Virtual goods start paying off

There's a new way to make money, and it's called "virtual goods." It is estimated that the concept could bring in a billion dollars for products that don't exist.

"It's a fantastic business," Jeremy Liew of Lightspeed Venture Partners, a venture capital firm that has invested $10 million in several virtual goods companies, tells the New York Times. "Because it's digital, the marginal cost for every one you sell is zero, so you have 100 percent margins."

Virtual goods have some pretty frivolous motives at play. Users of social networks, for example, can buy each other gifts--images of flowers and birthday cakes. Facebook recently bought into the idea in a big way, expanding its gift store to allow other companies to list their virtual wares, like greeting cards.

Is this where your business wants to be? Probably not, but it could be an enticing area for you to dabble in as you peddle more traditional services, too. Many web companies have not yet figured out how to make money. But those that create and sell virtual goods, companies like Zynga, Playfish and Playdom--three online gaming start-ups in the San Francisco area--say they are recording significant revenue and profits, according to the New York Times.

"It's not about the good itself, it's about the underlying human emotion or desire," Moshe Koyfman, a principal at Spark Capital, which has invested in two virtual-goods start-ups., told the New York Times. "The recipient knows the person took time, picked something meaningful and spent money on it."

For more on the growing virtual world:
- check out this New York Times article

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