Asian social networking sites profit from virtual money

Tue Sep 8, 2009 9:51pm EDT
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By Brenda Goh

SINGAPORE (Reuters) - 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.

It's simple, they say, the money might be virtual but the profits are all too real.

Chinese university student Tan Shengrong spends about 20 yuan ($2.90) per month purchasing outfits for her pet penguin avatar or playing games on QQ, an instant message portal on Qzone, China's most popular social networking site.

It might not seem like a hefty sum, but every fen, or 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 despite 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.

From virtual clothes to e-pets, Asians spend an estimated $5 billion a year on virtual purchases via websites 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, it 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.

Of the virtual sales in Asia, about 80 percent comes from the sale of such items as equipment for online games such as rods for GREE's fishing game Tsuri Star 2. The rest comes from purchases for avatars on social networking sites.   Continued...

<p>A customer looks at a web page of Qzone, a Chinese social networking site at an internet cafe in Changzhi, Shanxi province, August 28, 2009. REUTERS/Stringer</p>