Looking back at 2008: The year of convergence

+ This article is a monthly column written for the Chinese business magazine Asian Business Leaders and TMT news service Interfax in January 2008 +

How was your year 2008? If you are with a startup, you will probably have quite a story to tell to your grandchildren already. To take a step back and prepare for 2009, I will draw from my previous columns and share eight key ideas from 2008 as we are about to enter the Year of the Ox.

1. Social networks are a business, and mobile ones yield top profits

Despite what we still hear (“it’s not a business,” “it’s a fad,” etc.), social networks are already a proven business (at least in some parts of the world). In December, GREE in Japan was the fifth social network to go public on the planet (for $1 billion, thank you very much), and the fourth in Asia. Two of them (GREE and DeNA) are mobile-centric. All the Asian ones (including Mixi in Japan and Tencent in China) are profitable with revenues ranging from $100 million to $1 billion, and profit margins between 30% and 60%. The king of revenue models for mass-market B2C social networks is personalization with digital goods. Of course, if the valuation is purely based on online ads, then quite a lot is left out of the picture…

2. Online communities are not only for teens

In Japan, the service called So-net M3 is an online community­ for medical doctors. It is also a listed company and recorded $70 million in revenues in 2008 (mostly from big pharmaceutical companies advertising on it). Most interesting is how it makes the industry less dependent on medical representatives as middle men, bringing huge savings. Which target group can you bring together? Which industry can you disintermediate or make more efficient?

3. E-commerce is the next growth engine

The phrase “Web 2.0″ now seems to have bad karma (you hardly hear it anymore) and most of the “user-generated” and “community” sites showed their true B2B ad-sales face. Page views are great but at the end of the day what counts are sales. Conversations around brands will force them to be part of the conversation and new models such as “social commerce” blended with SNS or video sharing sites like Nico Nico Douga in Japan, or “meta-shopping” such as Naver‘s “Knowledge Shopping” are showing new ways of selling products along digital content and conversation. Mobile will play a key role: in Japan, mobile commerce is already worth $7.2 billion, twice the mobile content market, close to 10 times the mobile advertising market and almost as much as China’s total online commerce market!

4. Privacy might become a luxury

Have you been tagged on a picture? Did you know the startup which won the competition this year at LeWeb, Europe’s largest Internet conference, was a startup from Ukraine called Viewdle who can recognize faces in videos. Worried? The only way to make things better might be to update the legal framework in your country. Some more in our previous “Dark Age of Transparency” column.

5. Online gaming is the most popular “21st century” form of entertainment – and it is just getting started

It is already bigger than online ads in China, and still growing at an alarming rate. It matters little that many of the best content and business models came from Korea with companies like Nexon, NC Soft and Hangame. If heavy-duty MMORPGs are still of fashion, the top money seems to be in casual and gender-balanced games such as board games, music games or dance games. Asian companies have a great head-start, will they be able to make inroads in richer Western markets or leave the growing cake to local players?

6. 3D environments will mix with 2D – is it Web 3.0?

The life after Second Life is coming with 3D communication tools and worlds for kids, for teens, for the fashion-conscious, for socializing, for brands, for education, for mobile or custom-built for brands! Several are based out of Asia where the online gaming experience helps. Among them: iPart, Frenzoo, Cmune, 1D, iLemon (China), Daletto World, Disney Wonder Days, PRUM, Meet-me (Japan), PuppyRed, Nurien (Korea). The key to mass-market adoption will be in-browser presence and integration within existing services such as large SNS or E-retailers. More in “The Problem With Virtual Worlds“.

7. The new and improved mass media

Korea was reportedly the first country to have its population spend more time online than watching TV, apparently Australia crossed the line too. How about your fellow countrymen? Advertising dollars will be shifting gradually to online where you can tell “which 50 percent of your advertising is wasted.” Will this be able to sustain services such as online video sites whose usage grows and running costs seem to grow faster than revenues?

8. Startups will go pragmatic

If you could still sell a Web 2.0 idea to investors in 2008, entrepreneurs will have to show not only usage but also revenues. It also means that copycats will not get automatically financed unless they have proven business cases. Lucky companies like Xiaonei and Kaixin in China who raised large amounts early enough will have time to experiment various models while smaller players will need to find their silver bullet or become “too small to die.”

+8*. 2008 is the beginning of the Age of Convergence

Overall, the keyword for 2008 would be “convergence.” E-commerce, SNS, virtual worlds and online games are coming together, blurring the frontiers between categories, Web and mobile, online and offline. Next time you meet up offline with your online gaming or discussion group friends, or buy something on the Web based on a product recommendation you saw associated with a video service, think for a minute about how much you lifestyle has gone digital!

With our very best wishes and looking forward to more innovation in Asia in 2009!