A VC principal writes that merchants are making big money in virtual worlds -- over $1.5 billion annually and growing. Virtual goods helps buyers express themselves, and increase satisfaction with whatever game, service or virtual world they're using.

Susan Wu,, a principal in Charles River Ventures, writes:

Virtual objects aren't really objects - they are graphical metaphors for packaging up behaviors that people are already engaging in. As James Hong from HotorNot tells it, his virtual flower service has 3 components: there's the object itself represented by a graphical flower icon, there's the gesture of someone sending the flower to their online crush, and finally, there's the trophy effect of everyone else being able to see that you got a flower. People on HotorNot are paying $10 to send the object of their affection a virtual flower - which is a staggering 3-4x what you might pay for a real flower! Of the 3 components, the two that James says are most important to his users are the trophy effect and the meaning of the gesture itself. As the barriers between peoples' online and offline selves continue to erode, this market for virtual goods is going to explode. People are going to continue to seek out ways to show real emotional engagement online. Virtual gifts are a particularly compelling way to package your attention.

"Andy" says in the comments on Susan's post:

The difference between "real goods" and "virtual goods" is the same as the difference between "music on a CD" and "music you can download". In other words, this isn't so much new as just the latest terminology used to describe something that the tangible goods world has been struggling with since the rise of the Internet.

Spending $10 on a virtual flower seems crazy to me. Then again, if that's crazy then save room for me in the nuthouse, because this week, I've spent about $12 on a virtual house and furniture, as well as a really nifty virtual lighthouse (because my house is on an island, and having an island without a lighthouse is dangerous and irresponsible.)

Susan has a really interesting resume. On the one hand, she's a principal at a VC firm and a Cornell MBA, so her country-club business credentials are well in order. On the other hand, she was a member of the Apache Foundation, executive-produced a Quake 2 enhancement. I heard her speak at South By Southwest this year; she was very active on the earliest virtual worlds, the text-based Multi-User Dungeons (MUDs), which launched around 1990 and still enjoy a small, but devoted, following today.

P.S. I count 18 comments before someone declares that anybody who would make, or sell, virtual goods is a "lamer.". This is an indication that virtual goods is becoming mainstream -- not too long ago, that kind of gym-class name-calling would be in one of the first three comments on the thread.