By selling an array of virtual products from avatar clothes to e-furniture, Asia’s social networking sites appear to have solved the conundrum of how to leverage big profits from their extensive user bases.
According to them, it’s simple: the money might be virtual but the profits are all too real. Chinese university student Tan Shengrong spends about US$2.90 per month purchasing outfits for her pet penguin avatar or playing games at QQ, an instant message portal on Qzone, China’s most popular social networking site.
It may not seem like a hefty sum, but every cent is money in the bank for Tencent Holdings, which owns Qzone and saw an 85 percent increase in its second quarter net profit this year compared to 2008, remarkable numbers in light of the economic downturn.
“They keep growing even though the economy’s bad because they keep making millions from cents from millions and millions of people,” said Benjamin Joffe, head of Internet consulting firm Plus Eight Star.
DIGGING DEEP
From virtual clothes to e-pets, Asians spend an estimated US$5 billion a year on virtual purchases via Web sites such as Qzone, Cyworld in South Korea and mobile-phone based network Gree in Japan, according to Plus Eight Star. That’s about 80 percent of the global market for virtual products, the company says.
“Social networking is just a way to get people together, but if you want revenue you have to sell them something. What they found was that people were happy to pay for content related to emotion, status and entertainment,” said Joffe.
About 80 percent of virtual sales in Asia come from items such as equipment for online games, a fitting example being rods for Gree’s fishing game Tsuri Star 2. The rest comes from purchases for avatars on social networking sites.
The success of virtual sales on Asia’s most popular social networking sites is so impressive that MySpace and Facebook are starting to reexamine the potential that virtual money possesses to generate cold hard cash.
Qzone’s Tencent Holdings made over US$1 billion last year with just 13 percent coming from advertising revenue. In contrast, Facebook and MySpace depend on advertising for the bulk of their revenue.
The evolution of virtual money on social networking sites in Asia is partly due to a less developed online advertising market, the state of which has driven Asian Web businesses to seek new ways to profit.
Cultural issues are at play too. Gaming is popular among adults in Asia, whereas in the West the activity tends to be perceived as a children’s pastime.
East Asian societies are also very status conscious. Players are loath to be the only avatars without the latest gear and Asians are perhaps more willing than their Western counterparts to buy virtual products to update their avatars or social space.
Furthermore, while Asia’s social networking sites tend to be country specific, they have very active user bases.
Qzone had 228 million active user accounts during the second quarter of this year, although it won’t give out monthly visitor figures. Meanwhile, Cyworld, which says that 90 percent of South Korea’s 20-somethings are members, had 23 million unique visitors per month at the end of the first quarter of 2009.
Like their Western counterparts, Asian social networking sites allow their users to chat, play games and share photos.
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