I’ve been always reserved when it came to discussions about social networks. Obviously, the reason was their business models being almost exclusively based on ads. Some time ago I started wondering whether this is also the case outside of the U.S., especially in the far East. I did a quick research on how the biggest social networking sites from the far East are doing. Conclusions may be suprising.

China’s biggest social networking portal QQ does not rely on advertising at all. In 2007, 66% of their revenue came from games and virtual currency and 21% from mobile services. That left only 13% for advertising!
Results: 300 million active accounts, $523m in revenues and $224m in operating profit (2007). Not bad, considering the fact that Facebook supposedly ended that same year with a $50m loss!

Another example is Korean #1 SNS called Cyworld. They, in turn, boasted some $300,000 in daily sales of digital items that were used to decorate users’ profiles. “Acorns” (Cyworld’s virtual currency) can be bought conveniently, through micro-transactions. Cyworld is also world’s second-biggest music store behind iTunes.
Results: 20m active accounts, $200m in revenues.

Above: virtual room on Cyworld, page showing items I could buy to decorate it.

Japan’s mixi.com is probably closest to the US-based SNS business model relying almost entirely on ads. But even there, about 20% of their 2007 revenue comes from the paid job posting section (14%) as well as premium membership fees (7%). What’s interesting is that their revenue/member factor is three times more than Facebook’s.
Results: 15m members, $82m in revenues and $19m net profit.

Now, here is what’s most interesting. MySpace & Facebook combined barely made any profit in 2007 - Facebook was negative $50m. MySpace was said to be over the line because NewsCorp publishes their annual numbers for the the whole interactive group.

Lastly, it looks like the U.S. social networking site owners have some homework to do if they want to get profitable. SNSes in America accounted for about 4% of all Internet advertising revenues, based on studies done by eMarketer and IAB. That’s $920m. Not much, considering the fact the Google U.S. revenues were $4 billion only in the first six months of 2007.