Eric Reis, one of the co-founders of IMVU, posted last week on the three key decisions you have to make when thinking about virtual goods business models:
UGC or First Party content?
First Party – more control, but higher costs and harder to anticipate what users will want
UGC – Massive breadth of content, but have to put systems in place to deal with adult content and copyrighted content
Subscription or a la Carte payments?
Subscriptions – Greater game balance between rich and less rich players, lower fraud rates
A La Carte – Easier to monetize players without credit cards (e.g. teens)
Merchandising or Gameplay?
Gameplay – Virtual goods are functional, part of the core game mechanics, and confer benefit in the game. Demand is driven by game mechanics alone, and requires a delicate balance to ensure that players with money do not always beat players with time, skill and passion.
Merchandising – Virtual goods are not just functional, but also associated with self expression or attention in a noisy environment (see my previous post on the three use cases for virtual goods). This creates potential for greater demand for virtual goods, but requires the creation of a marketing and merchandising capability in the company.
Reis believes this framework can be used to describe any virtual goods business:
You can use these three questions to analyze existing businesses. For example, IMVU is a user-generated, a la carte, merchandising product. Habbo is first-party, a la carte, merchandising. Mob Wars is first-party, a la carte, gameplay. WoW is first-party, subscription, gameplay.