3 Ways Social Networks Can Generate Revenue In The Lucrative Asian Market

In the U.S., company valuations are rising precipitously across the landscape of social networks. Companies like Facebook, Twitter and LinkedIn are finally generating revenue (with a large percentage of it coming from advertising ). As these social network companies look to continue their rapid expansion and user adoption, they will shift greater focus on high density developing markets, like India and Indonesia. Unfortunately, this shift will not be an easy task. In much of Asia, the advertising model has proved to be less effective, with the total digital advertising spend relatively low (aside from Japan and Korea), finally rising hand-in-hand with the penetration of smartphones. In Asia, there are a number of companies that are testing revenue models that may serve as powerful case studies on how to succeed as a social network business in this region. From start-ups to enormous social networks that span the globe, Asia-based companies are testing the boundaries of how to build a viable social network business: leveraging the mobile platform. 1. Virtual Goods: Virtual goods are any non-physical goods or services that can be bought online, such as objects in games, digital gifts and service add-ons. Asia innovated this model and it remains the dominant region associated with virtual goods. According to market research firm In-Stat, of the $7 billion in virtual good revenue generated in 2010, 70% came from Asia. The virtual goods model in Asia has become the standard for strong revenue generation among mobile social and gaming companies, including Japan-based GREE, China-based Tencent and Mig33. U.S. companies, however, will have to modify their virtual good models for most of Asia, by integrating various prepaid systems, as credit card penetration remains relatively low. 2. Mobile operators: Unlike the U.S. and Europe, mobile operators in Asia are absolutely crucial in being able to monetize services since smartphone and credit card penetration are relatively low. The most pervasive and easy way to do micro billing and transactions is via operators’ prepaid billing systems – which have vast consumer reach. This is also a big source of growth for mobile operators, so there is a win-win in working with them. An August 2011 Amdocs survey found that mobile operator executives in Asia Pacific expect revenue from value-added services (VAS) to grow from an average of 14% to 24% within three years. The largest forecast is for India, which expects VAS revenue to grow from 12% to 29% in the same time frame. There are already social network companies, which are working with mobile operators to make their social platforms available to billions of users across Asia. Unfortunately, few companies have yet to crack the mobile operator code. Our company, Bubble Motion, is already working successfully with mobile operators across four Asian countries – India, Indonesia, Japan and the Philippines, all which have been growing at an unprecedented rate. For the rest of the year, we will focus on the remaining countries in Asia. The mobile operator integration strategy allows for a company to more easily offer its services across a large-scale subscriber base. It also accelerates distribution and growth of the user base significantly, while allowing a company to monetize its services with very small micro-transactions from day one. Of course, the big downside is that partnerships take a very long time to mature and ultimately deploy. It is not uncommon to have the dialogue with a mobile operator go on for more than two years before finally getting to the deployment stage, which could easily take another six months. 3. Advertising: The percentage of revenue spend allocated towards social media advertising promotion is miniscule in Asia. Thus, many companies are struggling to replicate the success of an advertising-funded model in mobile and social media in the more emerging markets of this region, as they have in the West. However, in the more developed countries and advanced mobile markets, such as Japan and Korea, advertising models have proved nearly as successful as those adopted in the West. In those countries, the ‘virtual goods’ model continues to outperform the advertising-funded models. On the other hand, as smartphones penetrate the rest of Asia’s market, ad-based models are becoming increasingly viable. At the end of the day, Asia is a very different market than the West and the same rules for monetization simply don’t apply. Asian countries are much more diverse than any other major region in the world – with 50+ languages spoken and no common currency nor open economies like we have in North America or the European Union. Social media is growing as fast (if not faster) across Asia and companies are figuring out innovative ways of monetizing services – they just may not necessarily be the dominant models used in the West today.