FEB. 19, 2010 • DFC Intelligence has long articulated how online connectivity would shift games from a pure product model to more of a service-based model where revenue is generated based on continuing consumer usage. Online access allows for more flexible business models including rental, subscriptions, demos (try before you buy), and the ability to buy low cost digital items. Furthermore, online social networks allow companies to leverage the masses to reach millions of users AND distribute products to those users at a low cost. Zynga and its use of Facebook is a great example.

One of the many partners DFC Intelligence has been working with to better understand these complex trends is Live Gamer. Live Gamer provides a commerce solution for online games, social networks and virtual worlds. On March 10, 2010 Live Gamer will be sponsoring VCON, a full-day event within the Game Developers Conference (GDC), to be held at Moscone Center in San Francisco. VCON will explore how games-as-a-service and virtual items have changed the gaming and entertainment playbook forever.

At VCON, DFC Intelligence and Live Gamer will be revealing the results of a major new study into the purchase habits of gamers buying virtual items and other digital content. This study consists of a full historical analysis of actual digital transactions in games from 2002 to 2009 in several countries including the U.S., Korea, Japan, Germany, the Philippines, and Vietnam.  This usage data has been combined with a 2010 survey of about 5,000 gamers in North America and Europe.

The results clearly show how building a games as a service business using a virtual item model can result in products that have five-year plus life spans in several regions around the world. This is clearly a new business model that is already proving substantially more profitable than the established packaged goods business.

The virtual item model has been firmly established in markets like Korea for several years. However, in a market like the U.S., the idea of buying digital content is still somewhat new. However in our survey of consumers, 89% of respondents in North America said they had purchased some form of digital content (including music and video, as well as games). More impressive was when we asked the question: Have you ever purchased an in-game good that is not a full game, but consists of a game component such as virtual currency, avatars/characters, items/weapons/vehicles, extra levels, etc? Nearly 63% of respondents in North America answering the question (and 37% of all those surveyed) said yes.

It is also clear that free-to-play games (F2P) are becoming very popular in North America. Furthermore, among a core game audience conversion from free play to paying for virtual goods and/or getting a subscription seems surprisingly high. On average, over 20% of users that said they had tried a free to play game said they had also bought a virtual item or paid for an optional subscription.

Percent of consumers that described themselves as current or former users of the game AND have paid for an item or subscription for that game. Of the users in North America that answered the question (average of 1074 per game with a low of 1069 and a high of 1085). Survey total was 1920 in North America. Survey conducted January-February 2010.

The survey revealed many interesting habits of game consumers, and perhaps one of the most surprising items was the high purchase rate of games for the iPhone and iPod Touch.  In North America, among users answering the question ” Do you own an iPhone or iPod Touch?” 24% said yes (15% of all respondents).  Furthermore, 60% of iPhone/iPod Touch owners indicated that that they had bought a game for the system in the past three months.

Not surprisingly, as DFC forecast in the recent report “The Market for iPhone and iPod Games and Applications,” the iPod Touch appears to be the system of choice for gamers. Among those that said they owned an iPhone or iPod Touch, 77% said they owned an iPod Touch.

Showing the power of popular core brands, the most popular game for iPhone/iPod Touch owners was Call of Duty: World at War: Zombies which a whopping 18% of iPhone/iPod Touch owners in North America said they had purchased. However, classic casual games like Bejeweled, Tetris and Peggle were also popular with around 10-14% of iPhone/iPod Touch owners indicating they had purchased those products.

In March, DFC Intelligence will be issuing a complete report summarizing many of the findings from the survey and the analysis of historical data on microtransactions from Live Gamer. During Live Gamer’s VCON 2010 event at the Game Developers Conference, DFC will be presenting a presentation on findings on the size of the microtransaction business on the afternoon of March 10 at 2:30.