The hot Virtual Goods economy

Bill Gurley has an insightful post on why virtual goods will emerge as the economic engine for many kinds of online companies, especially those with a community aspect, like gaming, and social networks. Clearly, he does not expect a Puritan ethic to run through the Web, though even if it does, you only need 10 percent or so of your users to make a viable business out of virtual goods.
He also muses about why Silicon Valley firms like Facebook haven’t taken to virtual goods, when a number of Chinese companies that draw most of their revenue from virtual goods have gone public in New York. As he points out, “It is peculiar to have a situation where the NY-centric public market investors are more open minded to a new business model prior to the entrepreneurial executives on the west coast, but that is clearly the case here.”

Of course, Gurley’s firm, Benchmark Capital, has funded Second Life and Gaia, two worlds heavily dependent on virtual goods, and has at least one related investment, the infrastructure platform company Gigya. But his arguments make a lot of sense. Check it out in How to Monetize a Social Network.