This post is actually a response I just made in Danah Boyd's blog, where she discusses Facebook's virtual gifts program I found her post by way of Jeremy Liew's post about her post.
I'm not sure we were the first to implement virtual gifting in the States, although we did come up with the idea of doing it on our own (hadn't heard of cyworld at the time). I think there was a site that executed on it before us, but they tried to establish a whole community around gifting, perhaps a little TOO strongly.
The way we saw it was this: There are 2 use cases we identified where somebody would be interested in purchasing a digital good.
1. A purchase for yourself, in order to "pimp your page". The utility gained from this is one of SELF EXPRESSION. Of course this model is greatly enhanced if you close the system and don't allow people to just upload their own goods, but even in that case, you could have an "official area" too.. where people who put their digital goods outside it just look.. lame.
In this case, scarcity matters, but creating scarcity is probably best achieved not by pricing high, but rather by creating a large catalog and only allowing x items of each kind to be claimed.
The purchase is about users expressing themselves and wanting to feel differentiated from others. Spending $20 on an icon that anyone else could have spent $20 on is NOT differentiating. I believe the price should be lower in this case. The platform should concentrate on just having a billion items for sale.
2. A purchase from one person to another. The utility gained from this is one of SIGNALING. What is it you are trying to signal? In the case of HOTorNOT's virtual flowers, one is trying to signal extraordinary levels of interest. A user on the site can say "yes i'm interested" to every other person on the site because it costs nothing (but time) to click "yes" on people's profiles. However, it is presumed that money IS a limited resource. By spending money in order to purchase a flower, becaues the # of flowers I can afford is finite, it signals to the recipient that S/he is very very EXTRA special. So we chose to price the flowers high.
If the flowers were cheap, the system would be rampant with them. Girls would receive them from all over the place. They would DROP IN VALUE, because it is natural human instinct to value things that are scarce. Another thing we did to increase scarcity was have flowers "die" after 2 weeks.
So basically, because they're so expensive and less people are willing to send them is what makes someone who RECEIVES them DIFFERENTIATED. The flowers have REAL value to the receipient, and therefore real value to the sender who is gonna get props for sending them.
In fact, the signal or "gesture" is only one part of the value of our virtual flowers. The other value is the fact taht flowers are displayed on the recipient's homepage.. Not for the recipient to see, not for the sender to see.. but for EVERYONE to see. This is the equivalent of someone putting flowers on her desk when s/he receives them at work.. It's BRAGGING. and people like to brag.
Sending real flowers in real life has one added benefit that we could think of.. the value of the intrinsic beauty/smell of the flowers. Capturing 2 out of 3 online seems to be good enough.
We found, last time we ran the numbers, that sending flowers increased the likelihood of a "double match" on our system by 4x.. meaning as a signal, they are well received and really work.
If we had priced them low, the flowers would have been worthless to everyone.
Here is what our flower ordering page looks like, for those interested:
click here to see a picture of HoN flowers
This is the kind of stuff we think about all the time. If you enjoy thinking about "social engineering" (what I call it), like to create cool products, and are a coding MACHINE, see our jobs page!