virtual flowers.)

Why Virtual Goods Matter: