SINGAPORE: 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.
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.
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