On July 21, Mochi Media implemented its own virtual currency called Mochi Coins, which players can use for things like advancing in game play, clothing avatars or buying tools like virtual swords to help them play better. Less than a month earlier, game distributor Heyzap, also in San Francisco, launched a similar system.

Revenue from virtual currency transactions is earning at a rate 10 to 20 times what advertising is providing, Hsu said. “Initial results show that the coin stuff is going to ramp up pretty quickly,” he said. “It’s just a matter of scaling it up right now.”

Last December, San Francisco-based social network Hi5 launched its own virtual currency and virtual goods store. The company, which has 60 million monthly visitors mostly outside the U.S., subsequently partnered with PlaySpan, Boku, Super Rewards and other companies on micropayments as well as Mochi Media, Playdom, RockYou, Real Networks and others for game distribution. Virtual currency transactions already account for 15 percent of Hi5’s revenue, which is projected to be more than $25 million this year, said company spokesman Michael Trigg.

John Cahill, CEO of San Francisco-based Meez, which runs a virtual world for teenagers, said that virtual goods have become 30 percent of his company’s $5 million to $10 million in revenue since last year. The company sells digital items such as branded clothing, room decorations and virtual pets, he said.

“The virtual goods part is the fastest growing part of our business, and literally it didn’t exist 12 months ago,” he said.

Third-party processing of payments is also proving to be a good business, with multiple companies, including Palo Alto-based Zong, thriving in the space.

On July 22, AdKnowledge, the $250 million a year social advertising network, of which MySpace co-founder Brett Brewer is president, bought SuperRewards, a platform that lets users get virtual currency for taking offers or surveys. SuperRewards’ biggest competitor is 2-year-old Offerpal Media of Fremont, which had $30 million in revenue last year.

Boku is a 50-person mobile payments company in San Francisco that raised $13 million and launched in June after acquiring two other companies, Mobillcash and Paymo. Cofounder Ron Hirson said virtual currency transactions are the majority of Boku’s business and “growing amazingly.”

Twofish was founded in 2006 to provide infrastructure for managing virtual economies. The company offers products and services to process payments, manage virtual banking and inventory systems, and a data collection system to analyze economic and retail trends. The Palo Alto firm has 25 people and raised $9.5 million in venture capital.

Twofish President Lisa Rutherford predicted huge change in the near future, both in who will be the top players in virtual goods and currencies, and the types of markets where virtual currencies will proliferate.

She and other experts predicted that in the future mechanisms will emerge for transferring value from one virtual economy to another, and that virtual currencies will be used in other media sectors, such as music and video, and even for purchases of hard goods.

“I think it’s going to be much more than games,” she said. “It’s going to change the way we do commerce.”