Asian Virtual Money

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.

Such is the success of virtual sales on Asia's most popular social networking sites that Myspace and Facebook are starting to look with a fresh eye at the
potential of virtual money to generate cold hard cash.

Qzone's Tencent Holdings made over $1 billion last year with just 13 percent coming from advertising revenue. In contrast, Facebook and Myspace depend on advertising to fund most of
their revenue.

The evolution of virtual money on social networking sites in Asia is partly due to a less developed online advertising market which drove 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 it tends to be only for kids.

East Asian societies are also very status conscious. Players are loath to be the only avatar without the latest gear and Asians are perhaps more
willing than counterparts in the West to buy virtual products to update
their avatars or social space.

Asia's social networking sites tend to be country specific but they have very active user bases.

Qzone had 228 million active user accounts for the second quarter of 2009, 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.

VIRTUAL RENTALS

Like their Western counterparts, Asian social networking sites allow their users to chat, play games and share photos.

There is also some advertising, but the sites earn most of their revenues from their users. Members are represented by avatars and acquire virtual currency from
the sites to buy digital goods, game packages or upgrades.

The model has taken off abroad but there is still a long way to go until the West catches up with Asia.

Habbo, a social networking site for teenagers owned by Finland's Sulake Corporation, sells virtual clothes and furniture. Meanwhile, games such as Pet Society which is available
on Facebook and allows users to raise virtual pets, sells goods such as
virtual pet accessories and e-food.

Playfish, creator of Pet Society and other social games, says it has 47 million active users per month playing its games.

With seven million or so inhabitants, the virtual world Second Life offers a range of e-wares for sale for Linden dollars. Some are mundane and
others are controversial such as guns and virtual phalluses with price
tags based on the size.

Asia is also a playground for a range of virtual business models such as rentals. For example, Cyworld rents background skins of popular South
Korean baseball players for limited periods. Such rentals drive repeat
sales and tap into trends.

LOST IN TRANSLATION

The success of these East Asian sites contrast sharply to the frustrated social media landscape across the Pacific where despite immense popularity, Facebook
and Myspace are yet to fully harness the profit potential of their
massive user bases.

Facebook, the world's biggest social network with close to 300 million visitors per month, is on track to bring in more than $500 million in revenue this
year, mostly from advertising, but its focus is on growing its user base
rather than making money.

Still, a recent New York Times article suggested signs of an exodus from Facebook as disillusioned users leave due to privacy concerns or
complaints of rampant commercialism.

Rupert Murdoch's MySpace has been unusual among the major social networks in turning profitable through advertising sales, although is now undergoing
a major overhaul, including ousting its CEO and firing hundreds of
staff, in the face of worrying user metrics.

Meanwhile, both Facebook and MySpace are eyeing the virtues of virtual money. Facebook, which sells virtual goods mainly in the form of 'Facebook
gifts' through a credit system, said in March that it was looking at
offering a common virtual currency to third-party application
developers.

At the Web 2.0 Summit late last year, Myspace's recently-departed chief operating officer Amit Kapur mentioned that that the firm was also seeking to develop a
payments and virtual goods system.

Meanwhile, Internet entrepreneurs are coming to Asia to pick up on innovative web business models.

In June, 32 venture capitalists and Internet entrepreneurs visited Japan and China under the banner "GeeksOnAPlane," to learn about local success stories
such as DeNA, video hosting website Tudou, and gaming website PopCap.

"They were all blown away even though some of them already knew about what was going on here," said George Godula, founder of Shanghai-based consultancy Web2Asia. "They (Asian social
networking sites) are quite nimble at finding out business models or
ways of how to make money," he told Reuters.