In this episode of Founder Stories with host Chris Dixon, Dixon sits down with The Lean Startup author, Eric Ries.

Ries tells Dixon he jumped into the startup game in the late 90′s and like almost everybody else at the time, “when the bubble crashed we were completely toast.” Leaving the carnage behind Ries headed to Silicon Valley with the mission of learning “professional entrepreneurship.”

In the Valley Ries joined There, which he describes as a “Second Life competitor.” There had tens of millions of dollars in funding and top-tier talent. After five years in stealth development, it also had a high profile, unspectacular rollout which Ries remembers as “embarrassing and humiliating.”

Lesson learned, or so he thought. Ries launched IMVU, where “instead of spending years and millions of dollars in stealth mode we put a product in customers hands in full open public beta in six months.” Unfortunately IMVU also had a less than stellar initial release, but Ries tells Dixon the experience ultimately helped IMVU get the model right and led to him forming what would become the Lean Startup methodology.

In the video below, Ries and Dixon discuss what being lean means. Key concepts include iterating quickly, rapidly putting product in customers hands and getting feedback from customers. Ries agrees that lean “has nothing to do with the amount of money you raise.”

Watch the full episode for additional insights and be sure to catch past episodes of Founder Stories, which feature leaders including Dustin Moskovitz and Kevin Ryan.

Part II of Dixon’s conversation with Ries is coming up.

Editor’s note: Guest author Ted Sorom is the CEO of Rixty, a virtual currency platform.

The global virtual goods industry put up some very impressive numbers this year. From special Easter eggs to virtual ad campaigns, virtual goods sales have grabbed their share of headlines over the past twelve months. Now with social gaming on the rise and everyone from your teenage nephew to your grandma to your old rugby teammate buying a “little something” to sweeten their online game, here is a look a back at the year in virtual goods sales.

$7,300,000,000: expected global revenue generated by the virtual goods industry in 2010. This is huge, considering the $60 billion generated in 2009 by the video game industry as a whole, and clearly shows that browser-based gaming is making great strides.

$2,100,000,000: The projected size of the US virtual goods market in 2011.

80,000,000: the all-time high number of Farmville players. The ubiquitous title for social gaming the world over, FarmVille surpassed its 2009 high mark of 50 million monthly active users, hitting this new peak in early 2010. You can now stop pretending you’re not addicted to your precious online farm. It’s ok… you’re among friends. Oh, and now CityVille is larger than FarmVille and approaching FarmVille’s all-time high with 75 million monthly active users.

20: percentage of Electronic Art’s overall revenue generated by digital sales. These aren’t just avatar items and XP boosts; the figure also refers to full-game downloads and downloadable content (DLC) to enhance console games. EA’s CFO Eric Brown notes that their “digital sales usually start with the sale of a physical disc, especially on the current generation of consoles.” But the upcoming Star Wars MMO is guaranteed to boost DLC consumption; want a blue double-ended light saber? It can be yours, if the price is right.

90,000,000: number of Pet Society virtual goods sold every single day. According to developer EA/Playfish, their most popular title has 20 million users, double that of World of Warcraft. It’s no wonder that EA was willing to pay $400 million to acquire the hot social developer in 2009.

$635,000: New world record for the single largest purchase in an online game, in this case a virtual intergalactic resort in Planet Calypso. A few years ago the same seller, Jon ‘Neverdie’ Jacobs, sold $335,000 worth of virtual real estate in Entropia Universe. While the majority of microtransactions cost just a few dollars, there are rare occasions where individuals spend serious money on virtual goods. Clearly, the virtual “Club Neverdie superdome” was a sound investment for Jacobs; the new owner (Yan Panasjuk) anticipates that the property will continue to grow in value. He is now dedicating 40 to 60 hours a week to the game, and has been playing MMOs for over a decade. Both parties are serious about their virtual worlds. Mr. Jacobs, also a career gamer, has already made over half a million dollars in online real estate.

4,000,000: total number of items in IMVU’s virtual goods catalog, making it the world’s largest. Based in Silicon Valley, the company runs a hybrid chat, gaming and avatar site. There are over 5,000 new items added every day, primarily created and uploaded by IMVU’s own user community.

10% (and growing): percentage of overall item sales in OurWorld generated by the resale market. The multiplayer gaming destination aggregates hundreds of third-party games into a virtual world with over 16,000 virtual items. OurWorld’s CEO, Derrick Morton, states, “In the last half year, we’ve seen our resale market explode. We think that a healthy secondary market is key to running a good virtual economy. If the players can’t trade amongst themselves, the virtual goods really have no value.” Think of it as virtual Craigslist.

220,000: number of “Summertime avatar baseball caps sold in Roblox, a blocky MMO playground. These hats were available for tickets, a free currency that all players get for logging in and which can be traded for Robux or vice versa. Rest, Relaxation and Roblox: gotta keep those virtual “rays” out of your eyes!

15,000,000: number of virtual hot dogs eaten by non-playable characters in LOLapps’ Ravenwood Fair (nom nom). The Facebook game saw huge growth last year to over 100 million monthly active users (MAU), and recently released an interesting info-graphic detailing their rise. For instance, 2 billion quizzes have been taken and 8 billion gifts have been sent!

Two: the factors that drive players to buy upper-tier items in online games, as opposed to just spending $0.99 here and there. The first is Value: Net Dragon’s value packs deliver the same bulk discount that players might find in a real-world big box store. The other big factor is Rarity; limited supply drives up demand. This often comes in the form of a “box” (such as the VIP Box in GameCampus’ Shot Online golf) which contains a wide range of items plus a chance to uncover the game’s rarest and most valuable equipment.

And with that, we wish everyone a Happy New Year. By this time next year, these numbers will look small.

Just three years ago, IMVU was burning cash at a rate of half a million per month and still not profitable. The 3D virtual world, where souped-up avatars run amok, was gaining users but not on a path to sustainability.

Fast forward to 2010, IMVU is increasing its staff by 50% (going from 60 to 90 employees) and is on track to double sales this year. Currently, the company is at an annual revenue run rate of $40 million— and according to CEO Cary Rosenzweig the Palo Alto based company should hit a $60 million annual revenue run rate by the end of this year. For the last two years, revenues have roughly doubled from $11 million in 2008 to $22 million in 2009 and now $40-plus million in 2010. That’s a lot of real world dough for a company whose fortune is based on virtual currency and an endless factory of avatar accessories.

The key in 2007, Rosenzweig says, was a basic two-prong strategy: simplify the service and concentrate on creating new payment options.

“Before, a lot of the activity was both on the IMVU website and then we had a downloaded client and our users had to go back and forth. And especially for someone who’s new, just coming in, they were a little bit confused, in fact many of them weren’t even sure that they could buy virtual goods. The second thing is we had a lot of users who had money in their pockets and they wanted to buy virtual goods but we weren’t providing mechanisms to do it. Because at that time we offered credit cards and Pay Pal.”(See Video Above)

IMVU started selling pre-paid cards at outlets like Target and Wal-Mart and offering SMS payments abroad. The payments change alone, according to Rosenzweig, has accounted for roughly 30% of all growth.

Like its closest competitor, Second Life, IMVU is a 3D world where avatars congregate, chat in a variety of settings and make new connections. The company makes the bulk of its profits from users buying credits for IMVU’s virtual catalog, a digital warehouse of some 4 million items including pet dragons, clothes, and new eyebrows. A normal payment is $19.95 for 20,000 credits— to give you an idea of how far that goes in IMVU land: something described as a vampire corset outfit will run you 699 credits. In recent years, many virtual worlds have receded (like There.com, which hit the deadpool March 2010 and shares a mutual co-founder with IMVU, Will Harvey), overshadowed by traditional social networks and bogged down by the recession. However, strangely, both Second Life and IMVU have thrived this past year, Second Life logged a record first quarter with user-to-user transactions up 30% to $160 million.

Looking ahead, IMVU’s CEO says the next stage of growth will be driven by three catalysts: the company’s expansion into several new languages, the debut of a Mac product (and possibly an iPad client) later this year and a shift to gaming that will be tied to a more aggressive Facebook campaign. IMVU has been late to Zuckerberg’s party— the company’s only footprint on the site is a relatively young profile page. Rosenzweig says the gaming component is critical to the long term strategy. He estimates that the domestic virtual world market is worth roughly in the hundreds of millions, becoming a real player in gaming unlocks a multi-billion dollar market. Gaming and by extension Facebook are also critical to fostering user loyalty, which has been one of IMVU’s weaknesses. As of today, the company has 2 million active users, just 4% of its 50 million registered users.

Thanks to reader tips we’ve had a chance to see IMVU’s racey new animated banner ads showing two women kissing as they fall downwards horizontally. The ad includes the message “live the lifestyle you’ve always dreamed of.” I signed up immediately.

The ad was spotted on Ustream, which prohibits content that is obscene or includes “pornography, erotica, child pornography or child erotica.” As far as I’m concerned this ad is none of that, but the Prop 8 supporters may disagree.

Watch the animated version:

Virtual hangouts are where people can engage each other using imaginary characters in imaginary environments. They have been around and popular in Europe and Asia for years. However, they appear to be gaining traction in the United States as of late. Some commentators even believe that the type of experience provided by these destinations could very well become integral to the forthcoming Web 3.0 era.

The newly released MultiVerse platform, which is designed for the creation of online 3D worlds, certainly anticipates a future in which developers demand the tools necessary to build niche virtual communities because such communities have gone mainstream.

Currently, virtual hangouts differentiate themselves by targeting particular audiences and providing certain types of immersive experiences.

Destinations such as Club Penguin and Barbie Girls cater to children and pre-teenagers with their simple user interfaces, basic games, and cartoon graphics. Other immersive worlds such as Second Life and Habbo Hotel shoot for a broader audience by providing more advanced chat capabilities, more realistic simulations of reality, and tools to design objects and surroundings. Then there is Red Light Center (NSFW), which targets mature adults to give them an altogether more explicit breed of entertainment.

The worlds meant for children are designed with a concern for the safety and security of their users. Webkinz, for example, only lets users chat with a preselected assortment of phrases so no one can say anything inappropriate or share personal information. The services meant for general audiences lack such restrictions and theoretically can be enjoyed by all types of people, although this freedom often translates into behavior that would be utterly inappropriate for children. Second Life, for example, does not explicitly promote adult behavior but has become notorious for it nonetheless. Embracing the more voluptuous side of human behavior, services like Red Light Center are professedly all adult, all the time and encourage users to participate in explicit behavior.

Virtual hangouts range not only in the audiences they target but also in the level of immersion they provide. Some, such as Second Life and Active Worlds, put you in 3D-rendered environments with first person points of view in an attempt to approximate virtual reality. Others, such as Gaia (“the world’s fastest growing online world hangout for teens”) and Barbie Girls, use sprites (two-dimensional pre-rendered figures) to provide a bird’s-eye view of characters moving around in largely static settings. Even further down the immersion scale, the “worlds” of certain services such as Cyworld and Neopets are produced simply using HTML images and Flash animations.

Hangouts intended for younger audiences are generally less immersive than those meant for more mature audiences. Perhaps the only reason for this lies in a child’s inability to navigate more complex simulated worlds. However, children and pre-teenagers may also get something entirely different out of virtual hangouts than adults. While adults are presumably drawn to these services because they provide the opportunity for escapism, younger audiences may treat these products as interactive cartoons and toys. Thus, while all of these services provide a similar opportunity to hang out virtually, they may possess fundamentally distinct appeals for different demographics. The variety in immersion levels will probably continue to reflect these differences.

The chart in this post provides a basic comparison of these services to convey the range of virtual hangouts that currently exists. It should be noted that we tried to draw a distinction between online worlds where people hang out and worlds where people play role playing games, as is the case with World of Warcraft and Entropia Universe.

The following services are included in the chart:

• Active Worlds
• Barbie Girls
• Club Penguin
• Cyworld
• Dubit
• Faketown
• Gaia
• Habbo Hotel
• IMVU
• Kaneva
• Millsberry
• Mokitown
• Neopets
• Red Light Center (NSFW)
• Second Life
• There
• Webkinz
• Zwinktopia