Korea's biggest social networking Web site, Cyworld, recently took the industry by surprise by announcing its decision to launch its service in the U.S. market, starting with a public beta version, after some major U.S.-specific customization. It plans to go into head-to-head competition with a similar American version, called MySpace The service, owned by SK Telecom, Korea's biggest telecom firm, has about 18 million Korean members, or more than one-third of the country's entire population. About 90 percent of all Koreans in there 20s have reportedly signed up to Cyworld, more than penetration in the United States. Cyworld's revenue in Korea comes mainly from the sale of virtual items worth nearly $300,000 a day, or more than $7 per user per year. By comparison, ad-heavy MySpace makes an estimated $2.17 per user per year. This year Cyworld expects to contribute $140 million in sales, with virtual items accounting for 70 percent. SK plans to invest about $10 million into the U.S. launch, and Cyworld hopes to attract 2 million American members by the end of next year. Although the store will open with more than 5,000 virtual items for sale, Henry Chon, who is the CEO of Cyworld USA expects to make more money in the United States from advertising than from the sale of virtual money. Essentially, how Cyworld works is that each user has a "mini-hompy" - a pixelled room that can be decorated with furniture, wallpaper and other items. All these items must be paid for in Cyworld's virtual currency, dotori (Korean for "acorn"). Users can buy virtual currency using their cellphones, or purchase vouchers in real-world shops. It comes as no surprise that this has been very profitable for Cyworld. Business Week reported in September last year that Cyworld was making "$12.5 million on sales of $110.4 million". Judging by the information on the site, Cyworld U.S. will be virtually the same as the original Cyworld, but even though Korea's "mini-hompy" has become a "mini-room," the premise remains the same. And while MySpace allows users to integrate external services into their pages, Cyworld is a closed platform that charges for most additional items. But it may prove more successful than the U.S. networks in one crucial aspect: profitability. Monetizing social networks is a tough challenge, and the internal economy may be a real bonus for Cyworld. What's more, by targeting the youngest possible demographic, Cyworld has a good excuse to keep the system closed. CyWorld's parent company SK Communications has reportedly set up a 30-person office in San Francisco, spent around $10 million on launching the U.S. version and pledges to spend whatever it takes to be successful in the new market. Still to come are a mobile play and music sales through CyWorld. The company already has localized versions in Japan, China and Taiwan. Localization for many other parts of the globe is said to be in the works, and even if it does not succeed in achieving dominance of the United States, it will be valuable experience in a highly sophisticated market. It remains to be seen whether CyWorld can translate its success in one country elsewhere, especially to a massive market like the United States. Whatever, the outcome, it will be an excellent test case concerning the challenges of localization in the social networking space. Moreover, it is very encouraging to see a Korean software company spreading its wings globally.