Case Notes/Answers
Case Solutions for CYWORLD CREATING AND
CAPTURING VALUE IN A SOCIAL NETWORK by Sunil
Gupta Sangman Han
Discussion Questions:
1. Why do people use social networks?
2. How can you segment Cyworld’s users? Which segments should Cyworld target? How can it
create value for users in these segments?
3. Which is most valuable to Cyworld—an active user, a user who spends a lot of money with
Cyworld or a user with a lot of connections?
4. How is Cyworld different from Facebook and MySpace? How are these social networking
sites different from other large websites such as Amazon, Yahoo, or YouTube?
5. What should be Cyworld’s business model—paid items, mobile networking, or advertising?
Should Cyworld explore any other areas of opportunity?
, 5-510-028
AUGUST 6, 2009
TEACHING NOTE
Cyworld: Creating and Capturing Value in a
Social Network
Synopsis
Cyworld, a Korean social network similar to Facebook, was founded in 1999. It allowed its users
to create a “minihompy” or mini-homepage where they could write diaries and invite their friends to
visit and leave comments. Cyworld positioned itself as a “small, clean community,” without
advertising, where members used their real names. As the company grew and needed funds to
support its growth, it started offering virtual items (e.g., virtual art, wallpaper, background music,
etc.) that could be purchased to decorate a minihompy. A minihompy became a means of self
expression and purchasing virtual items enabled users to achieve that goal. In 2003, Cyworld was
acquired by SK Telecom, a leading mobile service provider in Korea. By 2007 Cyworld had 21 million
users and revenues of $95 million: $65 million from paid items, $15 million from mobile services, and
$15 million from advertising. In August 2008, the new CEO, Hyung-Chul Joo, had to decide which of
these three revenue sources he should focus on in the future, how this choice would influence target
customers and service offerings, and what marketing and technical capabilities would be required.
Teaching Purpose
Social networks such as Cyworld, Facebook, MySpace, and Bebo have captured the hearts and
minds of most young people, completely changing how they communicate with each other.
Therefore, this case is of great interest to young students (undergraduates and MBAs), as they can
easily relate to this phenomenon. Senior executives also find the topic interesting since current
market conditions dictate a better understanding of how consumers relate to each other and
communicate in the digital age.
The teaching objectives of this case are as follows:
1. To highlight the evolution of a social network from its inception to its current state. The case
illustrates a typical pattern where founders started a company with no business model in
mind, and later struggled to find a way to make money. Most U.S. social networking sites,
such as Facebook and MySpace, are also facing similar challenges.
, 510-028 Teaching Note—Cyworld: Creating and Capturing Value in a Social Network
2. To encourage a better understanding of the pros and cons of various business models.
Cyworld could choose to focus on paid items, mobile networking, or advertising. This
decision depends not only on market potential, but also on Cyworld’s history as a clean
service, its customer base, and the objectives of its parent company, SK Telecom.
3. To acquire a good understanding of consumer behavior as well as segmentation and targeting
issues. Why do people use social networks? Do all customers have the same purpose? The
case provides details about three different customer segments as well as the potential
correlation among these users.
4. To discuss the tangible and intangible value of customers. Traditional models of customer
lifetime value suggest that firms should place greater emphasis on customers who bring in
higher long-term profits to the firm. However, in network settings, customers who are
“connectors” or “hubs” can be very valuable, even if they do not buy anything from the firm.
The challenge for the firm is not only to identify these users, but also to understand how to
leverage them.
5. To emphasize that creating and capturing value must be tightly integrated. For example, it is
premature to suggest that Cyworld should focus on a specific business model (e.g.,
advertising or virtual items) without understanding what value that model provides to users.
This is also highly dependent on the target user segment.
Assignment Questions
1. Why do people use social networks?
2. How can you segment Cyworld’s users? Which segments should Cyworld target? How can it
create value for users in these segments?
3. Which is most valuable to Cyworld—an active user, a user who spends a lot of money with
Cyworld or a user with a lot of connections?
4. How is Cyworld different from Facebook and MySpace? How are these social networking
sites different from other large websites such as Amazon, Yahoo, or YouTube?
5. What should be Cyworld’s business model—paid items, mobile networking, or advertising?
Should Cyworld explore any other areas of opportunity?
Analysis
There are three main areas of discussion:
1. Understanding user behavior, segmentation, and targeting. Specifically, why do people use
social networks? What are different user segments, and which one should Cyworld target?
How is this decision influenced by the choice of business model? What strategy should
Cyworld follow to target the chosen segment(s)?
2. What should be Cyworld’s business model, or simply, how should Cyworld make money?
3. How are social networking sites such as Cyworld, Facebook, and MySpace different from each
other? How are they different from other large sites (e.g., Yahoo or YouTube)? What does this
tell us about potential business models that may work for Cyworld?
2
Case Solutions for CYWORLD CREATING AND
CAPTURING VALUE IN A SOCIAL NETWORK by Sunil
Gupta Sangman Han
Discussion Questions:
1. Why do people use social networks?
2. How can you segment Cyworld’s users? Which segments should Cyworld target? How can it
create value for users in these segments?
3. Which is most valuable to Cyworld—an active user, a user who spends a lot of money with
Cyworld or a user with a lot of connections?
4. How is Cyworld different from Facebook and MySpace? How are these social networking
sites different from other large websites such as Amazon, Yahoo, or YouTube?
5. What should be Cyworld’s business model—paid items, mobile networking, or advertising?
Should Cyworld explore any other areas of opportunity?
, 5-510-028
AUGUST 6, 2009
TEACHING NOTE
Cyworld: Creating and Capturing Value in a
Social Network
Synopsis
Cyworld, a Korean social network similar to Facebook, was founded in 1999. It allowed its users
to create a “minihompy” or mini-homepage where they could write diaries and invite their friends to
visit and leave comments. Cyworld positioned itself as a “small, clean community,” without
advertising, where members used their real names. As the company grew and needed funds to
support its growth, it started offering virtual items (e.g., virtual art, wallpaper, background music,
etc.) that could be purchased to decorate a minihompy. A minihompy became a means of self
expression and purchasing virtual items enabled users to achieve that goal. In 2003, Cyworld was
acquired by SK Telecom, a leading mobile service provider in Korea. By 2007 Cyworld had 21 million
users and revenues of $95 million: $65 million from paid items, $15 million from mobile services, and
$15 million from advertising. In August 2008, the new CEO, Hyung-Chul Joo, had to decide which of
these three revenue sources he should focus on in the future, how this choice would influence target
customers and service offerings, and what marketing and technical capabilities would be required.
Teaching Purpose
Social networks such as Cyworld, Facebook, MySpace, and Bebo have captured the hearts and
minds of most young people, completely changing how they communicate with each other.
Therefore, this case is of great interest to young students (undergraduates and MBAs), as they can
easily relate to this phenomenon. Senior executives also find the topic interesting since current
market conditions dictate a better understanding of how consumers relate to each other and
communicate in the digital age.
The teaching objectives of this case are as follows:
1. To highlight the evolution of a social network from its inception to its current state. The case
illustrates a typical pattern where founders started a company with no business model in
mind, and later struggled to find a way to make money. Most U.S. social networking sites,
such as Facebook and MySpace, are also facing similar challenges.
, 510-028 Teaching Note—Cyworld: Creating and Capturing Value in a Social Network
2. To encourage a better understanding of the pros and cons of various business models.
Cyworld could choose to focus on paid items, mobile networking, or advertising. This
decision depends not only on market potential, but also on Cyworld’s history as a clean
service, its customer base, and the objectives of its parent company, SK Telecom.
3. To acquire a good understanding of consumer behavior as well as segmentation and targeting
issues. Why do people use social networks? Do all customers have the same purpose? The
case provides details about three different customer segments as well as the potential
correlation among these users.
4. To discuss the tangible and intangible value of customers. Traditional models of customer
lifetime value suggest that firms should place greater emphasis on customers who bring in
higher long-term profits to the firm. However, in network settings, customers who are
“connectors” or “hubs” can be very valuable, even if they do not buy anything from the firm.
The challenge for the firm is not only to identify these users, but also to understand how to
leverage them.
5. To emphasize that creating and capturing value must be tightly integrated. For example, it is
premature to suggest that Cyworld should focus on a specific business model (e.g.,
advertising or virtual items) without understanding what value that model provides to users.
This is also highly dependent on the target user segment.
Assignment Questions
1. Why do people use social networks?
2. How can you segment Cyworld’s users? Which segments should Cyworld target? How can it
create value for users in these segments?
3. Which is most valuable to Cyworld—an active user, a user who spends a lot of money with
Cyworld or a user with a lot of connections?
4. How is Cyworld different from Facebook and MySpace? How are these social networking
sites different from other large websites such as Amazon, Yahoo, or YouTube?
5. What should be Cyworld’s business model—paid items, mobile networking, or advertising?
Should Cyworld explore any other areas of opportunity?
Analysis
There are three main areas of discussion:
1. Understanding user behavior, segmentation, and targeting. Specifically, why do people use
social networks? What are different user segments, and which one should Cyworld target?
How is this decision influenced by the choice of business model? What strategy should
Cyworld follow to target the chosen segment(s)?
2. What should be Cyworld’s business model, or simply, how should Cyworld make money?
3. How are social networking sites such as Cyworld, Facebook, and MySpace different from each
other? How are they different from other large sites (e.g., Yahoo or YouTube)? What does this
tell us about potential business models that may work for Cyworld?
2
