One of my co-presenters at this month’s Media 08 event in Sydney was Benjamin Joffe, Managing Director at Asia Internet consultancy +8* and Co-Founder of MobileMonday Beijing. At Media 08 Benjamin discussed the leading social networks in Asia. In particular he compared global leader Facebook with Cyworld, Mixi and QQ. According to Benjamin, Facebook is #4 in that comparison. We thought it would be a good idea to do a Q & A with Benjamin, to find out why. Also we’ve embedded Benjamin’s presentation below (also available here).
Q | Facebook has enjoyed the media spotlight for over a year now, but it is still far from ruling the world. As Asia is said to be at the forefront of communities, what are the services that dominate there?
A | It is interesting to see that Facebook has almost no presence in the three markets we cover: China, South Korea and Japan. In China, QQ dominates by far with 300 million active accounts, Cyworld has close to 20 million in South Korea while Mixi has 14 million in Japan.
Q | Those are pretty big figures for subscribers. Even so, Facebook has a good portion of them globally and is losing money. Are the Asia social networks making money?
A | One thing to keep in mind is the addressable population: QQ only deals with China, Cyworld addresses seriously only Korea, Mixi is only in Japan. Corresponding penetration rate among Internet users are: 150% for QQ, 57% for Cyworld, 15% for Mixi. It becomes even more interesting when realizing all three are largely profitable. Notably, QQ had 523 million USD in revenues in 2007 and 224 million operating profit, with only 13% coming from advertising! This is more than Facebook’s total revenues. Moreover, Facebook was still losing money last year (and likely this year).
Q | How do those services manage to turn such profit?
A | QQ and Cyworld make most of their money from digital goods – from background music to personalization, avatars or casual games. The introduction of an online currency supported by a variety of payment systems has helped lower the payment and monetization barriers dramatically.
Q | Are digital goods the next big thing?
A | It is certainly a great way to monetize a community. The West has been slow at catching up but digital goods are a proven monetization method on the Internet almost since Cyworld launched in Korea in 1999. Casual games are also a great money maker: imagine users were offered attractive high-quality Facebook applications for 10 cents. Many would pay, but today they have no way to.
Q | If it has been around for so long, why is it coming so late to US and Europe?
A | We see two main reasons: first, the West is not looking closely at Asia. When it does look, local successes are usually stereotyped, which prevents deeper understanding. Some great services like Naver’s Q&A (which was Yahoo Answers’ inspiration) were created there, mainly because the US do not have the lead anymore in Internet infrastructure, so local talent managed to come up with great new ideas. Second, most non-US markets have not developed a very rich online advertising market, and had no choice but to find alternative revenue models. In a way, the rich online ad market has been holding back innovation in the US, and forced most Internet companies to design their service around pageview as a main metric.
Q | Is that a problem?
A | It can be, as the focus becomes to generate more pageviews, not make the service better. Users are mere “eyeballs”, while the real clients are advertisers. The revenue mix defines the service DNA. We even came up with a new metric: ARFU for “Average Revenue From Users” (rather than per user, for ARPU). With this in mind, ARFU for Facebook is almost zero, while ARFU for QQ is 87% Internet + mobile combined.
Q | What are the key lessons from those successful services?
A | First, that users are willing to pay for services – even in China! Second, several companies in Asia have already solved a number of headaches on how to make it work and can help save a lot of time by adapting their best practices. Third, that the main barrier is the persistent bias that all US stuff is great, while Asia just copies. I don’t think QQ will make a bid on Facebook but there might be a need for a strong eye opener to realize that inspired by the West, Asia has made incredible advances that can now help us in return.
Q | Are those companies trying to enter foreign markets? Cyworld just pulled out of Europe and is not doing too well in the US either.
Thanks Benjamin! Here now is his Media 08 presentation: