IMVU's Virtual Cash Cow: Doubling Revenues, Focused On Gaming (Video)

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, 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.