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Experiments in Virtual Currencies

Microsoft's proprietary virtual currency system, Microsoft Points, will be phased out by the end 2012, Inside Mobile Apps reports, citing a source. Instead, transactions will be based on the region set on the purchasing account. In addition real money will be used to purchase all Windows Phone content. Microsoft declined to comment to Inside Mobile Apps about the supposed move. This new follows a report in ReadWriteWeb  that Coffee & Power, a company founded by Second Life creator Philip Rosedale that lets remote workers hire each other for small jobs, is dropping its virtual currency. U.S. dollars will be used instead. Rosedale had hoped the "sticky" nature of virtual currencies would stimulate more activity on the site.

These examples are not to illustrate a point that virtual currencies are of no interest to consumers—on the contrary, measured in real-world U.S. dollars, virtual transactions total $2.1 billion a year in the U.S. and $7.3 billion globally, according to Sometrics' founder and chief executive, Ian Swanson. (via Bank Technology News).

Rather, as the entry of real-world lenders into this space suggests, it is an industry in a state of flux, with providers feeling their way among the various models. If, say, a site that exchanges work among its members, such as Coffee and Power, isn’t a good fit for a virtual currency, then maybe an American Express-powered savings account that also holds virtual currency is.

The Banking Sector's Vision

American Express acquired Sometrics in September for $30 million. It plans to capitalize on the company’s video game network but also expand into additional industries as well, Bank Technology says. Visa has also entered this space with its purchase of PlaySpan, for $190 million. The model these banks are considering, according to the article is one in which consumers use them to store anything virtual of value, from airline miles to Facebook Credits in accounts that exist alongside their savings and checking accounts.

Virtual Currency Most Popular Purchase

One model that clearly works for virtual currencies is the in-app purchase. An IHS report, "Free for All: In-App Purchases to Dominate Smartphone App Business" found most in-app purchases at the end of Q3 2011 in the US and UK involved buys of virtual currencies, such as additional chips for poker, or redeemable points in games. IHS estimates that 63% of in-app purchases on the US iPhone App Store at the end of Q3 were for virtual currency, while the next most popular category of in-app purchase was for specific in-game functions or features, rather than general currency, which accounted for 22% of the most popular US in-app purchases.

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