YY (NASDAQ:YY) launched an online dating service less than a year ago. In the third quarter of 2014 it generated RMB64 million (around US$10m), up from RMB7 million (just over US$1m) in the first quarter.
Starting with a voice chat tool for online game players to communicate during games, YY however built a large user base and successfully monetized it through an online singing platform, YY Music. YY, singers, and owners of show rooms on the platform split the revenues generated from virtual gifts users buy to encourage performers. There are a half dozen such services with the same business model in China, such as the Hong Kong-listed Tiange.
It’s interesting that YY has transformed the show rooms into places for speed dating. Each dating room has an owner who can hire hosts to organize dating events. Anyone can apply for such a room. YY keeps developing new theme rooms that enable participants to play different games or interact with each other in new and different ways.
In China dating is one of the most profitable online businesses, especially on mobile. The first generation of dating sites, such as Jiayuan and Baihe, generated income through paid offerings, online and offline.
YY, by comparison, makes money from dating services through virtual item sales. Dating participants can buy and send virtual gifts to other participants or even the room hosts. YY takes a revenue share from hosts based on the total number of gifts received and their rankings. The more gifts a host receives, the less YY takes.
You might be asking who would send gifts to their hosts if users are there for dating? But it turns out that the service made about US$10 million in the past quarter, so they evidently are doing so. “The people who actually participate in the dating scene, they are attending a show. They just want to let people know that they are capable of making friends there. So they will spend money to let people know their status. So that is the main incentive for them to spend money”, Eric He, CFO of the company, explained at the earnings conference call. YY also has created functions or features such as rankings to encourage hosts to make online dating events fun and entertaining, so users will splash out on gifts for them.
Edited by Mike Cormack (@bucketoftongues)