By LORETTA CHAO
BEIJING—In China, where Internet users often expect freebies, individual members of an online dating service are exchanging dozens of love notes every day at 30 cents a pop.
Online dating is "quite fun," said Nick Yuan, a 34-year-old computer technician from Shaoxing, China, who signed up for Jiayuan.com International Ltd. to meet new people after his divorce. During his first few months on the site, Mr. Yuan received about 30 messages a day.
" 'IT technician' seemed to be an appealing job," he said. Most of the women who contacted him asked about his salary and whether he owns a home.
Mr. Yuan is among roughly a million users a month who pay to exchange messages on Jiayuan—signaling a shift for some Chinese Internet companies toward generating revenue from user fees and subscriptions rather than from typical, and highly competitive, advertising.
Jiayuan (pronounced JYAH-yu-en) makes money primarily by charging users to exchange love notes through its website for two yuan each. The company is tiny, with a market value of around $400 million. But Jiayuan is growing quickly, with second-quarter revenue more than doubling from a year earlier to $12.9 million and earnings growing at a similar pace. Jiayuan's shares were up 21% Friday from when they listed on the Nasdaq Stock Market on May 11, while shares in almost every other U.S.-listed Chinese Internet company had fallen.
The move toward user fees comes as the online ad market is growing in China and getting crowded with sites seeking advertisers. The market still is small compared with that of the U.S. Total revenue from online ads in China reached $4 billion last year, according to the Data Center of China Internet. In comparison, research firm eMarketer said the U.S. online ad market last year reached $26 billion.
Search company Baidu Inc., an Internet heavyweight that traditionally has relied entirely on ads, is investing in online travel and hopes to start a premium digital-music service. Web portal and microblogging operator Sina Corp. is building an application store that includes paid games.
Smaller companies are working on subscription and fee models as well. Online video site Youku.com Inc. is testing a service in which users would pay to watch high-definition movies and educational videos. Taomee Holdings Ltd. operates a virtual community in which children interact with each other online. The company gains revenue from subscription fees, sales of virtual items and licensing its content for products such as books.
"Any technology company in China that makes money in ways other than advertising is certainly worth a closer look," said Michael Clendenin, managing director of RedTech Advisors LLC in Shanghai. "So many of the Internet companies are all going to the same advertising trough, and at some point, the advertisers are going to get fatigue" from deciding where to spend. Jiayuan doesn't have to compete for advertisers' attention "with all these companies that are much bigger," he said.
Jiayuan was founded in 2003 by Rose Gong while she was pursuing a masters degree in journalism at Fudan University in Shanghai. Without a clear business plan in mind, she started off in her dormitory by building a simple Web page with her profile on it. Ms. Gong, who is Jiayuan's chief executive, eventually met her husband through the site.
The company experimented with a number of different revenue models, including selling advertising and hosting in-person events like mixers and speed dating for subscribers. But Chief Financial Officer Shang Koo said advertising never was a major source of Jiayuan's revenue. Ads made up 15% of the company's revenue in 2008 and at the beginning of this year Jiayuan stopped displaying advertising entirely. Eighty percent of Jiayuan's revenue now comes from paid messaging.
"We thought [advertising] was a distraction to both our business and to our users," Mr. Koo said. "It affected our user experience" and it was expensive to support the sales team.
Unlike other dating websites in China and elsewhere, which typically make money from ads or by charging users for the ability to contact other members, Jiayuan charges a small fee per message—similar to how people pay for virtual items in online games or social networks.
China's online-game companies, which typically let users play free but charge small fees for virtual goods, generated nearly $5 billion in revenue last year, according to research firm Analysys International. China Mobile Ltd., the nation's dominant wireless operator, last year had more than $3 billion from small fees paid for music products, such as ring tones.
The messages on Jiayuan can be paid by the sender or the receiver. Jiayuan's more than a million paid users a month is up from 300,000 at the beginning of last year. It also continues to host in-person events and provides a premium service, through which users can pay a team of 100 matchmakers to help the users find prospective matches.
Though Jiayuan has become the biggest online dating site in China, it remains to be seen whether the company can grow to the scale of its U.S. counterparts. IAC/Interactive Corp.'s personals business generated $116.4 million in second-quarter revenue, though that included paid subscriptions on Match.com and advertising on OkCupid.
"For the most part, users are just happy to receive messages," said Mr. Koo, the finance chief. "The payment is very low, two renminbi per message. It's a bottle of water. It doesn't take much thought for the users to think about whether it's worth it or not."
Mr. Yuan, the 34-year-old computer technician, is still looking and enjoying the process. "Nowadays, our life circles become narrow because we need to work very hard," he said. "So even just to make some friends, it's good."
Write to Loretta Chao at firstname.lastname@example.org
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