the blog

Bill Gurley recently had a great post about how TenCent has been able to monetize through the use of digital goods and games.

For those that don’t know, TenCent is the owner of the leading IM franchise in China – a product known affectionately as “QQ”. TenCent was founded in 1998, has 355 million users, US$1.2B in annual revenues, and a US$11.2B market capitalization. The stock chart for the past 5 years is included in the adjacent graphic. The two primary drivers of revenue for TenCent are digital items and casual game packages and upgrades. Advertising, which doesn’t work well on U.S. products like IM, doesn’t work well in China either. Advertising revenues for TenCent represent only 12% of total revenues. Recently, I asked a leading Internet analyst which company in China is best positioned above all others? He quickly replied “TenCent”.

Facebook already has very large succesful third-party games and could build some killer ones internally. Additionally, virtual gifts are approximately 1/5 of Facebooks revenue. Surprisingly, an estimated $50 to $60 million is made from Facebook virtual gifts.

Though I agree that the digital goods and games model will undoubly be extremely profitable if executed correctly, here is my easy and fast recommended revenue model for Twitter and Facebook.

1) I’ve been saying for years that our all aspects of our offline lives are migrating online. Our conversations, our interactions, and our thoughts are being held and recorded online.

2) We are already recommending books, restaurants, electronics, websites, and all sorts of consumer goods online.

However, these mentioned on Facebook and Twitter are not hyperlinked. What if Twitter and Facebook hyperlinked mentioned of goods or services relevant to the conversation? For instance, if a friend recommends a book on Twitter, it would link to Amazon so I could purchase it or read a summary/reviews of it. Think Zemanta.com or Apture.com for online conversations.

Would I pay for a link to a neighborhood or apartment in a conversation on Twitter or Facebook? I am cheap and I would pay boatloads for that.

So similar to the Google model that brings back relevant advertisements based on key terms, advertisers could pay for links in the text of conversations as long as it is extremely relevant. If I mention Apple Macbooks in a conversation, the “Apple” text is linked to Apple’s homepage. No doubt there is downside to the user experience if it is not executed correctly, but I think a few relevant links here and there would actually be helpful.

On that note, “I’m going to Barnes and Noble right now to attempt to buy an advanced CSS book.”

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