I got a bit emotional this morning. Yesterday, I forgot to feed John my virtual pet dog. He was really hungry. He's on Foo Pets. I almost spent real cash to feed him. (I discovered that I didn't have to this time - I had some foo coins I could use to get his virtual food.)

So, yes, I bonded with my virtual pet and I felt bad when I forgot to feed him. This is crazy you think? Yes, it's crazy. But it's also human nature. See, I spent some time setting up my account. I “adopted” this virtual dog. I chose him over many others. I gave him a name. I played with him for a few minutes. Threw a stick and ball. I also spent a minute giving him a bath and fed him twice. After a few minutes, I was “invested” in him. I had spent time - valuable time - and now I don't want to loose that investment.

This is why virtual goods work. You're invested the minute you engage. Once you spend time - you don't want to “loose” that investment. Standard cognitive stuff. The same trick works for auctions. Once you bid for that TV, you feel you own a part of it. You don't want to loose something you own, so you keep bidding. Yeah, sometimes it's just your time, but once you invest - you're in!

It's already clear that virtual goods and social gaming works. It's been the driving Internet business model in Asia for years. It's coming to the US in a big way in 2010.

I think the big idea for your brand is pretty clear: You have to get your brand into these models now. Just look at me. I'm 37 year old. I became invested in my virtual pet! If you want to capture the attention of anyone under 25, you have to position your brand in this experience flow.

Hey, are you snoozing again?

I went to Noshi Sushi with seven friends on Tuesday. Great food. My friends are in their early to mid-thirties. I asked them if they would ever buy virtual goods. None of them would. They think it’s silly and they don’t see the value. While they do accept virtual gifts from friends through Facebook, they hate it when they are asked to “install the application and share my personal information.”

Today, I sent them some virtual gifts.

I predict virtual gift revenue will finally break through in the US in 2009. Unlike interruption advertising, virtual goods and branded content works great in social networks. Proof? Facebook reportedly made $35M+ in virtual goods in 2008. Now, if they can make that kind of money with their boring clip art - then I predict there’s 100% revenue increases in store for 2009.

How big is this market? In Korea the virtual gift economy is huge and it’s the driving revenue model for loads of market leaders such as CyWorld ($160M annually) and Nexon (80% of $230M revenue). Charles Hudson has a great post here with loads of data (and assumptions.) Thanks Charles! Of course, you may know that virtual worlds like Habbo Hotel and Second Life is all about virtual goods, but those eco-systems are closed and there is no doubt the massive markets are in social networks and mobile.

Viximo is betting big the social market. They seem to think they can be market makers (see interview with CEO here) and their Giftd shop just opened in time for the Holidays. Hi5 just launched their own gift store and MySpace is reported to be working on a version of their own (I have to say, I don’t really understand what’s taking so long. Maybe you know?) Other players in this market includes FooPets, NeoPets, Digital Doll House, and major Scandinavian player StarDoll. There’s Zynga and major player Social Gaming Network who recently bought niche Facebook app developer (fluff)Friends . Also have a look at Artist Licensing and IP companies like Virtual Greats.

My friends say they won’t buy virtual gifts. Would you?