51.com Raises $50 Million

Last night Eric Eldon wrote about 51.com’s new $50 million round of funding. 51.com has 25 million active monthly users and intends to launch a developer platform similar to Facebook’s. As Eric Eldon points out, this is one of the first Chinese social networks that have publicly announced their intention to launch a platform.

At this point it has become standard for any large social network site to launch a platform. We are now on to the next phase where all social network sites make their information accessible to third-party sites. What is somewhat incredible about this is how the social network phases are now 12-months long and shortening rapidly.

So how much revenue is 51.com currently generating? According to Eric Eldon, they generated $44 million, “70 percent of which was from virtual goods.” Considering that only a small percentage of Facebook’s and MySpace’s revenue is currently generated from virtual goods, we either have a long way to go or alternatively domestic social network site users are not interested in virtual goods.

In China, virtual goods are a serious source of revenue for social network sites. 5 years ago when I was helping a local startup program a social network, the CEO was intent on generating revenue from virtual goods given his experience with South Korean social network sites. The bottom line is that Asian social network sites have been generating revenue since the early days via virtual goods.

This is emphasized in Eric Eldon’s statement that “the largest Chinese social networks are hesitant to open up too much to third parties because they want to make sure they’re the ones who make money from virtual goods.” Fortunately for the U.S. based social network sites, virtual goods haven’t been as substantial a revenue generator or we may not have been where we are today.

While I know little about 51.com, there is increasing buzz coming out of China and social networking. It appears that they have caught the social networking bug and now investors are throwing money at these websites. It will be interesting to see if these sites continue to follow behind the Silicon Valley startups or if they start to pave the path toward a more open social networking environment.