Facebook vs Asia's Top Social Networks

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Facebook vs Asia's Top Social Networks
Written byRichard MacManus / March 30, 2008 12:18 AM /17 Comments
One of my co-presenters at this month'sMedia 08 event in Sydney was Benjamin Joffe, Managing Director at Asia Internet consultancy+8* and Co-Founder ofMobileMonday 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 availablehere).
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.
A | Cyworld tried China, US, Europe and Taiwan. Mixi is trying China. QQ has entered US via a content partnership with AOL on casual games. In most cases, they do not do too well as they send or hire managers and not entrepreneurs. Also, they often face tough competition from incumbent players while they dominate their home market. So they have less market acumen, less hunger and face a difficult timing. Those are the same reason why Facebook and MySpace are weak in those key Asian markets. That being said, the fact that they are not able to succeed themselves does not invalidate their concepts and business models. For instance, Xiaonei in China applied the early Facebook model (alumni) and is doing very well in terms of users. Who would say Facebook is not good even if they fail in Asia? The key is to focus on service concepts and business models, rather than on how well the companies execute them out of their home market. As for Cyworld, it is important to notice that the foreign versions are very dumbed-down compared to Korea's, where they enjoy a mature payment infrastructure and digital goods culture. If so many million people use the service, there must be something to learn.
Thanks Benjamin! Here now is his Media 08 presentation:
 
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Note: +8* is offering free samples of their research on both QQ and Cyworld atwww.plus8star.com. Also seeReadWriteWeb's review of QQ last year.

Posted in :Analysis,Social Networks
Tags:asia,china,cyworld,facebook,japan,korea,media08,mixi,qq,xmedialab
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Interesting.
Posted by:113.com |March 30, 2008 3:10 AM

Hard to imagine web sites in the US being happy with selling a ten cent product. It seems payment fees would cost more than the product.
The Masked Millionaire
www.TheMaskedMillionaire.com
Posted by:The Masked Millionaire |March 30, 2008 7:31 AM

Excellent presentation and very insightful.
IMO, one of the main issues in Asia are walled garden SN's and complete lack of data portability which won't fly so well in the west - I think users (especially here in South Korea) don't expect to have open systems, and just naturally let bigco take care of everything. It works, but its probably not going to export well - now or in the future.
Re: the bas hiring decisions of Asian companies in the west...
An interesting fact about western companies who come to Asia is, the first thing they do is hire only locals who speak English. Most of the really good guys in Asia have terrible (or zero) English but are completely brilliant and acutely aware of what's going on in the local market.
Posted by: Shaun |March 30, 2008 7:44 AM

I am CEO of new chinese SNS in stealth mode.
I am a Korean guy.
According to my understanding, among the all the services mentioned above, Facebook is definitely leader in view of innovation and the fundamental value of SNS.
The innovation of Cyworld in Korean market is the first mover advantage. About 6 years ago when there were little concept on blogging, Cyworld began personal mini hompy.
It was the great innovation at that time. Moreover all the possible competitors to Cyworld in Korean market went bankrupt or went bad due to the terrible investment echosystem in Korean Web market.
After acquisition from SK telecom with neverending capital resources, Cyworld enjoyed the first mover advantage for long time.
But in China, they just showed the tough problem of localization of internet service in different market with different culture and environments.
As I heard Cyworld hope to retire from Chinese market.
Benjamin classified QQ as an SNS leader in China. I do not think so, QQ is leader in IM(Instant Messenger) market.
But their SNS product QQ zone has little interactions among users because QQ users just select messenger for communication. I think it is hard to classify QQ zone with little interactions is leader in Chinese SNS.
SNS should include offline relationships and give users opportunity of connecting meaningful friends for the development of self life ( some mood like business SNS ).
There are little players in China with reliability like Facebook.
The 1st strength of facebook is the reliability of community.
Facebook may have trouble in Chinese market to address this issue.
Posted by: eric kwon |March 30, 2008 8:17 AM

@MaskedMillionaire
More than a few ambitious entrepreneurs make good money selling virtual goods to customers in Second Life. A fashion designer might sell clothes for 1.50. A landscape designer can buy land, terraform it, then resell it at a profit.
The goods are all worthless but people spend the money anyway. Kinda like capitalism in the real world, if you think about it ;)
Posted by:NYCtek |March 30, 2008 8:21 AM

The bad execution of Myspace and Cyworld are partly due to the management and mostly due to the weak service model neglecting competition and market environment.
Facebook is definitely leader in US market, however, the fundamental assumption of facebook is hardly applicable to China.
Posted by: eric kwon |March 30, 2008 8:24 AM

It's about time an occidental network would accept a QQmail as one of the big mailing services.
I believe it to be as important as hotmail.com and certainly more used than AOL.
Posted by:jansegers |March 30, 2008 11:10 AM

Complacency of the west may keep their ego but deteriorate their tendency of being progressive, a sign of falling behind. Asia is no longer living in the superiority of the west. Open your eyes, see what is actually going on around the world, i.e. the world is not wester-centric.
Note that many features in the current MSN actually borrowed from QQ's IM.
Posted by: Red Thumb |March 30, 2008 11:52 AM

@Red Thumb, that's nothing new. Microsoft was founded by copycats, and still "borrow" many features from other much more innovative companies.
http://www.bestsnippets.com
Posted by:BestSnippets |March 30, 2008 4:17 PM

surprising u missed india where orkut dominates
Posted by:ravishankar |March 30, 2008 5:45 PM

great post!
Posted by:www.fantasysportsmatrix.com |March 31, 2008 1:59 AM

Very informative article Richard
There are for and against for all social sites, but selling games and software applications even for a mere 10 cents is a way of generating great income. Reading your report it looks like Asia and the west have very a different culture, and what works in Asia may be impossible to implement fin the west, or at least for the time being.
Posted by:Social Friends |March 31, 2008 7:33 AM

It's not rocket science. Why don't Americans do Mixi? Ah, it's all in Japanese. Riiiiiiiight. So why would Japanese do Facebook? Duh.
Posted by:Robert Sanzalone |March 31, 2008 8:55 AM

Nice bit of info here..
Posted by:Gregg Nelson |March 31, 2008 5:06 PM

Congrats Benjamin - Good job as always.. 8-)
(will cross post to Forum Oxford as this is a timely topic)
Robert: I'd guess FB would 'try' to run a local version like MySpace is doing.. Duh.
http://jp.myspace.com/
Posted by: Ken Gai |April 1, 2008 3:53 AM

Here's a look at the big global players in the social networking space according to comscore:
http://asia.cnet.com/blogs/geekonomics/post.htm?id=63002914&scid=hm_bl
Friendster is growing faster than any of the other social networks mentioned above and globally.
Posted by: socialspace |April 1, 2008 8:29 AM

I was not surprise QQ could outbid in terms of ROI. The big land will normally wins if they do it rightly. Look at AliBaba.com, the biggest B2B portal from China for the world. So could we say now volume does matters..
Posted by:Azlan Hussain @ Online business ideas & opportunities |April 1, 2008 10:48 AM

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