Oak Pacific CEO Joe Chen Yizhou revealed the company's social networking site renren.com has broken even four years after being set up. Analysts have hailed the move as an achievement for such a relatively new service. The site, which changed its name from xiaonei.com last month in order to attract a wider user base of white collar workers, is next month embarking on a publicity blitz across all media to capitalize on the growing numbers of Internet users.

Oak Pacific CEO Joe Chen Yizhou

Without revealing figures, Chen, 40, said the site had been losing money despite having nearly 80 million users and growing at a current rate of "100,000 to 200,000" every day.

In an exclusive interview with China Daily, he said: "There were 340 million Internet users in China at the end of June. We think it will rise to 400 million in a year. So far our site is growing very nicely."

Xiaonei, which means "on campus", was originally designed to appeal to college students. It was changed to renren, which means "everybody", because, according to Chen, "We had maxed out the college market".

According to Beijing-based Oak Pacific Interactive (OPI) figures, the service had 22 million active users in July last year and an estimated 40 million users who had registered their real names, making it one of the most powerful social network services in China.

Social networking site 51.com expects to break even in 2009 and become profitable in 2010, Shanghai Business reported, quoting 51.com sales center Vice-President Cheng Yue in April.

Chen said that despite being in a position to undertake an initial public offering he would not do so "because it is what people expect". He said remaining private enabled the company to be more flexible.

In April 2008, Oak Pacific Interactive raised US$430 million from an investment group led by Japanese telecom company Softbank in exchange for a 35-percent stake. Apart from spending UIS$30 million on travel company elong.com, the remainder is still sitting in the bank, said Chen, "giving us peace of mind in whatever nuclear winter this global economy will become".

Xiaonei was started in December 2005 by Tsinghua University graduates Wang Xing, Wang Huiwen, Lai Binqiang and Tang Yang. In October 2006, Xiaonei.com was acquired by OPI. Wang left xiaonei in July 2007.

One of the reasons for xiaonei's success, said Chen, lay in the fact that it had developed into a platform for third parties and their applications, with a special emphasis on entertainment features.

"We created a brand new ecosystem," he said. "We are working with more than 1,000 third party companies and their applications. There are 50 to 100 people in some of these third parties.

"We have single handedly created an applications industry. It is a brand new segment and it is doing really well. Social gaming is going global. Entertainment is the biggest sector on the Internet. You need to have a strong entertainment flavor. For example there are 5 million users a day on our farming game. We have the most open platform in China. Renren's architecture is the most advanced in China."

Chen said the company's ambition was to increase its position in the market by getting more "sticky" applications. It has started licensing games in other Asian countries and in the English-speaking world in a drive to become a global company.

One of the next games to be launched on the platform involves players running a restaurant and feeding their friends.

Chen draws inspiration from a Mao-era poster on his office wall that depicts three Chinese warriors with their feet crushing "imperialist paper tigers". The word for imperialist is changed to "company managers" who, he said tend to be poor in executing good thinking. "It helps us to become focused," he added.

Chen studied physics at Wuhan and Delaware universities before switching to engineering because he felt he would never make a world-changing impact in the former. He also studied at Massachusetts Institute of Technology and took an MBA at Stanford from 1997 to 1999, a period when famous brands such as Amazon, Yahoo and Google were developed.

Liu Ning, from the technology sector consulting company BDA China, said: "It's quite early for a social network service to make money in just two or three years. Most, both in and out of China, find it difficult to make a profit. It's likely that 51.com could also break even but others, even the popular kaixin001.com, are still losing money.

"But it is services like these with most users and page views that would turn a profit first. There are still no good profit-making models. The most used method to make money is through advertisements, value-added services of virtual gifts and online games, plus cooperation with e-commerce companies. But it depends on how well the website is developing and how large a user base it has."

(China Daily September 16, 2009)