Can a profitable social network exist?
March 24th, 2009
Apparently.
Read this: The world’s most lucrative social network? China’s Tencent beats $1 billion revenue mark
– and just wait until you hear where 70 percent of the revenue came from.
This is huge – especially since many social networks in the United States aren’t nearly as profitable. According to the article, MySpace brought in $800 million and Facebook made $250-$300 million last year; a majority of those earnings came from online advertising. But in my opinion, there’s only so much you can do with online advertising. There are only so many places on a page that you can place an ad (without overwhelming the user), and there’s only so much you can charge for those advertisements. On top of that, you have to think about your audience and if your advertisers want to target that group.
Because of those issues, I think it’s extraordinary that MySpace and Facebook have done as well as they have. But it’s encouraging to learn about Tencent’s business model.
So how does the site make money? Not solely through online advertising, but another avenue: Virtual goods and “Internet value-added services,” or IVAS.
IVAS, which includes avatars and memberships, accounts for more than $700 million of the site’s profits. That’s huge.
It’s also a great business model. Users may simply glance over online advertisements, but they’ll actually participate when it comes to online goods. It’s another way to engage the community.
It appears that countries like the United States are just learning about the potential of virtual goods. However, IVAS may not be the saving grace of all social sites. The article brings up a good point – maybe Chinese users are more likely to purchase goods than users from other countries.
Either way, Tencent has proven to the world that social sites don’t need to depend on advertising; they can be successful simply by being creative.
Entry Filed under: Facebook, Social Media Sites, Social media
