Doug Herman notes that while western social networking platforms like Facebook are considered distinct businesses from virtual worlds such as Second Life and There.com, in Asian, the two businesses are more integrated and provide leading social networking companies such as South Korea’s CyWorld, with very profitable revenue streams.
How does the Asian Virtual Goods Business Model work?
According Plus Eight Start, “Asians spend around US$5 billion a year on virtual goods purchases such as items to improve their capabilities in casual games and items to improve the look and status of their online avatars.”
The money represents around 80% of the total global market for virtual goods.
How does it differ from the west?
Two differences are 1) that game players don’t have to spend much money or 2) pay a subscription fee upfront.
Doug highlights that instead, the Asian business model leverages “a large user base which views opportunities to improve their online “look”, experience or capabilities as worthy of a small investment especially when they view their online persona as a status proxy among their friends.”
“Social networking is just a way to get people together, but if you want revenue you have to sell them something. What [Asian social networking companies] found was that people were happy to pay for content related to emotion, status and entertainment. They keep growing even though the economy’s bad because they keep making millions from [pennies] from millions and millions of people.”, Benjamin Joffe, Founder & CEO, Plus Eight Star.
Takeaways
1. Virtual goods sales in Asia is partly due to the lack of a sophisticated online ad market.
2. However, their alternative business model may be more instructive to Western social networking companies that struggle to develop a profitable revenue stream solely through advertising.
3. Recently Facebook has been developing their own virtual currency platform, dubbed ‘Facebook Credits‘.
4. Facebook already sells virtual goods and has implemented its own credits system to enable the purchases. Soon it may expand its system to push its virtual currency out to third party websites and application developers.
5. Asian teenagers also ‘rent’ virtual goods, such as skins, backgrounds and other items. This lets them bling up their web persona without paying the full amount. If they like the item, then they may but it.
Read more here: http://www.digitaleastasia.com/2009/09/14/will-the-asian-virtual-goods-business-model-gain-traction-in-the-west/
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