Hi5's New Redesign: Another Big Milestone in its Gaming Strategy

Last December, social network Hi5 began turning itself into more of a gaming site. Today, the results are starting to show. The company has a redesigned site in testing now, complete with 3-D avatars called Hi5 Stars. And, it has made games and its virtual currency the primary focus. Meanwhile, the past year's worth of product upgrades are boosting gaming engagement and revenue numbers. Partly as a result, the company is now profitable. It has some not-so-positive traffic numbers, from what we can tell. The company web site says 60 million monthly uniques, but that's a number that is months old. But, Hi5 has been executing well on its gaming strategy; that's in contrast to most other social networks, many of whom have discussed gaming but don't have much to show for it. If the company keeps up in this direction, it could pull off a rather interesting turnaround. And, given the strong interest among traditional gaming companies in social game developers like Zynga and Playfish, we wonder how Hi5 might look as an acquisition target in the next year or two. Anyway, enough speculation. Here's what Hi5 has done, and how its latest moves fit in. Last December, it introduced a gift store and a virtual currency called Coins. Then, in early February, Hi5 introduced a gaming site -- separate from the developer platform it had previously launched. But things got rough in early April, when the company laid off a large portion of its staff; from our understanding, that was the result of its advertising-sales strategy not bringing in hoped-for revenue. More on ads in a moment. Last spring, Hi5 also cut new deals with gaming companies to get Flash-based casual games from companies like Mochi Media and social games from companies like Playdom and RockYou into its gaming section. It also rolled out payments services, such as a deal with Boku for mobile payments and Playspan's pay cards. It has kept cutting deals over the past year, like introducing downloadable games from RealNetworks in July. Pieces come together The company's executives tell us that the company is profitable, and not from cost cuts but through revenue growth. Payments for Coins have only become fully implemented in games on its gaming site within the last five months. Purchases of Coins now amount to 15% of all revenue -- revenue that is coming in not just from a few rich countries but from all over the world, through some 60 different payment service providers. This is crucial as most of the company's users are mostly located in Latin America, Asia and parts of Europe. It charges different prices in different places to match the spending ability of its users. Hi5 has also started experimenting with advertising offers from companies like Offerpal, Super Rewards and Playdom. More importantly, when it comes to advertising, the high engagement that these games are generating means Hi5 can charge more for the ads around the games, including things like video pre-roll ads. For developers reading this, the company says it accepts games onto not just its developer platform (a separate part of the site that makes use of the Open Social standard), but the gaming portion. It asks developers to integrate Coins, and splits revenue 50-50 unless otherwise negotiated. Versus other social networks with games, Hi5 also points out that it helps promote third-party games heavily in its friend update streams, promotions on its homepage, and other locations on the site. Hi5 first told us about the 3-D avatar plan last January, a product it hoped to launch by the end of this year. The avatar system, as well as a revamped site emphasizing games and coins in the top navigation bar, are now in live testing and will shortly roll out to users. The avatar system is especially interesting because the company built it in-house to run on Flash. As Adobe's media player software is already installed on 93% of browsers around the world, most of Hi5's users won't have to install anything to use the new site. Hi5 also built the software to work on low-bandwidth internet connections and weak-CPU computers -- what many of its users are on. The system also integrates the chat-presence technology from its Picsverse acquisition earlier this year. This coming quarter, Hi5 also plans to roll out a new set of premium decorating features for avatars, sort of like what companies like IMVU do (although with no download). Of course, it remains to be seen how many of the company's users are going to want to become this game-focused. Although looking at top social networks Facebook and MySpace, it at least appears that social network users do want to spend a lot of time playing games. But the company appears to be ahead of schedule with its gaming strategy, and that is a very positive sign, all things considered. To dig deeper into the virtual goods market, check out our new report: Inside Virtual Goods: The US Virtual Goods Market 2009 – 2010.

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Hi5's New Redesign: Another Big Milestone in its Gaming Strategy

Eric Eldon

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Eric Eldon