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HENRY CHON
CEO, Cyworld

Do you think Cyworld is a Korean MySpace ? That's could be not true, since MySpace is an American Cyworld. In South Korea, an estimated 25 percent of the population (and 90 percent of people in their teens and twenties) have Cyworld accounts, where individuals design miniature animated avatars to represent them in its unique online space. In 2006 CEO Henry Chon brought Cyworld to U.S. shores. Though Cyworld hasn't yet achieved comparable success here, MySpace shouldn't rest easy if Chon's track record is any indication of future competition. Cyworld's per capita penetration in South Korea greater than MySpace in the United States.
Cyworld isn't a game, although it's cute avatars and 3-D rooms may make it look like one. It's a kind of social network - 'cy' is Korean for "relationship".

And what it's make more interesting is that its business plan is unique. The bulk of Cyworld revenue comes from the sale of virtual items worth nearly $300,000 a day, or more than $7 per user per year. By comparison, ad-heavy MySpace makes an estimated $2.17 per user per year.

A real business in virtual goods

As Cyworld gathered a critical mass of users, it discovered a new business model. Using the site was free; personalizing it was not. If you wanted to decorate your mini-homepage, you could choose from tens of thousands of digital items - homepage skins, background music, pixelated furniture, virtual appliances. But you had to pay for them with "dotori," or acorns, and you had to buy the acorns with real money.

The virtual goods were cheap - typically less than $1 apiece - and consumers had no problem paying for them. A well-appointed mini-homepage reflected your social standing, and users who did not decorate were considered boring.

This year Cyworld expects to make $140 million in sales, with acorns accounting for 70 percent of that. That means Korean consumers will shell out more than $100 million this year for Cyworld's virtual inventory. Most of the rest its sales comes from mobile services, where customers pay to upload photos (90 percent of all images uploaded in Korea go to Cyworld).

Cyworld is exporting its service to the U.S. through a barebones office above a Quizno's in San Francisco and $10 million in funding, part of which is going to adapt Cyworld's sensibility to the United States. Cyworld U.S. CEO Henry Chon is the first to admit that the Korean site is "a little too cutesy" for American tastes.

"The thing we'd like to retain is how the service is based on your real identity," he says. By linking the identities of new members to their mobile-phone numbers at sign-up, Chon hopes to keep a lid on anonymous accounts - and the exhibitionism that can scare advertisers away.

The U.S. version will launch in mid-August with mini-homepages and a digital store. Where MySpace is as chaotic as a million teenage bedrooms, Cyworld's U.S. version is organized but customizable. Each mini-homepage offers the same tabs (profile, mini-homepage, photos, journal, guest book, sketches, and bookmarks).

Although the store will open with more than 5,000 virtual items for sale, Chon expects to make more money in the United States from advertising than from acorns. The pay-to-decorate model is appealing - it's why venture capitalists are calling every other week to ask if they can invest. (The answer is no.)

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