2009 Virtual Goods
Investment Report
$1.38 Billion Invested in 87
Virtual Goods-Related Companies Worldwide in 2009
The 2009
Virtual Goods Investment Report, compiled by our
www.VirtualGoodsNews.com
blog, tracks virtual goods-related
investments over the course of 2009. The report details more than $1.38
billion ($1,380,822,000) invested in 87 virtual goods-related companies.
The news comes in advance of the
Virtual Goods Conference @ Engage! Expo,
taking place February 16-17, 2010 in New York City.
Details on individual companies, the amount
invested, list of investors, market segment and more can be found at
http://www.engagedigitalmedia.com/research/2009/vg2009invest.html
The investment amount represents more than three times the amount
of money invested in the virtual goods space in 2008 when $408 million
was invested. The total number of companies receiving investment money
also increased year-over-year: 87 in 2009 compared with 34 in 2008, an
increase of more than 100 percent. It is important to note that of the
$1.38 billion invested for the year $398.3 million is acquisition
related.
The largest two acquisitions were Electronic Arts’
$300 million acquisition of Playfish and China-based KongZhong’s $80
million acquisition of China-based Dacheng. In total, 18 acquisitions
took place during the year. In all but five instances the transaction
amounts were not disclosed
An in-depth look at the virtual goods business climate will be discussed
at the upcoming Engage! Expo, taking place February 16-17, 2010 in New
York City.
"Virtual goods was the hot story of 2009, driving
investment that crossed over into game development, virtual currency,
payment services, and social networks," said Christopher Sherman, CEO of
Engage Digital Media. "In the fourth quarter alone companies raised an
astounding $944 million, more than double the amount raised in all four
quarters of 2008. Also noteworthy was the number of acquisitions in the
space - 18 of the course of the year – with half of those taking place
in the 4th quarter."
Super Size Me: Extraordinary Number of
Investments; Investment Amounts
The performance of the virtual goods space in 2009 is extraordinary
given that the year was one of economic hardship in most tech-related
sectors. The overall increase in total funds invested in the space and
an increase in the average amount of individual investments defies a
major freeze in new investments that occurred during the first and
second quarters of the year. The fourth quarter of 2009 delivered the
best overall quarter for the virtual goods space since Engage Digital
Media began tracking investments, both in total number and total value
of investments made, with almost a billion dollars invested in 30
companies.
The single largest investment in the virtual goods space was the $300
million game publisher Electronic Arts paid to acquire social games
developer Playfish in November.
Digital Sky Technologies' $380 Million Virtual
Goods Play
Russian firm Digital Sky Technologies was by far the largest investor in
the space in 2009 with its investments in Zynga and Facebook. Digital
Sky invested $200 million in the social network Facebook, and it
invested a further $180 million in the social game publisher Zynga. It
is worth noting that Facebook serves as the primary platform for most of
Zynga’s games.
While Facebook does not derive the majority of its income from virtual
goods, it still generates about $75 million annually from sales of
virtual gifts (according to previously reported estimates). It has also
launched a virtual currency platform that may begin generating
significant revenue for the company in 2010. These factors, and its role
as the primary platform for Zynga’s games, underscore the close
relationship Facebook has with the virtual goods industry. Facebook’s
role in the virtual goods space is not expected to diminish
significantly in 2010.
Worldwide Participation
The fourth largest investment in the virtual goods space, in the US,
went to social gaming firm RockYou, with $50 million invested by Asian
backer Softbank. The fifth largest investment in the US, $43 million for
social games developer and publisher Playdom, is also noteworthy. Social
gaming is perhaps the single most important trend in the overall virtual
goods space in 2009. In 2008, only about $82 million was invested in the
entirety of the social games space. In 2009, over $600 million was
invested directly in the space, not counting any investments in social
networks or non-gaming social developers.
A major Chinese investment of the year - one that ties the massive $180
million investment in Zynga - took place when US firm Sequoia Capital
came together with Chinese firms Fountainvest Partners and CITIC Capital
to pour $180 million into the Chinese web portal Sina. This web portal
features its own virtual currency and limited virtual goods offerings,
though its overall revenue has been estimated to be 70% ad-generated.
Regardless, the investment was counted in light of Sina’s rivalry with
Chinese virtual goods giant Tencent.
"Another major trend that emerges in 2009 is a wave of investments in
start-ups designed not to sell virtual goods directly, but either to
help users pay for them or to help developers with transaction
processing and economy management," Alicia Ashby, reporter for
VirtualGoodsNews.com said. "Roughly $100 million of this year’s
investment funds, excluding the giant Facebook investment, went toward
companies that either primarily or in part generate revenue by providing
platform and payment services to social game developers."
Additional Research Notes
Note that this report is primarily limited to investment and acquisition
data for games, worlds, and platforms that could be confirmed as
monetizing or in all likelihood are intending to monetize, at least in
part, though sales of virtual goods or currency.
In addition, some investments were included that were known to include
mixtures of both debt and equity funding in unknown proportion, for the
sake of completeness. These investments are LiveGamer’s $2.8 million and
PaymentOne’s $7 million in Q3. If the proportion of debt to equity in
these funding rounds is ever publicly disclosed, the numbers will be
adjusted accordingly.
It is worth noting that 2009 saw 29 investments of undisclosed value.
While these investments are counted toward the total number of companies
that received investment in 2009, no value is attributed to them when
counting the dollar amount invested in the virtual goods space in 2009.
As such, the total actual amount of money invested in virtual goods in
2009 in all likelihood exceeds the $1.38 billion total, though it is
impossible to know how much larger that adjusted total might be.
Some investments and acquisitions from Q1 and Q2 not included in Engage
Digital Media’s original quarterly reports have been included to this
report. In most cases, these investments concerned companies that
received investment early in the year, which were then later revealed to
include virtual goods as part of their business plan.
Engage Digital Media covers the virtual good sector with daily updates
on the www.virtualgoodsnews.com blog. The upcoming Engage! Expo will
devote an entire track to the growing sector.
This latest research complements Engage Digital Media's recently
announced Virtual Goods Industry
Forecast 2010 Forecast. The Forecast, available for download from
http://www.engagedigitalmedia.com/research/ collects responses from
over 30 industry executives, analysts, observers, and thought leaders on
what the coming year holds for the virtual goods industry.
Engage Digital Media is a leading producer of trade events and media
that focus on social media, games, virtual worlds, and user engagement.
Engage events include Engage! Conference and Expo, Digital Law
Conference, 3D Training, Learning and Collaboration (3DTLC) Conference.
The company also publishes timely market research and leading industry
news blogs VirtualWorldsNews.com and VirtualGoodsNews.com. More
information about Engage Digital Media can be found at
http://www.EngageDigitalMedia.com .
