Cyworld - Case Analysis

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Situation Analysis

Company: SK Comms
Product line
Internet
Cyworld
Social networking
Biggest player
Value proposition: providing users with a free and clean community with limited advertising and an almost exclusive focus on social networking Life cycle: mature phase of growth
NateOn
Instant messaging
Biggest player
Linked to Cyworld
Home2
Social media
Media platform
Video: 50M; +50K/day
News:
Pictures: +5M/day
Cyworld revenue segmentation (2006)
Paid items: $67M (72%)
Virtual items: $15.45M
Average price: $1
Items sold: 32M
3D virtual items: $0M
2010 projected: $(120M – 2010 paid item sales
Music: $14.48M
Selling ~200K/day
Average price: $0.50
Can be solved technically with blocking
Lack of useful information
Don’t want ads in a “clean” environment
Lack of time
Customers getting bored
Because: lack of relevance
Not leveraging personal applications
Goals
Retain users
Customize/targeting experience
Increase revenues
Grow users

Possible Options

1) Paid Products
Music accounts for 50% paid revenues (36% of total revenues)
Growing at a rate of 10% a year

3-D Virtual Gifts
Expected to generate $120m in revenue

Maintain current levels of advertising, careful not to disrupt customer preferences for an ad-free environment Pros: low marginal cost, already established market, integrity to original value proposition of a “clean, ad-free environment”. Cons: ignoring the largest market (890m potential revenues), not solving the attrition problem of people tiring of virtual gifts,

2) Acquire a gaming company (acquiring Empas was approximately $30M)
Own company (buy for $3 -- $5 M; or enter into a license agreement where we have a gaming contract....create a certain number of games per year and collect a small percentage of proceeds)

Positioning Statement:

Marketing Analysis

Product

Price

Market Analysis
Founded in 2001, Cyworld initially began as a social networking company before it was acquired in 2003 by SK Telecom. It offered a trusted and ad-free platform to stay connected with friends and family via a “minihompy” where users could post information and updates. At the time of acquisition Cyworld had a membership of 1 million before reaching critical mass in 2004 and growing to 21 million in a country of 50 million people.

Since then, Cyworld has offered a variety of features such as NateOn, an instant messaging service acquired in 2002, a virtual item market, a music store, a blogging service, a “plaza” for sharing user-generated media, and a Home2—a hybrid model of blogs and minihompys.

Cyworld currently enjoys 90% market penetration for the 20-29 year old demography and accounts for 50% of SK Telecom’s profits with 72% coming from paid items, 16% from advertising, and 12% from mobile services. However, users are tiring of buying virtual items and decreasing site usage (64% decreasing versus only 13% increasing). A function of the site’s privacy model forces some users to de-register and re-register when relationships get broken instead of simply being able to unfriend or block users as is an option on Facebook. This led to 10,000–15,000 new users signing on per day, but also 5,000 users cancelling their subscription.

Recent data has also shown that Cyworld users have become increasingly more segmented with regards to usage frequency and money spent. 27.5% of users logged on 3 times or more per week, but these users account for 93% of the usage and furthermore 35% of total purchases coming from 15% of users.

The original value proposition of Cyworld was focused on providing a clean and safe social network. The addition of features such as the virtual marketplace and media-sharing platform has evolved the site to being a focal point of entertainment and self-expression. The business model of Cyworld must continually reflect the site’s growing importance in the lives of their users. Cyworld must create an enhanced value proposition...
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