9158, The One YY Music Modeled, Plans IPO in U.S.

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9158.com

9158 is recognized as the creator of YY Music model, an online music performance platform that makes revenues from virtual item sales. It has been well-known in the circle of tech startups, less known to the public though, in terms of monetization. The site made 600 million yuan ($95mn) in revenue in 2011 and over one billion yuan ($159mn) in 2012, as disclosed by its founder. The company once told media that they planned to list on the NASDAQ in the second half of 2012. However, the one that went in advance and got listed was YY. Recently its founder started talking about IPO again.

The idea of 9158 was from a Korean video chatting product. In 2005, Fu Zhengjun, a serial entrepreneur, came across the Korean product and soon launched a similar one, named 9158 which sounds like “just invite me” in Mandarin. Income would come with little difficulty after it evolved into an online music show. Virtual gifts like flowers that audience can buy for singers sold well, and performers became motivated for they got revenue cuts. Now it has over 20 thousand performers and tens of millions of audience on its platform.

9158 shares a bigger percentage of virtual sales with performers than YY Music does – YY takes 80%, as reported. Its gross margin is about 20% — “way smaller than that of search engines or online gaming, but bigger than e-commerce”, as the founder put it.

The purchasing power is mainly from older rich people. “The two core groups of paying users are those older than 35 and younger than 20”, Fu found that while the group younger than 20 is the biggest, those older than 35, rich and having much free time, are most willing to spend money.

Fu concludes that the purchasing power is derived from admiration, saying it works like dating services such as Jiayuan. Most performers are female. Some have thousands of fans – most must be men. “It’s like you are in love with this girl and you are dedicated to help her to be number one.” There are extreme cases that some users spent tons of money there. Some performers make millions a year, said Fu. You can sense that there’s a regulatory risk associated with pornography. To avoid this issue, YY made it clear that they had stricter rules, such as setting a trial period for performers thus to raise the entry bar, than 9158’s.

Besides virtual item sales, the company also profits from online games and advertising.

9158 got well-known also because of its biggest share holder, Sina who took a 10% stake with USD 10 million in 2010. UC, Sina’s IM product, was also merged into 9158 then. Later the company developed Micro-show and Micro-girl for Sina.

The company raised three rounds of funding from investors including IDG. The founder acknowledged that the planned IPO is for investors to exist and reward core employees. Headquartered in Hangzhou, 9158 has more than 800 employees.

Fu Zhengjun, 35, started his first business in 2000. Before 9158, he tried online book store, search engine and online advertising exchange service. He’s also known as the one who sold the domain name, Kaixin.com, for one million dollars to Renren when Kaixin001 was rising to become a threatening competitor.