Contact: Jarrett Streebin
Having already seen massive consolidation within the social games development industry, a related area is beginning to be consolidated: virtual goods. A subset of the social gaming industry, virtual goods are one way that developers make money from popular games. Google recently expanded into this market by buying Jambool. Although it’s the first purchase by a major player, there are bound to be more deals.
This isn’t Google’s first play in payments processing. The search giant stayed in-house back in 2006 when it rolled out Google Checkout. The only problem was that it was already years too late to unseat PayPal’s market dominance. Now, Google knows better than to get ‘PayPal-ed’ in the virtual goods market. With Jambool, Google obtains a social payments processor for social media games known as Social Gold. Although a relatively small player within the market, it has one of the most secure back ends in the business, with a Level 1 PCI security rating. This, along with the fact that it has support for a number of international currencies, makes it a very scalable service. Since Slide Inc, the social games developer recently acquired by Google, isn’t large enough on its own to warrant the purchase, it’s likely that Google will continue to expand the Social Gold offerings to meet outside demand. Additionally, Google may have more social gaming offerings coming that could use the product.
The virtual goods industry has been on shaky footing lately. Ever since Facebook announced Facebook Credits, which threatens to make all virtual goods companies obsolete on that platform, many of the companies have been scrambling to diversify away from the social media giant. As of yet, Facebook hasn’t made its Credits mandatory, so there’s still room for other players. But with RockYou, Playdom and Zynga all having signed exclusivity deals, it’s likely that we’ll soon see Facebook Credits used across the board.
One company that has diversified beyond Facebook is PlaySpan, which has a broad range of products that cover many areas of virtual goods monetization. The Santa Clara, California-based startup just received another $18m in funding, on top of approximately $20m. The firm could very well become the PayPal for virtual goods. If it does succeed in that, we wouldn’t at all be surprised to see PlaySpan also get picked up by eBay, which acquired PayPal in 2002. (We’ll have more in an upcoming Sector IQ on virtual goods.)