If you are one of those who always thought gifts can(and should) always be tangible, think again.

Few facts:
1) People spend over $1.5 billion on virtual items every year. Pets, coins, avatars, and bling.
2) The virtual goods market is expected to exceed $7 Billion in less than 18 months.
3) Facebook’s digital goods business has appeared to double to between $30-40 million/year at the current rate.
4) Second life raises $80M annually from virtual goods.

While a lot has been said about the business aspect of Virtual Gifts, what makes virtual gifts a phenomenon remains a mystery for most. Virtual Gifts might sound a bit weird for some but there’s a lot more to virtual gifts than 1’s and 0’s. Here’s what I feel make Virtual Gifts tick.

1) The Gesture: This according to me one of the most important/human aspects of virtual gifts. One might not be able to eat a virtual cake or smell virtual flowers but the fact that someone took their time, effort and maybe money to gift something has an inherent feel good factor for both the sender and receiver.
2) The Trophy Effect: Flaunting gifts, is almost as common as gifts themselves. The act of giving a virtual gift and receiving one can be flaunted and ego’s(of people involved) massaged. Be it one’s profile page or activity news feed, if implemented well in a platform it can be another reason to share virtual gifts.
3) A virtual gift is better than no gift: You might have hundreds of real life friends and family members but not everyone will buy you a cake or send you flowers but if given an option(with low price) people might choose to share online gifts instead of not sending any gift at all.
4) Fun: You and I might not agree but there’s a fun angle involved with virtual gifts, in a sense that you can have unusual, exotic and virtually relevant( hours for an online game etc) gifts which might not be possible in real life.

Though the virtual gifts market is growing at a good pace what  needs to be seen is what all types of virtual gifts get added to the mix going forward, how can they be interlinked with points or real money and how business models evolve over them. A barter system could also be interesting and so would a resale and sale back of virtual goods for real money. What do you think ?