The virtual goods market may seem an abstract concept to many marketers, conjuring images of geeks and previously hyped, forgotten 'virtual worlds' such as Second Life and Entropia. However, sales of virtual goods in their multitude of guises have amassed to more than $7.3 billion in 2010 -  up by 245% from $2.1 billion. In-Stat forecasts total virtual goods revenues will more than double by 2014 and Electronic Arts founder Trip Hawkins estimates growth to exceed $100 billion by the end of the decade.

When taken into consideration, the time that many spend on social networking sites, effectively cultivating an online persona, the concept of parallel virtual and physical environments seems less foreign. According to Julia Johnston, founder of Mego, a software company that makes a customised avatar application for social networking sites such as Facebook and Twitter, the next generation of online consumers are leaning towards creating avatars that directly mirror their real-life image.

In China, super-brands have been quick to integrate into the virtual goods market. Wangyou, a Chinese social networking service uses branding aggressively. In this domain, brand loyalty can be cleverly harvested and with increased visibility via social media sharing channels, results can prove contagious with applications such as virtual loyalty schemes. Chinese Internet portal Tencent has experimented with such schemes - tokens taken from real Coke cans were exchanged for virtual objects.

In the UK we have seen the recent introduction of 'Facebook Credits' – these vouchers are sold in bricks-and-mortar stores to purchase virtual goods across the network's social gaming and gift applications. So why do people spend real money on virtual goods? The main motivations cited are; 'to be able to 'do' more', 'to build relationships' and 'to establish an identity'. Diane Nelson Koznick, previously of Levi’s and Victoria Secret, is now working with Mego to introduce brands into the virtual arena. Similar to location-based social networking where people are publicly announcing their affiliation with venues and brands, the 'identity' motivation is arguably the most key.

Koznick said, “Brands want to build loyalty and aspiration in young consumers. A 14-year-old could never buy a $10,000 Valentino gown or the hot new Marc Jacobs bag. But she can buy the $5 version for her avatar. Once you pay money, you have a sense of ownership and identification with that brand.”

Now that an increased amount of time is spent social networking via mobile devices, it is a natural progression for virtual goods to gain momentum in the mobile market. This is where Augmented Reality also comes into play. We have seen the introduction of this through the booming mobile games sector with apps such as the Star Wars Falcon Gunner where physical and virtual environments collide. Convergence suggests it is only a short time before these will be integrated into our social networks with via connecting applications, enhancing the social aspect.

Where we see interfaces such as Foursquare enabling brands to capitalise on social marketing rewarding users with points for loyalty via check-ins, we are likely to see virtual gifts and rewards factor into the equation in the near future. Another effective example of how this works is throughout online dating sites, where virtual gifts vary in price therefore indicating a sense of status. As Augmented Reality allows virtual gifts to become location based, could it become the material equivalent of sending flowers to our partner at work?

 Mobile virtual goods accounted for 80 percent of revenue from iOS apps in September 2010, far outpacing advertising. With an inevitable flurry of advanced Smartphones and tablet devices on their way in 2011, including renewed speculation about iPad 2, the potential virtual marketplace just keeps growing.