Video Comments The Japanese Way (Nico Nico Douga)

Nico Nico generates revenue in three different ways. There are currently 200,000 Premium members (up from 90,000 in November 2007) who pay $5 per month for easier access to the site and additional functions. Niwango also sells ad space, accounting for around $300,000 monthly. Sales from affiliate links generate approximately $820,000 per month (official figures for February 2008). That adds up to $2.1 million a month, or a $25 million annualized revenue run-rate.

But maturing as a company, Niwango faces some serious hurdles looking ahead. Nico Nico burns close to $1 million monthly due to high server expenses, with overall costs rising faster than revenues.

The company is currently trying to get in the black. In May, it partnered up with Yahoo! Shopping to expand its affiliate business. Nico Nico videos also prominently appear in the Yahoo! Japan search index now. This is a promising move: Yahoo! Japan is this country's biggest web company.

However, the mobile version of Nico Nico is still completely free of ads. Niwango also has to deal with a number of copyright infringement problems.

In terms of scaling, the biggest challenge will be to find ways to open Nico Nico for the Japanese mainstream user. Most of the current members are male Otaku, anime and video game freaks with a high level of tech literacy.

International versions could spur growth as well: The site's popularity already spawned a Chinese copycat. An official version for users living in Taiwan was launched as early as October 2007.

While the concept might not translate to the U.S., the ability to comment directly on videos with text is a feature that could catch on elsewhere.