Incoming Viximo CEO Sees a Burgeoning Economy of Virtual Goods

Online publishers who want to let their users exchange virtual gifts—think singing Santa e-cards at Christmas or animated hearts for Valentine’s Day—can turn to Viximo, a two-year-old startup in Cambridge, MA, for both the virtual goods themselves and the microtransactions system needed to distribute them. And now Viximo is turning to a new leader to spearhead its expansion.

The company announced today that Dale Strang, an online media and advertising veteran, has taken over as CEO. Strang replaces acting CEO Dayna Grayson, a principal at Viximo backer North Bridge Venture Partners, who had stepped into the CEO role after the departure of Viximo’s first CEO, Rob Frasca, last spring.

A virtual good is any digital object—a video, an icon, a piece of clothing for a game avatar—that helps people express themselves in an online interaction, add bling to their online persona, or increase their enjoyment of a game. U.S. consumers spent $1 billion on such items in 2009, according to Inside Network, a market research company focused on Facebook and social gaming sites. Strang says he sees these purchases as a potential substitute for dying revenue streams (such as subscriptions) in the publishing world.

“In the print world we used to take it for granted that users were willing to pay for certain interactions,” Strang tells Xconomy. “They’d buy a copy of a magazine, for example, or a subscription. That made for a healthy, balanced business model. But the Internet hasn’t had that. I view the virtual goods microtransaction explosion as an answer for that.”

"Girl's Best Friend" virtual gift

Strang says more and more online publishers are looking at online communities where there is a brisk trade in virtual goods, such as MySpace and Facebook, and deciding that they want to build their own virtual economies. But it’s harder than it looks, he says.

“Some people have implemented an online currency, but they can’t quite get it right. Other people may have problems integrating their currency with a payment system. Others may have huge holes in the content that they provide. The strategy that has evolved for Viximo is to do all the hard parts for our partners, while they do their main job, engaging with the audience.”

Viximo’s clients have 60 million network members in aggregate, with social networking sites and and sports site FanIQ among the newest users of the Viximo platform. The startup offers customers a soup-to-nuts solution, including a huge catalog of virtual items designed by freelance digital artists; currency systems that let people buy virtual currency with cash or earn rewards through various online activities; payment systems that ensure that the money from currency purchases makes it back to publishers; and analytics software that shows publishers which items are selling best.

Just how “micro” are the microtransactions involved in virtual goods exchanges? That varies. Interscope Records, the label behind rock singer/songwriter phenom Lady Gaga, uses Viximo’s technology to power the Lady Gaga Gift Shop on Facebook. Most items in the store, such as an animated picture of Lady Gaga wearing TV-shaped sunglasses, cost 10 to 20 credits; you can buy 15 credits in the store for $3.00, 100 credits for $10.00, or 225 credits for $20.00.

Viximo may be the only company that offers both a system for selling virtual goods and the goods themselves, which clients can either plug directly into their own virtual gift stores or customize at will. New York-based microtransaction startup LiveGamer, which acquired virtual goods currency specialist TwoFish last fall, is a competitor on the infrastructure side, and other companies such as VirtualGreats supply digital content. But while these parties solve specific pieces of the virtual goods puzzle, “Nobody provides one solution like Viximo,” says Brian Balfour, Viximo’s founder and vice president of marketing.

Strang comes to Viximo from, a San Francisco-based online advertising network, and spent 11 years before that in executive vice-president roles at IGN Entertainment, which runs a network of gaming sites, and Ziff Davis Media. He says his experience in the advertising and entertainment worlds will help him position Viximo to start producing real revenue.

“The company is now at the point where we are going to be putting our stuff in front of millions of people and generating significant usage,” Strang says. “The board was looking for someone who understands the consumer Internet and interactive entertainment and had some experience growing a business in those worlds. I’m here to start growing substantial revenue out of our network.”

Sledding Santa virtual gift from ViximoStrang argues that trends in interactive entertainment technology have often been the harbingers of changes coming to the general culture, and that he was attracted to Viximo because the virtual goods phenomenon may point the way toward big shifts in the way commerce will work online in the future.

“The interactive market is a leading indicator of how people are going to distribute, consume, engage with, and perceive content,” Strang says. “Just look at all the moving cameras in TV football broadcasts—that stuff all appeared in video games first. The old question on the Internet is how you get people to pay for anything. Virtual goods and microtransactions seem to hit the right point of perceived value and willingness to part with money. I just want to be part of that.”

Viximo has 20 employees and has raised $10 million in venture backing in two roughly equal chunks, including a Series B round last May led by North Bridge, with Sigma Partners also participating.

It’s one of at least three startups funded by North Bridge that have gone through CEO-level departures or replacements in the last year. The other two are Needham, MA-based Mobicious, creator of the SnapMyLife mobile photo sharing community, where Mass High Tech reported in September that former Playboy executive Edward Lang had taken over the CEO position from founder George Grey, and My Perfect Gig of Lexington, MA, where former CEO Blair Heavey left in 2009 and has not been replaced, according to the management page of the company’s website.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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