People spend over $1.5 billion on virtual items every year. Pets, coins, avatars, and bling: these virtual objects are nothing more than a series of digital 1s and 0s stored on a remote database somewhere in the ether. What could possibly possess people to spend real, hard earned cash on ‘objects’ that have no tangible substance?

This quote comes from Susan Wu’s article “Virtual Goods: the next big business model.” While $1.5 Billion is interesting in it’s own right, what’s more interesting is the list of companies she mentions that are making “meaningful amounts of money” in virtual goods – Tencent, Habbo Hotel, Gaia Online, Dogster, and several others. Not exactly the Google, Yahoo!, Facebook list everyone expects these days, is it?

Tencent – that’s in China, which is a market a few companies are interested in right now. Of note, 65% of their $100 M in revenue in Q1 from virtual goods. It’s been enough to attract the attention of Coca Cola, who has partnered with them. And my favorite tidbit – Gaia employs 3 people just to open envelopes of cash people send in to buy virtual goods.

The full article is well worth reading, including the four reasons she’s presents for why people spend real money on lines of 1s and 0s. It’s also worth reading the Julian Dibbell article from the NY Times on the life of Chinese Gold Farmers tied to this evolving virtual world…