VentureBeat today profiled (here) large international social media network Hi5's increasing efforts to differentiate and monetize its service through a virtual goods approach versus an advertising one practiced by MySpace and Facebook. As I have blogged about in the past (here), this is a powerful move by Hi5, as it should be for any big community site (blog, social media, forum, IM service, etc.) which needs to monetize its site beyond the declining advertising market, especially for any audience outside the United States.
A virtual gifting program, a la Facebook, is the obvious first step for any site, but Hi5 isn't stopping there, with plans to introduce avatars, games, and an eventual virtual world, all integrated into Hi5's massive social media network. This is truly the next generation of social media, as Meez (where I am a board member) has shown with its growing avatar, gaming and virtual world efforts. With an integrated virtual goods system through out the site, the value of the site's currency and the resulting status becomes much higher versus just banging out a gifting site and then calling it a day, as some companies seem to be doing.
At TwoFish (where I am a board member), the company provides a full back-end financial solution for community sites or application developers which wish to offer a virtual goods-based set of services to their users. For a site like Hi5, with a larger 3rd party developer network, the bold move would be to create a Hi5 wallet, which would give Hi5 users a single place to fund a wallet, but which would then give 3rd parties the ability to tap that wallet to power their applications. Hi5 gets yet another source of revenue, and the 3rd party developers don't have to sign up every new customer for a yet another set of payments - it's a win/win situation.
In general, these trends are accelerating as the advertising climate shifts downward, but every site should have a plan to integrate virtual item-based services anyway because it offers a premium revenue stream perfectly matched to the tons of incredibly loyal users for big community sites - these users are lousy advertising targets since they repeat so much that they hit quickly frequency caps on most ads.
Our experience and research at Loki Partners (www.lokipartners.com) shows that general community sites should be able to generate $.10/month/repeat user within a few months of launch, and that should move to $.25/month/repeat user within a few additional months as new features are launched, with $1/month being the number seen by some virtual worlds - in this case, we define repeat users as those who repeat a visit within the same month. That revenue bump is a HUGE win in today's rough economy, and it's good to see Hi5 blazing a trail in that direction.