Virtual Currency Is The Next Big Platform

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Editor’s note: Ari Mir is the co-founder and CEO of virtual currency platform Pocket Change. He also co-founded GumGum.com, the world’s largest in-image ad-network. This week, Mir is attending the Game Developers Conference in San Francisco.

My youth was spent jumping turtles, killing 16-bit Nazis, connecting kickflips with manuals and nube tubing. Haaaaadouken! Like most boys and young men during the ’80s and early ’90s, I loved video games. Our passion for games and our willingness to pay $49.99 to purchase the latest Zelda or Mortal Kombat fueled the industry’s growth.

For two decades, selling hard and soft copies of games proved to be a very lucrative business. However, this model is ultimately flawed because the revenue potential per player is capped. In 1998, a game studio by the name of Iron Realms Entertainment became the first to sell virtual goods in their games. A decade later everyone is building virtual economies into their games. Zynga, which recently went public and has a market value of around $10 billion, makes the majority of their revenue by selling items like virtual strawberries.

Virtual goods are purchased with virtual currency, a digital medium of exchange similar to dollars and cents. Virtual currency is in a very nascent stage. Most people think of Scamville, but really that was a misguided start to what will ultimately become one of the more powerful platforms we’ve seen. Similar to the offline world, virtual currency will be the underlying glue, allowing for a tremendous amount of value creation. Facebook knows this and is doubling down on its FB Credits system. Imagine a day when there are billions of casual gamers looking to buy a virtual good or to unlock a feature. They will need virtual currency and thus have an incentive to interact with a myriad of options placed in front of them to earn that currency. This will become even more prevalent in countries where there are fewer payment methods. Virtual currency will be a very unique platform—one with a built-in incentive mechanism and a large captive user base.

The advertising industry has already seized the opportunity. Currently, if you’re playing poker on your iPhone you can earn virtual currency to use in the game by installing an advertiser’s mobile app. Advertisers have also begun rewarding consumers with virtual currency if they’re willing to watch a video advertisement. In the future advertisers will be able to create any action however simple or sophisticated and tie it to a virtual currency reward. The action could be as passive as watching a BMW commercial or as active as filling out a fashion survey sponsored by Banana Republic. Incentivized advertising will become the dominant form of mobile advertising (excluding search). It drives higher engagement rates than display advertising and is a much better user experience because it’s opt-in.

Engaging with advertisers won’t be the only way to earn virtual currency. Similar to the real world, gamers will perform jobs to earn currency. Think Mechanical Turk. Someone may want text translated or images of cars identified and they’re willing to pay for the task to be completed. Not a novel concept but if built using virtual currency the marketplace becomes a lot more fluid. Tasks can easily be distributed to millions of users via an interface for earning currency. Also, it is a lot more meaningful to a gamer to reward them with 20 denominations of virtual currency versus twenty cents. This is because virtual currency is primarily used for micro-transactions where the gamer wants to buy a machine gun or unlock a level.

As millions of users begin to build liquidity in a system such as FB Credits or other virtual currency providers it becomes possible to disrupt the trillion dollar mobile payments space. Everyone from Apple to Google is running around trying to get more credit cards on file so they can be your “universal wallet.” Tomorrow’s universal wallet will have credit cards and virtual currency as payment options. Virtual currency offers additional benefits to the wallet provider and the end merchant because there are no inherent fees like credit cards. Consumers will pull out their iPhone or Android one day and buy coffee from Starbucks using virtual currency.

Virtual currency as a mass consumer product may sound far off. But the surge in smartphone use is broadening the player base and everyone from your little sister to your grandfather has a powerful gaming device within reach of them at all times.

As more casual gamers join, gaming becomes less taboo and when this happens the industry will turn into a tsunami. Virtual currency will affect everything from commerce to advertising.

[image via flickr/epSos.de]