Business modelsCasual GamesMySpaceVirtual Worlds

Experience in Asia suggests virtual goods is the biz model for social media

By March 11, 2009 7 Comments

This post by Bill Gurley of Benchmark in the US gives a great comparative analyis of how social media sites are monetising in Asia and the US.

The headline is that the leading western socnets Myspace and Facebook are generating reasonable revenues (Bill estimates current run rate is $650m and $450m respectively), but that if their Asian equivalents are anything to go by they could be generating much more by bringing virtual goods and casual games more firmly into the mix.

TenCent is the leading example – it is a Chinese IM business that has 355m users, $1.2bn in annual revenues and a market cap of $11.2bn.  When adjusted for the cost of living in China TenCent makes as much per user in advertising as Facebook and Myspace AND then makes a further 8x that from other revenue streams, primarily virtual goods and casual games.

There are similar stories at DENA and GREE in Japan, although these companies are smaller.

Read Bill’s post for the full analysis.

Bill thinks that western socnets haven’t capitalised on the virtual goods opportunity as much as they should have in large part because the execs over here don’t really believe deep down in virtual goods and the value they have for consumers.

This last point certainly rings true with me.  Discussions of virtual goods business models are all too often met with a rolling of the eyes over here, and pointers to the success of Asian virtual goods businesses are met with looks of incomprehension and questions about whether things are simply different ‘over there’.

As Bill points out the fact that here in the west we are happy to embrace real world brands to establish our identity, often at vast expense, suggests that we ought to be able to translate that to the virtual world.

However, as Bill points out, there is a right way and a wrong way to do virtual goods, and simply launching them as an offering is unlikely to succeed.  As with everything else bringing in execs who have relevant experience will help and constant iteration and evolution of the product will probably be required before you hit upon the magic formula.