So why is having such a large catalog of virtual items important? Well, from a user standpoint, we have discovered that using virtual goods, especially with your avatar, is a long-tail phenomenon. A key proof point of that is our top 10 selling items never sell more than 0.2% of the items sold in a relevant time period. People want their avatar to be unique, just like they themselves want to be unique in the real world. So they don’t want to buy the most popular item, and they’ll go very, very deep into the catalog to select the right hair and eyes and eyebrows and makeup and body types and dresses and jewelry, etc., to make themselves very, very unique.

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

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 IMVU Credits. 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.

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