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(source: Facebook Gift Shop)

A guest column appeared on the Wall Street Journal tech section this week from Lightspeed Venture Partners, Jeremy Liew, entitled “Why do People Buy Virtual Goods?”  Yesterday, he had a guest post on the blog, Inside Facebook, diving a bit deeper into the topic of virtual goods with “What Could Facebook Do to Increase Its Digital Goods Revenue?”

Both of these pieces touch on a subject that has increasingly been put in the spotlight as of late – virtual goods, why people want them and how to generate money from them.

Liew brings up three main theories on what motivates people to buy virtual goods; doing more, building relationships and establishing identity. The first, doing more, is a key to how virtual goods fit into game mechanics.  Unless I “do more” by say buying a key good to increase my ability, I won’t have as great a chance to win the challenge, proceed further into the game or create new opportunities.

Building relationships is a fairly basic concept brought from the physical world we live in – everyone loves to give and get “stuff”. In this case, whether a virtual world, social networking site, community or game; virtual goods allow people to easily connect with others via an online medium. Relationship building is where Facebook is currently targeting their virtual goods “gifting” platform, which Liew argues can be expanded into these other categories for additional revenue opportunities (among other things).

The most interesting theory is that of establishing identity. In our everyday lives we can do certain things to form our individual identity, but there are limits that don’t necessarily apply in the virtual realm. Virtual goods can add to your personal identity such as buying items necessary to create your avatar or enhance your personal space. A mainstream example of this is the Coca-Cola ad that played during the Superbowl this year, with the idea that avatars express a part of our individuality.

Virtual goods are becoming a part of our online experience. Users will always be looking for ways to purchase such items in many different applications. Our goal in this equation is to help publishers that incorporate virtual goods increase their reach to users that will buy, therefore increasing that ever elusive word – revenue.

(via - Wall Street Journal and Inside Facebook)