Sulake has a problem (updated with more figures)

Today, Sulake, owner of virtual world Habbo Hotel and Finnish social network Irc-Galleria, announced that they have made 50 million Euros, leading to a 4.8 million profit. Congratulations.

But let's look closer at these figures, see if we can identify any problems.
Where is the money?

The first and most apparent issue is the profit.
The company has made a 4.8M profit. In other words, Sulake has spent 45.2M euros in a year.

Where has all the money gone?

To put things in perspective, this means that Sulake has spent 3.75M euros per month.

I assume there's 3 components there:

  1. Human resource costs (development, design, management, marketing, sales, legal)
  2. Infrastructure (servers, bandwidth etc)
  3. Other expenses (marketing, licenses, travel expenses etc)

Let's get back to this issue more in detail afterwards.

General overview

IRC Galleria:

IRC-Galleria has ~506 637 users (add all the current users, plus ~7000 people over 40).
On January 19th Taneli Tikka reported the site had 506 751 users.
That's right, between January 19th and March 30th, IRC Galleria has reported a growth of... -114 users.

Which means the site has completely stagnated.
In addition, the site does not have an application platform like Facebook does, has extremely limited mobile support, and does not allow mass exporting of their content on other sites.

Let's compare that to Facebook:

(Red: FB, Blue: IRC, Google Trends chart here)

I checked today and "there are 499,120 people in the Finland network." That's only 7000 people fewer than IRC-Galleria. But that's also ignoring people who belong to another network.

If you go to create a FaceBook ad (bottom row Advertising -> Create an ad), you will see that everybody "in" Finland is 1,041,860 users (thanks to Juhani Polkko for the tip).

And that's with an application platform, mobile support, and the possibility to connect with friends outside Finland.

It's unlikely that IRC-Galleria can do anything competitive to regain users and traction in Finland, or internationally.

Habbo Hotel:

Habbo Hotel is a different beast.
The site claims to have "121 million Habbo characters", whatever that means.

This link from Sulake provides us with interesting figures:

  • 31 local communities
  • Registered users: 126,000,000
  • Unique visitors: 11,500,000 / month
  • Page impressions: 990,000,000 / month
  • Age distribution: 90 % between 13-18 years old
  • Average visit: 43 minutes / session

(Thanks to Peter Vesterbacka for the link)

These people need to be connected in a persistent virtual world, which can also be accessed by mobile, and of course you need to make sure there are community managers to keep child predators away from the kids.

Habbo also has received large coverage in mainstream media, with abundent TV ads for example.
Unlike its Korean-based competitor Cyworld, Habbo has been successful at internationalizing.

A completely unscientific analysis:

Let's split those 3.75M a month in 3. That's 1.25M.

1) HR costs:
Let's assume we pay our people 5000 euros per month (much higher than the Finnish standard).
That's 250 people a month, to run 2 websites.

I assume their programing team cannot be higher than 60 people, and that's being -very- generous. After all, both sites are not bringing that many new features, but there is the Habbo infrastructure to run.

This leaves 190 people to do other things.

Where are they? Let's put:

  • 70 in sales (?!)
  • 50 in marketing
  • 10 in legal (?!)
  • 10 in management (let's count them as 20 people if they get 10,000e / month)

That's a total of 150 people.

That leaves another 50 people!
Who are they? They can't all be community managers and designers.

Even when you add up all these figures that are clearly excessive, and pay these people above the Finnish standards, there's still plenty of room left.

2) Infrastructure costs:

So now we have 1.25M in infrastructure for 2 websites.
IRC-Galleria is stagnating, has no platform, and content is mostly pictures and text.
There's the possibility of sending content by mobile.

Habbo apprently had 10M+ visits last month, and requires heavy serverside, plus mobile support.

Both sites do not need very much storage, in comparison with sites that heavily focus on file or video hosting for example.

In addition, there's the bandwidth costs:
- Relatively low for IRC-Galleria ( mostly photos, text, no embedding)
- Normal for Habbo

Let's split that 1.25M in two: 625k for servers and 625k for bandwidth.
To put things in perspective, YouTube was rumoured to spend 0.8M euros on bandwidth per month before they were acquired by Google.

This is absurd. The bandwidth here is 3/4 of the YouTube figures.
Their infrastructure can't be that expensive.
Or at least it shouldn't be.

3) Other expenses:
Marketing costs, traveling, software licenses, etc.

At 1.25M / month, those expenses would be rather normal.

So what's wrong then?

When you add things up, Sulake should not be spending this much money. I have a hard time finding a justification for such high expenses.
Even when you have absurd HR and tech costs, at high rates, there's plenty of room left.

This can mean 2 things:
- Sulake has unoptimized technology
- Sulake is overstaffed

In any case, Sulake should be reporting a higher profit, and I would recommend they use their newly found money to optimize their processes.

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Published:
3.31.09 / 11am
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