Amidst the government's anti-pornography campaign, the investigations against QvodPlayer and Sina indicated the anti-pornography efforts have been diverted to cyberspace. As many Internet companies are striving to transform, the "best one-night-stand app" Momo also faces great challenges and risks, said Ding Daoshi, Director of SooToo Institute, a research institution on China's Internet economy.
"Although Momo manages to cater to some users and has accumulated a substantial user base, a transformation is inevitable under the current policy circumstances," said Zhang Yi, CEO of iiMedia Research, noting that the speed of transformation will affect the company's survival.
Momo's prospectus submitted to the U.S. Securities and Exchange Commission shows that its main operating profits come from membership fees, which accounts for more than 70 percent in each quarter. In addition, of the 180 million sign-ups, only 2.3 million are paying members. In the future, Momo should focus on enhancing user engagement and developing new business, said Luo.
In fact, online gaming has begun to rise as another major source of income. According to Momo's prospectus, in the second half of 2013, its mobile gaming product only generated revenues of $92,000; in the first half of 2014, it soared to $4.44 million. Beyond that, the company also shows an intention to tap into online-to-offline business.
A way out
As Momo's largest institutional shareholder, China's e-commerce giant Alibaba, a New York Stock Exchange-listed company, holds a 21-percent stake. In its prospectus, Momo expressed an intention to monetize user traffic through cooperating with Alibaba to place targeted advertisements of merchants on Alibaba's marketplaces, and cooperate with online classified website 58.com by providing users easy access to their marketplaces.
Luo said Alibaba's merchant resource superiority will complement Momo's strength in location-based social contacts. In the days to come, their teaming up will brace Momo to expand location-based services.
According to its financial report, the company witnessed a loss of $14.6 million in the third quarter of 2014, sparking suspicions over its long-term profitability. Currently, Momo still relies on a conventional profit model of mobile Internet encompassing membership fees, mobile game operation and advertisements, which is not sufficient to cover its costs.
"To reach a revenue balance, Momo needs to explore new sources of income. By joining hands with Alibaba and 58.com, it is likely to stand out in terms of location-based marketing," said Luo, who firmly believes Momo's future profit growth lies in its cooperation with Alibaba and 58.com.
Chen Xiaohua, chief strategy officer of 58.com, held that Momo's information flow can be rendered into commercial profits through the channel of 58.com. Mobile Internet companies generally achieve profitability through mobile gaming or advertising. While Momo's strength lies in mobile gaming, 58.com has developed its own advertisement alliance, which provides users with location-based advertising services.
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