Is Microsoft the unrecognized king of virtual items sales?

When most people think of virtual items sales, they probably think of social games and massively multiplayer games, primarily on the on the PC But a recent nugget from a Microsoft COO Dennis Durkin at this week's E3 conference has revealed that another source of virtual item sales might be much larger than generally accepted: Microsoft's Xbox Live.

Speaking to Forbes' Oliver Chiang, Durkin revealed that Microsoft's Xbox Live transactions business -- which includes virtual clothing and accessories for in-game Avatars -- recently surpassed revenues from Xbox Live's $50/year subscriptions. Doing some quick back-of-the-envelope math, Chiang estimates that means Microsoft is making at least $625 million annually from thier virtual items sales. Compare that to top social game maker Zynga, which is only bringing in an estimated $600 million in total revenue, and you can see just how impressive Microsoft's virtual goods business really is.

Of course, this isn't quite an apples-to-apples comparison. Microsoft's digital transactions business includes downloadable games, movies and music as well as in-game items and add-on content. Putting that variety up against Zynga's almost purely in-game-item-based economy isn't quite fair to the Facebook giant. Still, it's an interesting data point, and one that suggests the future of the virtual goods business might not reset solely in Facebook's mighty hands.