QQ, China’s Largest Social Networking Site, Raking in the Dough

While social networking sites in the US are struggling to turn a profit, they may want to take a look at some of China’s homegrown sites who have discovered routes to massive profitability. QQ, which is run by Tencent, is the largest social networking site, instant messaging and gaming platform in China with over 300 million active users.

The company recently announced their 2007 earnings, including a whopping two thirds of revenue (344 million USD) coming from virtual goods and online games. Last year, QQ’s virtual currency became so influential that the government looked into regulating its use.

For many Chinese, their first interaction with the Internet is through the QQ instant messenger client or its online games. The latest statistics show users from 2nd and 3rd tier cities making up the largest growing demographic online in China and QQ is in a favorable position to catpure that market.

Below is a breakdown and analysis of QQ’s 2007 figures from Benjamin Joffe of Plus Eight Star, an Internet and and mobile consulting firm in Beijing:

QQ’s 2007 figures

* Active accounts: 300 million
o This is 50% more than the number of Internet users in China (many have multiple accounts)
o This is about the size of the US population
* Revenues: 523 million USD
o This is close to 4x Facebook, at 150 million USD
o This is real money from IM/SNS. Something even serious companies like The Economist who just wrote an article titled “Everywhere and nowhere” seem to not believe is possible. We hope they will look outside of Silicon Valley next time.
* Operating profit: 224 million USD
o Facebook recorded a 50 million loss last year. How sad.

Though this should already be enough to raise a bit of interest, the most interesting is the split of revenues:

* Internet services (digital goods, games…): 344 million USD (66%)
* Mobile services: 110 million USD (21%)
* Online ads: 67 million USD (13%)

Plus Eight Star: QQ announces 2007 earnings | Facebook should look carefully

[via Danwei]