SAN FRANCISCO (Reuters) - The Internet made shopping without checkout lines a no-brainer. Now, some Web companies are betting that people are ready to forsake another shopping tradition: tangible products.

Virtual goods, which exist as digital bits on computers and cellphones, have grown more popular in the past year as important accoutrements for increasingly Web-oriented lives.

Often available for a $1 or less, virtual goods range from video game accessories like extra weapons for shooting games, to electronic birthday cards and flowers for friends on Facebook or dating sites like Zoosk and flirtomatic.com.

Virtual goods have been popular for several years in other parts of the world, particularly Asia, but are only now starting to catch on in the United States.

For many Web start-ups, digital merchandise is an important source of revenue to replace scarce advertising dollars. And a series of big-ticket deals suggests that virtual goods are emerging as more than just a quirky fad.

In November, video game publisher Electronic Arts Inc paid $275 million for Playfish, which makes games for social networks such as Facebook, which sell virtual goods.

A month later, a group of investors poured $180 million into Zynga, another social networking game company. Virtual goods account for 90 percent of Zynga’s revenue, which a person familiar with the company said has annualized revenue of $300 million.

The rush to offer virtual goods comes as advertising sales, the traditional underpinning of free websites, erodes. U.S. Internet ad revenue fell 5.3 percent to $10.9 billion in the first six months of 2009 compared to the same period a year earlier, according to the Internet Advertising Bureau.
For many Web entrepreneurs, virtual goods are a better fit than advertising.

“People don’t want to click on an ad while playing a game. They don’t want to be thrown out of the application (to view the ad),” said Netanel Jacobsson, a former Facebook executive who now advises the online social gaming firm Crowdstar.

Crowdstar recently abandoned in-game ads in favor of virtual goods, he said, resulting in a significant financial improvement, though he would not provide details.

Ninety percent of new online game start-ups sell virtual goods, estimates Jeremy Liew, managing director at Lightspeed Venture Partners.