Growth5 Blog

Monday, April 27, 2009

First to a Billion in Annual Revenue: MySpace? Facebook? Twitter? Nope, Tencent

-Facebook hit 200 million users recently, their estimated revenue for 2009 is somewhere around $500 million.

-MySpace's CEO stepped down after 2008 revenue was disappointing: estimated at $600 million.

-Twitter is experiencing massive growth and probably not much revenue yet.

Meanwhile, it was Tencent, the Chinese web portal that runs Qzone (probably the largest social networking site in the world) announced $1 Billion in 2008 revenue. What can these Western companies learn from our friends in the East?

This article from China Business News offers some insight. Here are some of the highlights:

1. As ad sales slump in the recession, only approximately 12 percent of Qzone's revenue stems from online advertising with the rest coming from virtual item sales such as applications and avatars... online budgets in China are largely spent at four large news portals, which earn the majority of online ad revenue. This forces most "smaller" portals to find more innovative ways to monetize their traffic.

2. While Chinese social networks started out as mere clones of existing sites, they've managed to innovate the business models to create a very lucrative market by cementing the relationship between application developers and the site's user base.

3. Facebook may be afraid to become a marketplace for applications, because they are reluctant to be labeled as a social gaming network or a social app store. Instead, they are a self-styled guru of dynamic human interaction. If they opened up their platform to become an apps store, their major revenue streams would put them into a pigeonhole, calling their $15 billion valuation into question. They obviously don't want to be labeled as a "gaming platform" either, and don't want to fully depend on selling digital trinkets.
As MySpace tinkers with music, mobile and other services to increase their revenue, and Facebook figures out ways to place ads in feeds of user activity, Tencent & Qzone have proven that money can be made outside of advertising (88% in fact).

But I don't think that any of our US companies need to look all the way to China to figure out how to monetize their users. They need only to stop by Cupertino, CA and have a visit with Apple. This is a company that has learned to grab revenue from its "users" every which way. Music, music players, music player computer phones, music player computer phone apps, and I've heard they sell straight up computers as well.

Apple had $8.6 Billion in revenue last quarter. And without all of that time-consuming social networking stuff. ;-)

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