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.


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


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


  • Sense of community
  • Localized websites
  • Free membership
  • arious payment methods


  • Huge operating expenses


  • Increasing worldwide footprint
  • Increase revenues through additional content
  • Converting free users to loyal premium users
  • Improving localization of websites


  • Legal Issues in different countries
  • Sustainability

Strengths and Opportunities

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

  • Sense of community
  • This is considered the greatest strength of any virtual community and Habbo has been able to create a sustained sense of community amongst its users.

  • Localized websites
  • The fact that each country has a local website; helps create a local flavor of the website for users in the different countries. There are improvements needed in this area as well, which will be addressed later in the section.

  • Free membership
  • Although users require credits to use premium services, much of the virtual community can be accessed by registering for free. This induces interests in segments of users of who may not be considered tech-savvy; and this interest can lead them to become permanent members of the Habbo community.

  • Various payment methods
  • Sulake has successfully implemented various payment methods that have made the use of these premium services easier.

    There are many opportunities that Sulake can make use of to reach its goals.

  • Increasing worldwide footprint
  • Sulake should identify countries with high internet penetration, and start piloting the localized version of Habbo in these countries.

  • Increase revenues through additional content
  • In a virtual community, the only channel to communicate with its users is through the internet. Additional content can be in the form of downloads of music, videos, pictures and even movies. They can allow users to upload videos to induce interest in the community.

  • Converting free users to loyal premium users
  • Various methods can be used to convert free users to regular premium customers. We will explain further later in the document.

  • Improving localization of websites
  • Although localization has also been listed as a strength, it is important to understand the need to fully localize websites in accordance to the country's cultural and social requirements. This will be explained in detail later in the document.

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:

  • Legal issues in various countries:
  • As Kyrola admits himself, the fact that Sulake is not paying enough attention to foreign laws and regulations can become a big problem for them. One such issue in any country can create negative publicity and maybe also have a ripple effect on the other countries as well. At this point, it would make sense to use local resources in the countries where they have websites to be able to further localize the websites in accordance to the law of the land and also in accordance to their likes/dislikes.

  • Sustainability
  • Habbo has been doing well in the past 8 years, and so sustainability cannot be considered a major threat. Having said that, with the competition increasing and various websites imitating Habbo, it will become more and more relevant for Habbo to constantly re-invent itself and create more value to its user through innovative offers, and changes based on feedback from the community. Also, Habbo currently caters to a niche teenager market, and in order to further its growth it should look into different areas of revenue, including content delivery like music, pictures, videos and movies.

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:

  • Finding and retaining a critical mass of members
  • Building and maintaining loyalty with an appropriate mix of content and features
  • Maintaining privacy and security for member information
  • Balancing commercial potential and member's interest
  • Leveraging member profile information with advertisers and merchants
  • Engendering a feeling of trust in the community by its members

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

  • Buying credits for furniture
  • Buying credits for premium services
  • Online advertising
  • Market research

E-payments methods used by Habbo

Credit Cards

There are two ways of buying credit through credit cards:

  • Credit card subscriptions - a certain amount is deducted from the credit card on a recurring basis
  • One-off credit card usage

Pre-paid cards

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

  • Wallie pre-paid card
  • uKash pre-paid card
  • Paysafecard

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:

  • Creating yearly subscription packages: Like with kid's magazines, Sulake can also use yearly subscription packages that would ease the process of buying credits, and it will also ensure that a kid stays on the website for a longer period of time.
  • Partnering with other providers: Sulake can have partnerships with other service providers that cater to adults. This would help in allowing elders making the payments while youngsters can buy the credits through the partnership

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:

  • Increase payment methods through partnerships
  • Creating offers: Create offers time and again that would attract free users into buying credits. This could be in the form of special offers for first time buyers, or there could be grand prizes for buying credits
  • Long term subscriptions: Offer long term subscriptions for smaller prices. This could be done through yearly subscriptions, and could be offered at prices lower than monthly subscriptions.

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:

  • Improved localization: Although websites created for different countries have been localized, Sulake should work with local "experts" to improve the localization of these websites. This could include collaboration with local celebrities, adding local shows to the websites etc. This would ensure that the community's interest is developed over longer periods of time. Also, working with local legal experts to understand cultural and social values of the country in question, this would avoid any legal action by governments in Habbo.
  • Partnerships with Content Providers: In order to compete with upcoming social networking websites, it is important to provide extra value for the community. This value-add can be in the form of content downloads such as music, videos, comics etc.
  • Working with local magazines: In order to increase visibility of Habbo within the teenage community, Sulake should create partnerships with various magazines that cater to the teenage population. For example, subscribers of a certain magazine will get free credits to Habbo if they renew their subscription to the magazine.


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.


  6. Weill P & Vitale M - "A Place to Space - Migrating e-Business Models "

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