Virtual Cupcakes, Teddies Generate Real Cash

March 15, 2010 — -- A $1 green balloon dog. That's what John Majkrzak likes to send his friends on their birthdays, along with a note that reads "hand-made gifts are the most thoughtful."

Don't be fooled: Majkrzak doesn't make the balloon dog himself. He buys a picture of it on Facebook and puts it on his friends' profile pages. It's a virtual gift.

"It's fun to do," says Majkrzak, a 52-year-old dispatcher from Blaine, Minn., who admits the gift doesn't hold much real-world value. But because his friends are inundated with birthday wishes on Facebook, he buys the gift to make his wish stand out.

It's the Thought That Counts

It's strange but true: Americans are expected to spend $1.6 billion on virtual goods this year, with a small but growing share going to virtual gifts. Popular presents include cute icons that represent bouquets, cupcakes and teddy bears. Gamers also give each other "seeds," "ammunition" and other objects that can be used in online games.

To traditionalists, it seems crazy to spend money on pixels. But virtual gifting fans say they're quite sane, arguing that birthday cards or perishable flowers aren't much of an investment either. It's the thought that counts.

"When you give someone a sweater for Christmas, the value isn't, 'Oh my God you bought me a piece of clothing,'" says Justin Smith, founder of Inside Network, a technology research company.

Most Christmas presents are all about gesture, Smith says.

"This kind of value can be captured through a virtual gift," he says.

Within the virtual gifting sector, most of the growth can be found in social gaming, where friends will buy each other "seeds" to plant in their "farm" or "dresses" for their avatars.

Companies Make Real Profits

Some companies make a handsome profit selling virtual gifts. In most online settings, gifts can be bought and sold using virtual credits, but these always have to be bought with real cash from the parent company. On Facebook, for example, a $1 gift will cost you 10 credits.

Cary Rosenzweig, CEO of a booming online community called IMVU, says his company sells $3 million of credits each month that customers use to dress avatars or build homes, with almost $1 million a month spent on gifts.