YY Changes Its Tune After Karaoke Is A Hit

Transcript

DAVID GREENE, HOST:

Some businesses make money the moment they put out their product. Others figure it out as they go. And often the users of the product are the ones who teach you how to make money. That is exactly what happened with the Chinese company YY. Zoe Chace from NPR's Planet Money team reports.

ZOE CHACE, BYLINE: YY started out as just this social network for gamers. So you didn't have to play "League Of Legends" by yourself, you'd make friends across China and play together. But there was this gaming-specific problem.

ERIC HE: There's no time for them to type text. When they play games, they are very concentrated. So they are very busy with their hands.

CHACE: Eric He is an executive with YY. So they put in this high-quality audio software so players could just talk to each other in real time.

AZMAN WANG: (Speaking Chinese).

CHACE: Azman Wang (ph) is a student at NYU. He plays games on YY all the time.

What are they saying to each other?

WANG: Oh, just, like, be careful.

CHACE: Be careful. Watch your back. There's, like, a monster coming?

WANG: Yeah, like, in the game.

CHACE: And this is how Wang stayed connected to his friends in Shanghai when he moved to the U.S., in these sort of virtual chat rooms, playing "World Of Warcraft" together. The company grew fast, growth but no profits. Things changed when the company noticed that inside these chat rooms, people weren't just playing games, people were singing.

(SOUNDBITE OF ARCHIVED RECORDING)

COTTON RABBIT: (Singing in Chinese).

CHACE: If you set up a way for anyone with a webcam to get a large audience and you provide high-quality audio, people are going to karaoke.

(SOUNDBITE OF ARCHIVED RECORDING)

COTTON RABBIT: (Singing in Chinese).

CHACE: This is a video of a young lady who goes by the name of Cotton Rabbit - slim, young-looking, in her bedroom, and she's really popular.

YANG GUO: It said there's 3,249 people online and watching this feed.

(MUSIC)

GUO: It's a live show.

CHACE: That's Yang Guo, an interpreter. The show is live. Cotton Rabbit is performing right at this moment.

GUO: It's 11:12 pm in China now.

CHACE: At first as the karaoke videos multiplied, the YY guys didn't see the money there until this one moment. Eric He says they decided to have a contest.

HE: We were trying to figure out, how should we rank performer A is better than performer B?

CHACE: They gave their users these free virtual tickets so they could vote for their favorites. A little later, the YY guys are online on Taobao, a huge Internet marketplace.

HE: We found out that someone offer to buy their tickets.

CHACE: The tickets were on sale for about 25 cents apiece.

HE: That was like lightning to us. We realized that the little ticket actually it means something.

CHACE: People would pay for them. People wanted to show appreciation to the karaoke singers. This was the breakthrough. Now on YY, you enter your bank account, and you can buy little presents for the singers like emojis, things like...

GUO: The cotton candy and the lollipop. You can also send her the sugar candy, beer, the heart means I love you, kiss and hug and you are the best, yeah.

CHACE: They're all a few cents each - 10 cents, 15 cents - but as we watch, I see someone send Cotton Rabbit 66 magic wands. That's about three U.S. dollars. And - this is key - Cotton Rabbit gets a cut of that money, and YY gets 60 percent, which actually adds up. YY still has the games, but more than half their revenue now comes from the music business. And they offer these expensive VIP packages for up to $20,000, and people buy them. And some performers make thousands of dollars a month off deals like that. Turns out YY's customers really, really wanted to pay for virtual cotton candy and now they get to. Zoe Chace, NPR News. Transcript provided by NPR, Copyright NPR.