The social networking company hi5 used to be a big player among networks. There was a time four years ago when it was in the running for leadership position.

Since then it has lost momentum. It is stronger abroad than it is in the U.S. However, the U.S. market is important because social networks are able to get more money from traditional advertisers. In the U.S., the site has seen its traffic stagnate, according to Comscore (see data below from August, the latest data available, which shows traffic lower than it was earlier in the year).

So it needs other ways to monetize. That means going full bore into virtual goods, where users are lured to pay for currency to play games. That’s what the site announced today: a major rehaul (seen here, but will launch officially tomorrow), with much more emphasis on games and the “coins” needed to play them.

The company needs to something big. The company is backed with $35 million in venture capital, and so the company no longer really has the option to stay small. It needs size, in order to produce the return expected by its investors. But with even large networks having a very difficult time hitting profitability (Twitter has roared past hi5 here in the U.S, but is still clearly in the red), the move is predictable. Betting on a game platform when so many others already exist smacks of being “me-too.” It also comes at a time when some popular social gaming avatar-based sites like Habbo Hotel are having to cut back staff. It’s tougher to monetize these sorts of things than many people realize.

If the site is going to succeed, it must show even more creativity than other sites. And here at least, it is serious. The site began a shift to social gaming more than a year ago, acquiring real-time interaction technology from a company called Picverse to help it. The company began developing its currency in late 2008, and launched a game channel earlier this year. Featured on the new site will be a new 3D avatar that runs in Flash, where you can create avatar versions of yourself. This propels the avatar technology ahead of that used on most other sites, and is quite engaging.

The company says it gets 60 million monthly unique users. Games now make up about a third of its traffic. Virtual currency already makes up 15 percent of the company’s revenue, and that’s expected to grow to 25 percent by end of the year. In other words, it’s betting that it can differentiate itself by being the network that most aggressively embraces social gaming. The questions is whether that is going to be enough, when users can already access social games like those produced by Zynga from social networking sites like Facebook.