Money for Nothing

Article excerpt

Byline: Daniel Lyons

The serious business of pretend products.

If you've spent time on Facebook, you might be mystified by all the people tending to their virtual farms and virtual pets. I know I am. Not only does this seem a strange way to spend time, but here's the even weirder part: a lot of these people are spending real money to buy virtual products, like pretend guns and fertilizer, to gain advantage in these Web-based games.

But to Kristian Segerstrale this is very serious business, and not only because he runs Playfish, a maker of online games and a top seller of virtual goods. Segerstrale, an economist by training, says the world of virtual goods opens up a new way to study economics. "You can learn a lot about human behavior, and how people interoperate in an economic environment," he says. "There are a lot of valuable lessons."

Segerstrale, 32, grew up in Finland and studied economics at Cambridge University, then got a master's degree from the London School of Economics. After university, in 2001, he and some friends started a company to develop games for mobile phones. They sold that company in 2005.

In 2007, when Facebook said it would open its platform to outside developers, Segerstrale recognized this could be a great new venue for games. He and some colleagues created Playfish, adopting a business model in which the games cost nothing but Playfish would make money by selling virtual goods inside those games. Business boomed, thanks to games like Pet Society, which has nearly 20 million active users who make little animals and take care of them. Last November Playfish was acquired by the videogame giant Electronic Arts for $400 million. Playfish won't disclose its revenue or profits, but Segerstrale says the company sells 90 million items a day through its 12 different games. "I don't think anyone realized how quickly this was going to grow," he says.

The total U.S. market for virtual goods was worth just over $1 billion in 2009, according to Inside Network, a market-research firm. That's up from $500 million in 2008. The market will grow to $1.6 billion by next year, Inside Network says. Worldwide, the market may be worth as much as $6 billion, according to the Virtual Economy Research Network in Helsinki.

For Segerstrale the businessman, that's terrific news. …