Qzone%uFFFDs social network from China

In our China Youth Culture Study 2009 one of the sections we greatly expanded was the Internet section, mainly because of the droves of young people creating personal profiles on social networks.

We started to ask the question, “Do you have a personal profile in an online community?” in our China 2007 Study when at the time, only 37.7% of 15-25-year-olds said that Yes, they had a profile in an online community. As we predicted then, the importance and growth of social networks have increased rapidly in China, with 71.6% of young people in our China Youth Culture Study 2009 saying Yes, the have a personal profile in an online community. While this is very high (and higher than our European Youth Culture Study results), it’s not quite as high as in North America. However given the vast amount of people in China within these age groups, this indicates an extremely strong social networking and personal profile culture that in just 2 years, has almost doubled. Clearly, personal profiles and social networks are the way to reach young people in China today (as well as other new media sources and top websites as outlined in our China Youth Culture Study).

However American social networking sites such as Facebook, and even search engine Google still have a hard time cracking into the Chinese market. In addition, MySpace, Facebook, and other social network sites in North America, still struggle to find a business model around their social networks comparable to the billions they anticipated making. Why? One reason is because in North America, most business strategies still center on the concept of advertising as the main source of revenue. In China, social networks such as Qzone, which caters to a teen-market, announced over $1 billion in revenue in 2008. Other top social networking sites in China such as the student-based social network Xiaonei, and Kaixin001 which copies many Facebook apps (and has drawn controversy because of this), targeting a white collar group of professionals mostly in cities, all have different sources of revenue-generating capabilities outside of advertising.

A Qzone blogger

The difference with China’s social networking scene is that only a fraction of revenue is generated from online ads. In a recent NYT article, it was estimated that China’s online ad spending would reach $1.7 million in 2009 compared with U.S. estimates of $25.7 billion. Because estimates are much lower in China, many social networks have already moved onto other ways of making money, including paying for additional apps and/or forcing more interaction with advertorial-type of apps. This micro-payment type of program, while considered intrusive and too gaming-platform-like in the U.S., works in the hyper-viral social networking market in China. Basically, if you want to have the same functions that your buddies do, you’ll spend or engage however to get the additional apps -just as people now do for say, buying an iPhone for it’s apps (although there’s no ads attached yet).

The difference in China is that some of these apps are almost ad-like in that it creates a situation that if you want to use this app, you have to engage with the advertiser. Youth culture in China doesn’t mind this at all, quite frankly, which is a different mindset than what you get in North America’s social networking companies like Facebook and MySpace. However it would be interesting to test because there’s probably a large portion of new, young users that may not care if more interaction is required to get certain apps. It’s all a sort of communication game anyway.

Which brings us to gaming. There’s a stigma attached to being considered a gaming platform by social networks in North America which isn’t a problem in China (or Japan for that matter). Selling social apps like an online store or being considered a gaming platform, both of which provide a great source of revenue to China’s social networks, is not what Facebook, for example, wants to be considered. Which begs the question then of what, exactly, are you selling by being a social network? Ads? It also proves that having millions of eyeballs means nothing if you’re not going down the route of advertising. However splitting up revenue sources, as many social networks are now trying to do, including MySpace’s new plans via music players and song downloads, among other things, must take place to eek out profits that were promised investors ages ago. One of the best ways may be for social networking to take another hard look at the gaming industry, and China.

For more information about the China Youth Culture Study 2009, North American Youth Culture Study 2009, email info@labelnetworks.com; (323) 630-4000.