VentureBeat

San Francisco social networking site XuQa has been approached by some suitors with acquisition offers, but the company may go it alone for now. The company has enough money in the bank and no dire need to raise money, co-founder Ali A. Moiz told us over the weekend.

“Some companies are interested, we’ve been talking with them for several months,” he said. The youth oriented site has stumbled upon what appears to be a nice business model, as we last mentioned here (scroll down). It has somehow gotten users to work for Xuqa’s advertisers!

Xuqa works by letting people boost their profile among their friends — which is done in part by acquiring currency, or “peanuts.” If you look at the site, it can be raunchy (this profile is on the front page, as of this posting; don’t go if you don’t like profanity). But it appeals to vanity. The stated goal is become the richest most popular person. The users build currency acquiring “peanuts,” by engaging in any number of activities, such as playing poker or winning modeling contests. More intriguing, though, users can get peanuts by signing up for offers from advertisers. This produces more revenue than other sites, Ali told us, because it provides direct action for advertisers, and so advertisers pay more. Unlike at other sites, such as YouTube or Facebook, where advertisers pay a dollar amount based how many thousands of people viewed the page, Xuqa’s users are actually filling out surveys from advertisers.

Advertisers might give a site like Facebook $5 for every 50,000 pages viewed, Ali explained, using a hypothetical example. Advertisers may assume they will get five customers. By contrast, Ali said Xuqa converts five customers by putting an ad in front of only 100 users. In six months, Xuqa will hit a run rate of around $30 million in annual revenue, he predicted. It is already profitable.

Xuqa has close to 1 million registered users, doing about 10 million page views a day, he said.

Users of Xuqa “want attention, status and popularity,” he said. They crave a hierarchy.” Xuqa is unique, he said, in mixing the traditional social network of a MySpace or Facebook with a clearly defined way to move up a hierarchy using game dynamics. Ali said this dynamic is similar to the popular World of Warcraft, of which Ali is a fan. Xuqa also provides a user with a real identity, something most games don’t. There are sites that mix gaming and social networking, such as Korea’s Cyworld, but that is based on an avatar system, and avatars are less popular in the western world, Ali said.

If there are companies that keep him awake at night, it is still Facebook, MySpace and Bebo, he said. But even here, he’s noticing many Xuqa users also using those other sites, so they aren’t mutually exclusive. Indeed, he’s finding most of Xuqa’s users getting hooked on the first and second levels of status at Xuqa — and they come back to make it to level 10. “I’m worrying less and less” about the bigger sites, he said.