NEWS: Chinese Social Net Puts Facebook, MySpace To Shame

Chinese Social Net Puts Facebook, MySpace To Shame

How can social networks make money? Chinese Internet portal Tencent shows us one model. 

Last year Tencent, which operates a series of services under the QQ brand, posted $523 million in revenues and $224 million in operating profit (PDF). In the same year in which Facebook posted $150 million in revenue. And while News Corp. (NWS) says it is on track to wring $1 billion out of MySpace and the rest of its Web businesses, it's predicting much more modest margins of 20%.

So how did QQ make all this money? Only 13% of that $523 million was from online advertising. About two-thirds of total revenue came from Internet services like games and their virtual currency QQ coin (i.e. fake money bought with real money), and another 21% came from mobile services like ringtone downloads.

QQ has 300 million active accounts, basically the population of the U.S. (a lot of users there have more than one account). So that helps, too.

But maybe the answer for the American social networks is not to be social networks. QQ is basically an IM client with a social network built around it. Facebook itself is adding its own chat, as well as as its own currency, so there's still hope for Zuckerberg and Co. And maybe, just maybe, this augurs well for AOL's Bebo deal -- after all, AOL already has the dominant chat service.

Ed: Online gaming is hot in China. QQ is one of dozens of companies monetizing via gaming. 

Fiber to the home, alley of households, or gaming parlor costs about US$10.00 per month. China Mobile provides simple, available debit cards. Game players are heavily tariffed to discourage imports - making Internet play inexpensive entertainment. The infrastructure favors lease versus buy which is very different from western economies.