Hi5, the world’s third largest social network hasn’t exactly had it easy this April Fools day.  Both VentureBeat and TechCrunch lit up the airwaves yesterday with reports of this, that and the other.  Let’s take a look at what happened, and what’s going to happen.

The social network news reports were abuzz yesterday afternoon when rumors were confirmed that hi5 had recently failed to secure another round of funding.  According to MG Siegler’s source, the deal was as good as done, just in need of a few signatures.  This wasn’t just pocket change, as the deal would have been somewhere in the $30 million range, effectively doubling it’s previously raised $35 million.

VentureBeat’s source admitted that hi5 was now down to one group  – the group focusing on entertainment, gaming and microtransactions.

Hold up.  Let me get this straight. The world’s third largest social network was passed over for additional funding, and are now down to the gaming/microtransaction group?  Seriously?  With 62 million monthly visitors, this could be downright huge.

Enter stage left – the silver lining

Ok remaining hi5 folks, take a second and give a deserved lick to those wounds.  Layoffs are never fun.  It’s comeback time.

And coming back they are.  Hi5 has just announced a partnership with games distributor and ad network Mochi Media.  Mochi will introduce 200 flash games initially, with plans for many more to come.  Games on hi5 is not new, as they introduced their virtual currency, Coins, in December of last year, and approximately 40 games back in February.  However, in the newly introduced Mochi Media games, hi5 coins will allow users to buy virtual items, download a select number of games, and access special, or additional features.  It might be fair to say that hi5 is arriving fashionably late to the party, as the site has on average 62 million users per month, but hasn’t really nailed down how to monetize these users.  Given Tencent’s conglomeration of an instant messaging client, social network and web portal recently reported over $1 billion in revenue from a variety of virtual goods, and Habbo recently announcing their $60 million in virtual goods sales (although I’ve also seen $70m and $74m – dang € to $ conversion), chances are hi5 is still very much in the running.  Earlier this month the company stated that they were aiming towards a $25 million take this year, with half of the revenues stemming from virtual goods, half from currently existing advertising.

Again, hi5 may have sustained a significant blow when additional funding fell through, but clearly they’ve already been working on monetization via microtransactions and virtual goods sales, so they’re already one step closer to a complete re-invention of themselves.  Will all of those 62 million users stick around?  That is yet to be seen.  My guess is that sure, some of them may go when they start to see dramatic changes to the site, but on the other side of the coin, by re-inventing themselves as a primary gaming destination, and combine both forms of revenue generation, we might very well see not only the return of hi5, but perhaps a hi10.

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Tags: casual games, flash games, hi5, layoffs, microtransactions, mochi, mochi media, Venturebeat, virtual currency

This entry was posted on Wednesday, April 1st, 2009 at 2:55 pm and is filed under industry news. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.