How big is the social networking craze on the Net in Asia? Global investors will get a far better sense on Sept. 14 in Tokyo. That's when Japan's fastest-growing social networking site, mixi, will launch a much anticipated initial public offering. While mixi is no MySpace—there are currently 5 million users at mixi—its membership has quintupled in the past year. At 7 billion page views a month, mixi trails only Yahoo! (YHOO) and Google (GOOG) in Japan in online traffic and is the No. 37 site globally, according to Alexa.com.
Those kinds of numbers have investors looking forward to mixi's IPO. The shares are expected to sell for $13,300 a piece—104 times mixi's forecasted earnings for the fiscal year ending in March 2007—putting the company's market capitalization at $940 million. "It's a hot issue," says Yasuhiro Matsumoto, an analyst at Shinsei Securities who thinks the prelisting valuation attached to mixi is a little on the rich side. "Since it's the first SNS (social networking site) to list publicly in Japan, there's a lot of expectation around it."
A market cap of nearly $1 billion for a site that was launched in February, 2004, is a bit of a head-turner. However, mixi's 31-year-old CEO, Kenji Kasahara, has added a slew of features to build big traffic numbers in a very short time. For instance, mixi users can post songs from personal iTunes lists and hunt for jobs. So 70% of users log in and browse at least once every three days for nearly four hours on average, giving the site the kind of "stickiness" that delights advertisers.
GROWING FIELD. Kasahara also has created a space with clear ground rules to keep out troublemakers and young kids who might not be ready for this kind of online experience. You can't join if you're under the age of 18, and all new members must get a referral from a mixi insider. Basic services, including cell phone access, are free. Users can also opt for a $2.50-a-month service that lets them add server space and gives them access to special discounts from advertisers.
These days, mixi is facing tough competition. Gree and Any (other SNS's) are growing in popularity, and MySpace, Microsoft (MSFT), and Softbank are slated to join the crowd soon in Japan. Net portal Yahoo! Japan and online retailer Rakuten have set up their own social networking service, and South Korea's Cyworld has recently entered the Japanese market, too.
Japan is just one of the overseas markets Cyworld is targeting for expansion. The company expanded into China last year, the U.S. and Taiwan in August, and plans to move into Vietnam and Germany in the coming months. Cyworld execs are hoping to repeat the success they've had at home.
ONE-STOP SHOPPING. Launched five years ago, Cyworld has almost 19 million members, close to 40% of South Korea's population. It pulls in an average of 900,000 unique visitors daily, and 20,000 users create some form of content every day. That makes it one of the most popular Web sites in the country.
Members chat with their friends via the site's instant-messaging service, keep logs there, put up photos, and meet new friends when visitors stop by their Cyworld site. "I met my husband at a Cyworld club," says Kim Hye Kyung, a 31-year-old furniture designer. "Now I keep a photo log of my family at Cyworld."
Like other social networking services, Cyworld lets people create their own home pages that can accommodate an unlimited number of photos, documents, and other data. The site has become so popular that some 40,000 companies, non-profit organizations, government agencies, and universities have joined as members to promote their businesses and activities through Cyworld.
ON THE PHONE. One thing that differentiates Cyworld is that users personalize their home pages, known as mini-homepi, by decorating their "rooms" with digital furniture, art, home electronics, wallpaper, and music. All these digital items are sold for anywhere from 20 cents to $9. Users first have to convert real money into cyber-currency called dotori (Korean for acorns), which costs 10 cents each. Cyworld gets an average of $270,000 a day selling this virtual currency.
Cyworld is not just a PC community. The company is owned by SK Telecom, Korea's largest mobile carrier, and 3 million Cyworld users regularly log on with their phones. To encourage loyalty (and use of mobile phone service) SK allows users to post as many photos as they like, and every day Cyworld users upload millions of photos, many of them directly from camera phones.
Tapping the mobile phone population is even more important to MySpace wannabes in China, which has 123 million Internet users but well over 400 million people with cell phones. Buddy Ye, the co-founder and CEO of Beijing-based WangYou Media, is depending on some of those Chinese cell phone users to generate revenue for his social networking company.
CHEAP DATE. Launched in March last year and backed by Boston- and Silicon Valley-based venture capital firm Charles River Ventures, WangYou has about 8 million users and is one of several companies trying to become the Chinese MySpace. According to Ye, a 32-year-old Chengdu native who worked for Accenture before launching WangYou, almost all of his company's revenues now come from cellular users paying to send music, photos, messages, and other content from their WangYou pages.
For all the talk of China's growing wealth, Ye believes that there are many young Chinese who don't have a lot of money to spend who are natural customers for an inexpensive service like WangYou. Like MySpace, WangYou targets teens and twentysomethings, and he says in China, those people often have limited options for nightlife.
"To watch a movie in the theater might cost $6 to $10, but to spend a whole night in an Internet café would only cost $1.25," Ye says. A WangYou user at an Internet café "can play karaoke, upload pictures and videos, and chat with friends for five to eight hours."
BIG BROTHER. In the U.S., MySpace, owned by News Corp. (NWS) is known for being a bit raunchy. That's not something that Beijing's straitlaced leaders are eager to see in China. So a big challenge that WangYou and other social networking operators face is making sure that no porn—not to mention anti-government content—makes its way onto its pages.
That's especially difficult given the number of videos (6,000 a day) and photos (40,000 a day) WangYou users upload. In order to avoid losing its license, WangYou has a team of about 25 workers who spend their time vetting content. "We watch every video," says Ye.
But as the company grows, keeping that up will be difficult. "All of this content has to be screened and scrubbed before it gets uploaded to the Web site," says Ed Haynes, a 42-year-old American who co-founded the company with Ye and is now WangYou's chief financial officer. "This is a big challenge for our company."
RUSH-HOUR TRAFFIC. WangYou has already experienced some major growing pains. According to data from Alexa.com, WangYou's daily traffic plunged from 7 million in June to under 2 million in September. Ye blames a major breakdown of the company's servers, which couldn't handle the stress of so many data-heavy uploads of videos.
"Our infrastructure couldn't support our traffic," he says. "More than 70% of our content is delivered via video format, so that creates big, big pressure on our servers." The company is now looking to double the number of servers, to 250, by yearend and is talking with potential outsourcing partners to manage them.
Such start-up issues aside, the phenomenal success of MySpace in the U.S. is one of the biggest surprises in the Web 2.0 era. That business model also makes splendid economic sense in Asia, given the region's huge Internet user base, high broadband penetration rates and big cohort of Net-savvy consumers. Companies like mixi, Cyworld, and WangYou hope to run with the MySpace concept, refine it for local markets, and make a killing along the way.