Game Rant reported earlier about the incredible growth of the iPhone and iPod touch in the gaming space. According to Flurry Analytics, these devices accounted for 5% of total games revenue in 2009 ($500 million).

One company disputes these figures. Aurora Feint, known for an eponymous series of iPhone , has been a major iPhone developer ever since the launch of Apple’s gaming platform.

Game Rant spoke with Steve Lin, VP of Operations at Aurora Feint, to get his opinions about the iPhone games market.

Lin said the market is actually much bigger than Flurry Analytics suggests: “Their numbers don’t include online sales,” he said.

The online sales market has a fast-growing niche within the games space called “virtual goods revenue”. It’s a niche that’s easy to miss but one that’s generating fistfuls of cash now and is set to skyrocket in 2010.

Virtual goods revenue is money that’s made from transactions inside the gaming experience — a feature often referred to as “micro-transactions”. Many people think virtual goods means downloadable content, and while DLC is in fact a virtual good, the market isn’t limited to DLC alone —  expanding into the social media space. Zynga, whose games “provide a platform for players to express themselves and form deep social connections with their friends,” lets players buy virtual goods with virtual cash — that’s based on actual cash purchased by FarmVille players. “Virtual goods” is a kind of Holy Grail in the games space because it means all that social connectivity translates into financial transactions.

Aurora Feint realized the power of social media and incorporated it into Aurora Feint II, released in December 2008. Lin explained, “The game featured free community features like chat and leaderboards.” These community features evolved into OpenFeint, a social gaming platform launched in February 2009. OpenFeint allows developers to integrate social tools into their games — like achievements, challenges, forums, and links to Facebook and Twitter.

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These social tools are free, but the goal is to turn free into money. Gamers buy upgrades and enhancements, all virtual goods revenue, and the system works at a micro level. Want that killer flaming sword? It’s yours for just a buck. Want 10 more levels? A buck-fifty, please. In AuroraFeint’s upcoming OpenFeint X, the company plans to include the ability to build games based on social goods. It already includes the ability to feature and advertise certain games — another source of revenue for developers.

On the iPhone, OpenFeint is the most evolved platform. It’s got a massive base of 17 million users, growing by 25% a month. There are over 1500 games using the platform. The company spent a lot of time figuring out how to make virtual goods integration totally seamless. They work with developers — big and small — to host games and integrate their virtual goods add-ons.

The platform is certainly similar to Apple’s app store but OpenFeint actually takes it several steps forward — think app store 2.0 — with sales and marketing tools inside the games. And we all know how much money indie developers can make on iPhone games.

Both Zynga and Aurora Feint have a social media and transaction platform, and they both develop in-house games. But unlike Zynga, Aurora Feint makes the platform  available to iPhone developers. So virtually any game on Apple’s app store can be integrated into the OpenFeint platform.

Steve Lin explained why iPhone developers can benefit from their platform. The features below are specific to OpenFeint, but really any social media platform should offer to get a gaming developer:

  • Noticed. OpenFeint promotes games and actively markets them, inside other games. If you liked this game, OpenFeint’s spotlight features the best games in that genre. If you’ve got a good game and OpenFeint features you in their spotlight, you have tons of users seeing your titles. Buying them is as easy as tapping a button.
  • Easy releases of new content and upgrades. Think new levels, new weapons, new characters, all integrated into the game that’s already on OpenFeint’s platform, connected to their massive user base. Again, players tap to purchase these upgrades, and developers use OpenFeint’s tools to add on that transaction functionality.
  • Bigger audience. Their “free game of the day” features a free title — which is ordinarily not free — and lets people buy it, or a stripped down version of it, for free. Who doesn’t like free? So you get people who might not consider your game suddenly playing it. Then a day or two later, the game’s back at its original price. It’s like try-before-you-buy, but for gamers and with OpenFeint’s marketing muscle.

“Virtual goods” is easy to miss and hard to quantify because the products are hidden deep within other applications. But people are waking up and smelling the dollars: behemoth Facebook estimates that virtual goods will earn the company $1.6 billion in 2010. Even small games shops like Kongregate report their virtual goods sales are jumping 30% per month.

OpenFeint takes revenue as a part of Apple’s LinkShare program for games purchased through the platform. It’s an advantageous system for developers, who don’t pay anything to OpenFeint. The industry believes in this model: DeNA, a Japanese firm with extensive mobile experience (their mobile portal Mobage Town generates $200 million a year), invested $3.6 million in Aurora Feint for a 20% stake in the company in October, 2009.

This might sound like a paid endorsement for OpenFeint, but really it is a model for what many social media platforms need to offer. Aurora Feint is a true startup, with 25 employees, an idea and technology to power it. This is a simple path to making money — a slice of a pie that’s only going to get bigger.

Do you play any games that feature “virtual goods”? Have you purchased “virtual goods” content?