Posted by Tom Foremski - December 2, 2008
Ramu Yalamanchi, CEO of Hi5 isn't worried about the recession. "We started in a recession so we know what to do. Plus, recessions make available some great resources."
Hi5, headquartered in San Francisco, is much better known outside of the region, and the US. It is larger than MySpace or Facebook, in 30 countries especially Spanish-speaking such as Mexico, and in developing countries--and it is growing faster than both.
"When we started in 2003, we saw that the US market was getting crowded so we looked at emerging markets, that's how we got popular outside of the US," says Mr Yalamanchi.
Hi5 has great momentum and it is looking for new markets. It thinks that virtual worlds is a potentially large opportunity. Earlier this year Hi5 acquired Pixverse, a small company that makes virtual products for virtual worlds. Gaia Online, for example, makes a lot of money from its virtual world economy.
"Our users like to express themselves creatively and we think that virtual worlds will allow them to do more of that. Also, mobile is very important for us, because in a lot of countries people have mobile phones but they don't have PCs."
Hi5 hopes that virtual worlds and mobile will help it continue growing at a very fast pace. In the first six months of this year comScore reported Hi5 visitors increased 79 per cent to 56.4 million per month from 31.4 million per month.
And although Hi5 is big elsewhere, it is not giving up on the US, it hopes to capitalize on its large Spanish speaking user base. "We think we can do very well among Hispanic users in the US," says Mr Yalamanchi.
Hi5 has also cultivated the application developer community by being a big supporter of the OpenSocial standard. This helps developers easily port their applications across different social network platforms.
Hi5 is a privately held company and has about $20m in cash. Mr Yalamanchi notes that economic downturns make resources less expensive such as office space, and also make it easier to find great software engineers, which will help Hi5 in this next phase of its expansion.
Monetization of social networks continues to be a challenge for all social networks because the environment is different to search advertising. It is especially challenging for Hi5 because of its diverse geographic spread. Advertisers continue buy space on a regional basis rather than on a global scale and that won't change for a good while.
Also, ads on social networks are considered very low quality and they don't have the same conversion rates as on other sites. However, that means that there is an excellent arbitrage opportunity for those advertising agencies that can craft the right type of commercial message. Hi5 is working with various agencies to create interactive ads that engage users. And Hi5 has done well with partners in various local markets.
Hi5 is well positioned for growth. We are still in the early stages of social networks, and this is even truer in developing countries where many people are getting online for the first time, and that's where Hi5 has brand leadership. On the Internet being number 1 means being far ahead of number two, or three, and that's a great advantage for Hi5. Especially in markets that are growing far faster than the US.
Recessions might slow spending, but they don't slow Moore's Law, which means the Internet becomes more accessible every day to millions more people overseas, and that's where Hi5 is strong.