It's hard to get over the idea that since virtual goods are fluff, any fluff is going to be a successful virtual good. To develop the differentiation, we need to learn a deeper cultural understanding of fashion.
I'm CEO of a small bootstrapping game startup with a virtual world social dancing game -- and my background, in part, is in licensed entertainment merchandise.
I'm totally with this article.
Virtual goods for virtual worlds is a fashion industry -- it's all about self-expression, about telegraphing who you want your avatar to be through how your avatar is perceived on first glance (this includes not only skins/clothes, but voices, animations, housing/furnishings,...).
When I was working in e-commerce for licensed entertainment merch (you know, the t-shirt, the coffee table book, the poster, the shot glass, the Tomb Raider licensed motorcycle [really],...) our business was based on the idea that these things were not geeky fan stuff or studio tour memorabilia, but fashion -- something the industry itself was slow to awaken to until folks like us (eMarket Group) and Hot Topic pushed the idea.
If you see a guy in Kuala Lampur wearing a black t-shirt with a raging Tasmanian Devil, he's not trying to telegraph that he likes Saturday morning cartoons. He's using an international fashion vocabulary from pop culture.
The virtual goods market is based on these fashion vocabularies in areas we do or don't often think of as fashion. Avatar body design reflects fashion. Weapon cosmetic choices reflect fashion (what does your polearm say about *you*? :). In social games, the logo on your t-shirt, the crops you grow, the virtual gifts you exchange, are ways of telegraphing your online personality.
So, in terms of power-ups for core games, it's about the win. But in terms of social games -- the victory conditions are more subtle, and self-defined (consciously or not). You are writing a script for who will dance with you, who will friend you, who will chat with you, who will poke you back, who will give you a compliment, who will be attracted because of a sign of common interest (whether that means leather and chains, or a Heroes t-shirt).
In core games, this may seem like fluff, but it will still sell. Being able to take the skin of one item and apply it to another -- great example from several games (Runes of Magic comes to mind). Vehicles or mounts of equal capability but very different feel -- fashion statement.
If you can broaden your idea of what fashion is from Project Runway to a more deep cultural, even anthropological understanding, marketing virtual goods for your game will become far less of a hit-or-miss proposition.
(Shava Nerad is the CEO of http://oddfellowstudios.com in the Boston area. Just yesterday, she talked to lawyers about patents/trademarks and such! Until all that gets settled, and funding comes in, she is available for limited consulting hours in virtual goods marketing)