Inside the Virtual Goods Economy at IMVU

I recently had a chat with Cary Rosenzweig, CEO of the IMVU virtual world. IMVU got a lot of attention in October because it announced that it was on track to generate $25 million in revenue in 2009, and was profitable. It’s rare for a private company to be as open about its finances as IMVU was.

According to Cary, 80% of IMVU’s revenue comes from credits it sells to its users so they can buy virtual goods for their avatar. The rest comes from advertising.

Here’s an excerpt of our interview, which is available on eMarketer Total Access:

eMarketer: How does the virtual goods economy work in IMVU?

Mr. Rosenzweig: There are three elements: IMVU, the customers, and then the developers, which we sometimes call creators. The developers often are users of IMVU, and some of them are successful enough that they’ve quit their day jobs and are making a living creating and selling items within IMVU alone.

The customer gives us money and in exchange we give them credits. We don’t do revenue share with anybody at this point, so from here on out we keep the money and the credits are now in the IMVU system. So the customer goes to the catalog and buys something, and they get a digital good, and the credits move to the developer. So what does the developer or the creator do with their credits? Well, there are many, many, many creators, many of whom don’t sell a lot of items, and so they use the creation of digital goods as a way to earn credits for themselves so that they can buy something from someone else.

But many of them want to sell their credits and get real-world money. So we allow the developers to sell their credits directly to the customer in exchange for money. So the customer is giving us money, and they’re giving the creators money. The process of selling credits to the customer from the developer takes place partially outside of IMVU, meaning the developers create Websites outside of IMVU where they accept credit cards or PayPal or whatever. Once they’ve taken acceptance of the money, then we allow them to send credits to the customer inside IMVU.

Virtual goods have gotten a lot of attention lately and many people think they will be a key revenue driver for social networks, social games and virtual worlds. One report, Inside Virtual Goods, estimated the size of the business at $1 billion in the US alone.

I think that some companies, such as IMVU, might find success with virtual goods, but there will clearly not be room for everyone who wants to jump in.