Oft-compared to Silicon Valley’s Facebook, Renren is changing its business model, as reported by The Wall Street Journal. Good news for the Chinese social network; its posted two consecutive weak quarters and its user base growth is lagging in an explosive digital market favoring microblogs like SinaWeibo.
How does it re-claim its prominent stake in the fierce battleground of Chinese social networks and remain profitable?
By cashing in on mobile. CEO Joe Chen says paid services, like e-commerce and mobile gaming, will generate revenue unlike its previous model has.
“I’m in the camp that thinks paid services including e-commerce and gaming will be the mainstay of social networks, said Chen, as reported by the Wall Street Journal.
Renren’s mobile group-buying outfit Nuomi had a weak start last year. However, as the field consolidates, dropping to under 2,700 group-buying sites to 6,000, Numoi, with support from the established Renren, has the opportunity to distinguish itself from the crowd. Also, Chen says the future for Nuomi is looking up, narrowing losses and projected merchandise sales looking to surpass $100 million next quarter.
Good thing, Renren needs some positive news, turning less-than-favorable results the past two quarters with a loss of nearly $25 million in revenue last quarter. Reasons include low ad revenue and high spending: Renren was heavily investing in its group buying efforts and R&D for mobile development.
Previously, Renren has followed a Facebook-style model, using online advertising to support its network; however, Chinese advertisers were uneasy about diving into online advertising. Lacking a profitable business model and fading in relevance to its user-base, Renren is changing its tune: Focus on mobile is the new strategy, the company devoting 45% of its workforce to focus on its own mobile development.
Mobile is the year’s hot buzzword, particularly in China, as the country is projected to become ¼ of the world’s Smartphone market by the end of 2012.
Facebook also believes the future is in mobile, though gets almost no profit from its mobile user base, roughly 543 million monthly users. The company is reportedly taking steps to invest in and monetize its mobile offerings, and also recently launched a new mobile app, a faster version that looked to address far-reaching complaints about the speed and service of its mobile app, as reported by CNNMoney.
Currently at Renren, only 10% of revenue comes from mobile, and its business strategy is risky. But its mobile-heavy strategy is a necessary gamble that looks to propel Renren back into relevance and into the future that is mobile.