In games, selling anything that fragments your player base is generally a bad idea – the in-game quivalent of selling news articles that you can’t share with non-purchasers is to sell maps or game modes you can’t play together with non-paying players. Offering the option of “VIP” areas can be good. But if they’re totally exclusive, how would the paying players feel like VIPs?

Micro transactions have already proven they work even when free alternatives are available : Facebook still sells gifts while Free Gifts exist (or images pasted in an email, that have been here for a long time). Everybody knows that Free Gifts are free, and knowing that a person paid is an important attribute of gifts, so a paying gift is more valuable than a free one. Being able to show off your popularity is also why Facebook Gifts have more value than an image pasted in an email. Actually, a lot of people reproach to Facebook that the paying gifts all have the same value and are all cheap.

Intangible value also has a role to play : The main functions of brands, in virtual as well as real goods, is to avoid being commoditized and bypassed as soon as a cheap or free alternatives appear.

The service also matters : iTunes has also grown the market for online music because it made music easy to find, reliable and of predictable quality, secure to download, recommended or not by user reviews, clearly labeled, etc. The free alternative, downloading on torrents, can require more skill and time to find what you want, sort it, and organize it. Classical music sales rose a lot when iTunes appeared. There’s a “long tail” effect of niche demand aggregation here, but the classical music audience is also maybe not necessarily expert at downloading on P2P sites and values the quality and accessibility the iTunes service provides.

Also, open marketplaces like IMVU show that micro-transactions are working with platform approaches and user-created content as well.