Critical analysis of Habbo: Social networking

Executive Summary

Habbo is a hugely successful virtual community and social networking website that was started in 2000. Today it has over 100+ million users, and the number is growing by 75,000 per day. This number is quite big, and in order for Sulake to sustain this growth, it requires to take certain steps in the short and long term. This document gives a critical analysis of Sulake's E-Business model, the success factors in a social networking site, the various e-payment methods being used by Habbo, the current e-business model and the recommended e-business model for Sulake, and finally it focuses on the short term and long term action items for the Sulake management.

Introduction

Habbo is a virtual networking website owned and operated by Sulake Corporation. It is considered the world's largest and fastest growing virtual world and social networking service for teenagers. It features chat rooms and discussion forums in the form of virtual hotel rooms. Each user on the website is linked to these rooms, where he can share content, created groups and discussion forums.1

The website was launched in 2000 and has now evolved into a worldwide success, with localized online communities in 32 countries. As of September 2008 108 million avatars have been registered, with an average of 8 million unique visitors monthly and 75,000 avatars created daily.

Entering the Habbo website is free, but to access premium services users need to buy Habbo Credits, which is the virtual world's currency. Credits are used to pay, for example, virtual furniture, game tickets and elements for the homepage. Virtual furniture and homepage gadgets in particular are important factors in most Habbos' lives within the community, allowing them to express themselves through the creation of theme-styled rooms and homepages, game rooms and places to chill out.2

CRITICAL ANALYSIS OF HABBO

Habbo has been hugely successful with teenagers, but it has had its share of problems. Habbo began in Finland, with close to 25% of teenagers in the country started visiting Habbo regularly. Habbo was able to attract teenagers for its unique design, and a virtual community that gave them the freedom to express themselves. Teenagers were now able to create avatars in the form of "Habbos" - their alter egos in the virtual world. Habbos could then roam around the virtual community where they could buy furniture, decorate their own "hotels", play games and talk to other Habbos in the community.

For users to be able to use the website's premium services, they needed to buy "credits" that was the currency of the virtual world and credits could be bought through real money. Users could earn credits by playing games, participating in surveys or by selling furniture. This model is in itself, quite unique. The fact that users need to buy credits in order to buy "virtual furniture" would have made it quite difficult for Habbo to sustain the business model. Having said that, Habbo has been fairly successful in keeping their users addicted to the website, and has managed to have a strong brand loyalty associated with it.

Habbo has been quite successful in increasing its user base over the years, but there are certain weaknesses and threats that Habbo needs to overcome in order to have a sustainable future.

SWOT Analysis

Strengths

Weakness

Opportunities

Threats

Strengths and Opportunities

Habbo's success can be attributed to a lot of things; the main strengths of Habbo are as follows:

Weaknesses and Threats

The huge success of Habbo owes to the fact that it has been able to create a sense of community within it users, to create a product that is unique and localized, and is also easy to use. With competition increasing in this segment of the market, and with new players emerging every day, Habbo is facing some serious threats in the form of:

There are certain weaknesses that need to be addressed as well:

Huge operating expenses

Considering Habbo is built around a lot of graphical interfaces, the need to sophisticated and expensive equipment would always be there. The fact that the website caters to communities in various countries also implies that Habbo needs to be online 24/7. This puts additional pressure of having redundancy, and disaster recovery mechanisms adding to the operating expenses. Sulake should look into an operating model that can help reduce load on their servers, and thus reduce costs of implementation and maintenance.

Critical Success Factors

According to the book "Place to Space: Migrating to e-Business Models" below are the critical success factors for a virtual community:

Virtual Community

Habbo can be classified as a virtual community; a website that is based on communication between its users. It can be further classified into a social community whose sole purpose is entertainment. The website caters to the "teenage community"; and has a strong sense of belonging to it. Virtual communities can be classified into different subsets based on its objectives, social structure or orientation. If we classify virtual communities based on orientation, the below diagram would be the classification:

Based on the above diagram, Habbo can be classified as a social oriented, with its main objective being entertainment.

Sources of revenue

E-payments methods used by Habbo

Credit Cards

There are two ways of buying credit through credit cards:

Pre-paid cards

There are various pre-paid options available depending on each country. For example, the Habbo UK has the following options:

All these cards are readily available on their retail outlets.

Home phone

This is another convenient option to buy credits, by calling a certain number through the landline.

Mobile phone

Credits can be charged or recharged through SMS messages as well.

There are quite a few options present for users to buy credits from the website, but owing to the fact that most users are between the age of 10-18; there should be more options available to buy credits. A few recommendations would be:

Sulake E-Business Strategy - Recommendations

Sulake is currently working as a virtual community; and this has been going on well for its websites. Moving forward, with new technologies popping up daily, and the increase in competition, it is imperative that Sulake needs a shift in strategy. The current atomic model used by Sulake is virtual community; and now they need to focus on implementing a hybrid model that would enhance their revenue, and include more channels of revenue. The most suitable hybrid would be that of Virtual Community-Content Provider. The content could be in the form of music, videos, concerts coverage, comic etc. This could be implemented through various partnerships with content providers of music, videos, comics etc.

The above diagram outlines the E-business Model recommended for Sulake's Habbo. This would not only provide better opportunities for revenue for Sulake, it will help create more interest in the Habbo experience.

Short term action items

The ultimate goal of Sulake is to make Habbo the online community of choice for youth all around the world. For this happen, they need to be able to convert free users to "loyal" customers. In order to do that, a number of steps need to be devised by Sulake. A few recommendations are as follows:

Long term action items

The main concern of Sulake in the long run would be sustainability. The following recommendations would ensure long term growth for Sulake:

Conclusion

Sulake's E-Business Model can be is quite successful at present, but in order to create sustainable growth, Sulake has to implement newer techniques and needs to refocus its E-business model to allow a hybrid model to be created. This model would provide Sulake with a long term plan, that would ensure growth and higher revenue in the longer run.

References

  1. http://en.wikipedia.org/wiki/Habbo
  2. http://www.sulake.com/habbo/
  3. http://users.tkk.fi/~molaine3/ml_mastersthesis_310506_public.pdf
  4. http://www.finland.org/netcomm/news/showarticle.asp?intNWSAID=70150&intSubArtID=27826&intIGID=25&intCatID=&LAN=EN&contlan=&Thread=70212,70199,70150,70130,69292,69583,69582,69132,70086,69816,69655,69448,&intThreadPosition=2
  5. http://ludocraft.oulu.fi/elias/dokumentit/kalevala_business_concept.pdf
  6. Weill P & Vitale M - "A Place to Space - Migrating e-Business Models "

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