Chinese Internet & Gaming Stocks

About this Blog

The purpose of this blog is for my personal use. It serves as my personal diary as I investigate Chinese internet/gaming companies for investment purpose. If you have any comments or disagreement, please give me feedbacks.

Friday, November 1, 2013

China's Mobile Internet Messaging (IM) War, part 11: the battle is heating up

This is part 11 in this series. One can find the previous part (part 10) in this series here:
part 10 here

I am still keeping track of the weekly download statistics. The pattern I observed in part 10 is still valid. That is Netease/CHA (China Telecom)'s YiChat is still growing like crazy. Alibaba's LaiWang is a very strong grower. Sina's WeMeet is dying in front of our eyes.

In addition, there are two other new players that are getting into this space. One is from Shanda and another from a big retailer. But so far those two new players are not catching any traction at all.

Both Alibaba's LaiWang and Netease's YiChat had/will have major announcement. But first, some users statistics:

From the following article:

Netease's YiChat had already accumulated more than 30 million users. In addition, its user base are increased by 200k per day. Of all users accounts, 28% of them are daily Active account users. Thus, about 30*0.28 = 8.4 million users are using YiChat every day.

Considering YiChat starts operation on 8/19/2013, it is able to accomplish this feat in less than 2.5 months. I had never heard of any social networking product that are able to grow this fast out of the starting gate, anywhere.

But Alibaba is going all out for its LaiWang product. From the following article:

Alibaba is offering all LaiWang users of free mobile data traffic cost for users in 4 major provinces. This trial will last 2 months for now. Alibaba would also likely to expand this free service.

Not to be outdone, Netease had just announced that it will have a major announcement on 11/8/2013. From the following articles:

The detail is still a little unclear. But it looks like CHA/Netease will expand the free data service offer for its YiChat users not just to all CHA users, but all users in China. It will also covers users from China Unicom (CHU) and China Mobile (CHL) users.

Of course, the cost of these free service is so large that is so far beyond what Netease can afford. Most likely, Netease is just alone for a free ride. Either the cost will come from CHA (China Telecom) or China Unicom and China Mobile will become partners of YiChat. We will find out more details on 11/8/2013.


Wednesday, October 9, 2013

China's Mobile Internet Messaging (IM) War, part 10: YiChat vs. LaiWang vs. WeMeet

This is part 10 in this series. One can find the previous part in this series here:

This is going to be a quick update on the status of three new players in China's Mobile Internet Messaging war.

Netease and China Telecom's love child, YiChat had been out for about 6 to 7 weeks now.

NTES and CHA had spent a lot of money on marketing the first day of the launch. But interestingly, I don't see any more marketing on any of the popular web sites after the first day. But YiChat had been in the news non-stop because it is a product of a monopolistic like state own company and a highly competitive private company. Thus, YiChat had been getting free marketing after the first day of launch.

At about the same time, Sina come out with their new product, WeMeet. Except for the first week, I don't see any more marketing. There is also not that many news articles about WeMeet.

Not to be out done, China's internet and E-commerce giant, Alibaba, also comes out with its own mobile internet messaging product, called LaiWang. Alibaba had done very aggressive marketing on all of China popular web sites for LaiWang.

I want to know how are these three products doing. In part 8 of this series of articles, I had used Baidu searches to get a measure of how popular these services are.

But I don't think Baidu search directly translates to the popularity of these products (there is an indirect relationship, but I want a more direct and more correct measurement).

I believe the total numbers of downloads shall be a more correct measurement. To do that, I used some of the most popular download sites. Unfortunately, some of the most popular download site don't provide download statistics.

I used 4 of the most popular download sites that do provide download statistics. Taken all together, they represents about 1/4 to 1/5 of total downloads. These four sites are:

91 Android

360 ZhuShou



Adding the total download per week, I got the total number of weekly downloads from the four sites. The respective numbers for Netease's YiChat, Sina's WeMeet, and Alibaba's LaiWang is as follows:
Weekly Download Total





Again, the number here is not the absolute total number of downloads. It probably represents about 1/4 or 1/5 of total downloads. But the error will be the same for all products I tracked. Thus, it might not be great in predicting absolute number, but it shall be very good in comparison of different products as well as tracking the growth of a single product at different time.

From the above table, YiChat had a great beginning. It begins tapers about one month after the official launch. But after that, it had caught a second wind and is starting to grow again.

Sina's WeMeet had a horrible start. It is dying even faster. It is suffering a horrendous death.

Alibaba's LaiWang starts strong. Please don't compare to the start of Netease's YiChat. I had never seen a product starts so strong as I saw YiChat. It will be absolutely unfair for any product to compare to the original start of YiChat. None of the three major social networking products (Sina's Weibo, Tencent's QQ, and Tencent's WeChat) had a start anywhere close to the start of YiChat.

If we don't compare to YiChat, Alibaba's LaiWang actually had a very strong start. At this point, it is still way too early to say how good LaiWang will do. But I do know that Alibaba is sparing no expanse in promoting this product.

At this point, it appears that YiChat will be, at a minimal, at second place to Tencent's WeChat in China mobile internet messaging application. Again, as I mentioned multiple times previously, the best thing for YiChat is not to be second place in mobile IM application. It is different enough that it could create a brand new product that combine internet, mobile, off-line home phone, SMS (Short Messaging Service), and VOIP (Voice Over IP) into one giant social network.

For Sina's WeMeet and Alibaba's LaiWang, they have to compete in the mobile IM. They don't have  off-line telephone, SMS, and VOIP capability, nor will they ever have (unless one of China's 3 telecom becomes their sugar daddy). They have to compete with WeChat head-on. Of the two, WeMeet is dying in front of our eyes. But LaiWang has a very promising start.

I will provide another update on this in another couple of months.


Monday, September 30, 2013

China's Mobile Internet Messaging (IM) War, part 9: YiChat gets VOIP

One can find part 8 of China's Mobile IM war here:

Yesterday, YiChat provided a major update and upgrade from version 1.1.2 to v.1.2. Please see the following articles for details:

Two major functions are added to YiChat. First, YiChat will start Voice Over IP (VOIP) service. In addition, calls from foreign country to China will be free (there could be a time limit however). Since YiChat has a sugar daddy in China Telecom, it will be China Telecom that will supply all the cost for this free service.

The second major function is that when a user uses YiChat and when the other party doesn't have access to internet, YiChat can convert the message to either SMS (if the message is text) or telephone messages (if the message is voice).

None of these two functions will grow the users by a lot in the short term. But both are very significant.

It is nice to have a sugar daddy, especially a sugar daddy who is a monopoly. Skyp had been trying to get into China for a long time now. In addition, all of China's private companies had known that VOIP is an incredibly lucrative business to get into.

But Chinese government won't allow any private, be it foreign or domestic, to get into this area because of the objection of its three state owned telecom operators, China Mobile (CHL), China Unicom (CHU), and China Telecom (CHA).

But now, Netease is able to get into this area through its cooperation with China Telecom. This is potentially a lot bigger than China's Mobile IM. If China truly allows VOIP, it could completely overtake all of China's telecommunication industry, considering the horrible reputation of the three state own companies among ordinary Chinese.

At this point, VOIP is not fully allowed yet. But China is allowing a crack, and only for the telecoms and Netease.

I am certain at this point, companies like Tencent, Alibaba, Sina, Sohu, are drooling with envy with Netease's great luck.

The second major feature is very important in YiChat's competition with Tencent's WeChat. Almost all of the analysis in China are on whether YiChat can replace WeChat. Well, I think the possibility of that is zero. If somebody comes up with a product that basically does what Facebook does. Even if that product is superior to that of Facebook. The possibility of that product to replace Facebook is basically zero.

I guess YiChat could be to WeChat for what Google+ is to Facebook. It could become a 2nd place player in China's Mobile Internet Messaging market. But I think YiChat can be much more than that.

Here in the US, we have Facebook, Twitter, LinkedIn, Tumblr, Instagram, Foursquare, Pinterest, etc. Any one person can have more than one social circle. Similarly in China, the top 3 are QQ, Weibo, and WeChat. But there is definitely more room for more.

But there are a basic limitation for the top 3 social media products. They are limited by that both side have to have internet access at the same time. This is where there is a niche for YiChat to thrive.

Because YiChat has the support of China Telecom, it provides its users free access to home phone and SMS (Short Messaging Service). Its true advantage that nobody else have is it allows its users  free access to 3 networks (internet, home phone, and SMS). This second feature is the start of Netease's attempt to start to integrate the three networks together. If China truly allows Netease to have full VOIP service, YiChat can combine that and we will have four networks integrated into one.


Saturday, September 28, 2013

NTES is going to create a new niche in China's online gaming, the Online Card game, part 2

There are an explosion of new games in China's top two game companies, Tencent and Netease. Just as I wrote an article on Netease's upcoming new online card game, NTES just announced another online card game that is close to come out. One can find my previous article here:

In the last article, I reported that NTES's partner, Blizzard's new online card game, Hearthstone, is really catching fire in the west. I just checked its placement on Hearthstone was still number 4 at 8pm yesterday (8/25/2013) and is number 5 right now (10 am 8/26/2013). It was an amazing performance, and somewhat unexpected.

That game is coming to China and it is starting to catch a lot of press and starting to catch on among gamer circles.

But it is clear NTES had been worked on this new area more than just being partner with Blizzard. A couple of days ago, NTES had announced that its in-house developed game, XYM, or loosely translated Westward Journey Mini, will be going into public Beta in a few weeks (in October). See the following two articles:

Netease had been dominant in the area of MMORPG (Massive Multiplayer Online Role Playing Game). As a player play a role or a character, gaming company need to create a massive virtual world for player to play in, thus it is the most complicated games. But MMORPG is starting to get saturated. Its growth in China had slowed down drastically.

But in the last few years, it is the other simpler forms of multiplayer online games that are growing. Tencents had captured this market. None of its top three games, League of Legend, Cross Fire, and Dungeon and Fighter, are MMORPG.

Tencent made 1.229 Billion dollars in 2Q2013 from online games. Majority of it comes from 3 games along. I estimate that its top three games along made 60% to 70% of total gaming revenue (about $800M, or about $266M per game). In comparison, NTES got $317 million dollars from gaming operation in 2Q2013. NTES got that $317M from operating about a dozen hit MMORPG games.

In another words, just about any one of the top three games Tencent operates made about as much money as NTES made in all its games combined.

The top three games Tencent has is League of Legend, Cross Fire, and Dungeon and Fighter. League of Legend is a MOBA (Multiplayer Online Battle Arena) game. Cross Fire is FPS (First Person Shooter) game. Dungeon and Fighter is a 2D side-scrolling multiplayer PC beat 'em up game.

In the next year or so, Netease will come out with its own games in each of these three areas. That is the reason I think in the next year or so, there will be a defining moment in the future of China gaming market. There will finally be a true competition between the number 1 and number 2 in all areas of online gaming market in China. But that is for another series of articles that I will write (assuming I have some free time).

Netease is famous for being careful, meticulous. Its products are always to be of high quality. But that also means that it will always being late.

But this is the first time that Netease is able to being the first (among major players) to come out with serious products in a new area.

China's online card game is largely a virgin territory. Tencent did had a online card game. But that game (like a lot of Tencent's self developed games) is of bad quality and flame out quickly.

Netease is going to have two major games in this area. One is licensed from Blizzard and is starting to be the talk of town in China. The other one is a self developed game based on its own number 1 property, Westward Journey.

By being the first to market, of high quality, and highly anticipated, one or both can have excellent chance of becoming major hit.


Tuesday, September 24, 2013

Netease starts internal Beta for Blizzard's HearthStone

My last NTES related post can be found here:
Last NTES related post

That was part 8 of China's Mobile Messaging war. Netease's YiChat is still doing very well. Netease is concentrating on adding feature to its YiChat product right now. I suspect there will be major YiChat update soon.

But this article is not about YiChat.

Netease got the licensing right to operate Blizzard's (ATVI) Hearthstone. Hearthstone is not a MMORPG game. It is a new card game that is played on the internet on PC or through mobile phone.

I didn't think very much of this game at the beginning. But I start to think I could be wrong.

This game is all the rage in USA right now. Twitch is a pretty good place to find the games that are popular in the USA:

The following is a screenshot taken on 9/22/2013 at about 8 pm Central time:

Note that is the fourth most popular games (in terms of number of viewers). It is about the same level as DOTA2 (licensed by PWRD). It is twice as popular as Blizzard's mega hits World of Warcraft and four times as popular as Starcraft 2. It is about 7 times more popular than another mega hits World of Tanks (licensed by KONG).

While I don't think DOTA2 will be extreme popular in China because it is much more complicated to play than League of Legend (definitely the most popular and most likely the most profitable game in China right now).

But this game fits all the criterions:
1. It is made by Blizzard. Blizzard had a mythical reputation in China.
2. It is designed to be free to play. Thus, it is pirate-proof. Starcraft 2 is very popular in China. But nobody in China pay for Starcraft 2 due to piracy. It won't be the case for Hearthstone.
3. It is designed to be free to play and it is not MMORPG. World of Warcraft is MMORPG and it is fee-based game, it is fading in China right now. Hearthstone is none of that.
4. It is easy to play. Tencent made 1.229 Billion dollars in 2Q2013 from online games (in comparison, NTES got 317 million dollars in 2Q2013). Virtually most of those money comes from three games: League of Legend, Cross Fire, and Dungeon and Fighter. All three games are not MMORPG and extremely easy to play. Hearthstone fit those profile.

5. It is a very social game. Just like all card game, it is a social game. You have to have a lot of social factor to be a hit game in China.

6. It is designed to play on mobile phone (in addition to PC) to start out with. Mobile gaming is the next frontier in China.

7. It is talk of the town in US gamer circles. As the above screenshot showed, gamers in US love this game. If this game is super popular in USA, Chinese gamers will play this game just try to be hip.

From the above reason, this game has a very good chance to be a truly major hit.

I see this game as either hit or miss in China. If it is a hit, it will be a hit so big it will be much bigger than anything Netease has. It will probably be the same type of game as Tencent's three true blockbusters.

But it also could be a complete miss. It is such a different game that Chinese just can't get use to it.

I give it 50/50 chance for either.

Anyway, this game is already in open beta in USA and Europe. Today, this game will also go into beta in China (open to Netease employees). See the following news:


Sunday, September 22, 2013

Rumor: Sina will IPO its Weibo division early next year (9/22/2013)

One can find my last Sina related news here:

There is a rumor today that Sina will let its Weibo division go on IPO early next year. The following two articles talks about it:

I don't know how reliable is this rumor. But those two web sites are somewhat reliable.

If this is true, this will be great news considering that Twitter is going to IPO. Sina could probably get a good reaction from Wall Street by hopping on Twitter's coat tail.


Wednesday, September 4, 2013

Rumor: Alibaba to invest in Sina's Video Channel

This is a just a rumor for now. But the source of the rumor is of high quality. Sometimes, those rumors can affect the price of stock a great deal.

My last post is part 8 of China's Mobile Instant Messaging War. It can be found here:

But that largely involves Netease and Tencent.

My last post on Sina related can be found here:

The source of the rumor comes from a very prestigious financial daily newspaper in China. The story can be found here (in Chinese):

Summary of the artice:
- Secret negotiation for Alibaba to invest in Sina's Video Channel had started.
- Negotiation are between the highest level of both companies (CEOs of both Alibaba and Sina).
- Alibaba had recruited the guy who is in charge of the video channel in Tencent.

My comments:
If this becomes true, it would be good for both companies. For Alibaba, they are an E-commerce company. They don't have the infra-structure to run a internet/mobile video company. It is a great way to expand to this high growth area. Since they already own a big part of Weibo, as they gobble up more part of Sina, and the ownership of Sina is very spread out, they could eventual won Sina (by stealth).

But the biggest winner is Sina. All of Sina's cash is devoted to portal and Weibo. They have no money to invest in video.

As the biggest portal in China, it is such as waste. As the biggest portal as well as company great in entertainment, they shall be a major player in the area of internet/mobile video. Except all their money is tied up in Weibo and portal.

Now, if this rumor becomes true, Sina will have the cash to invest in the video area. They could become a contender this area.

The loser is of course Sohu and Yoku.


Monday, September 2, 2013

China's Mobile Internet Messaging (IM) War, part 8: Quick Status after 2 weeks

It had been two weeks and it is still a hot topic in China. Today, I am going to do a quick status update on the popularity of China's Mobile Internet Messaging (IM) products.

This is part 8 of long series of articles on this subject. Part 7 of this article can be found here:

From the following two articles (both are in Chinese):

I will summarize the important point in the above two articles:
Both of these articles talk about Netease's YiChat:
After the first day, YiChat had 700k new users.
After the first 24 hours, YiChat had more than 1 million users.
After the first 3 days, YiChat had more than 5 million users.
The majority of the users are IT workers, white collar workers, and students.
27% of users coming from China Telecom, 27% of users are coming from China Unicom, and 46% of users coming from China Mobile.
The short term goal for YiChat is 100 million registered users and 50 million active users within 6 months.

Those numbers are many times faster than when Tencent's WeChat first accumulate its new users. Netease's YiChat certainly had much faster start than the product it is trying to replace (Tencent's WeChat).

From part 5 of this series, Sina's WeMeet was also launched to compete with both Netease's YiChat and Tencent's WeChat. Let's see how all three products are doing in the last month. The following chart are the number of searches on Baidu for all three products.

 Note that green curve is the number searches in China for Tencent's WeChat. The yellow curve is for Netease's YiChat and the blue curve is for Sina's WeMeet.

The actual number for today, 9/2/2013 (Baidu made a mistake, it mistakes 9/2/2013 for 10/2/2013), is as follows:
The number of searches for Tencent's WeChat is 72242.
The number of searches for Netease's YiChat is 11088.
The number of searches for Sina's WeMeet is 854.

Note that we are talking about number of searches. One can't directly convert that to number of new users. For Tencent's WeChat, it had an install base of 500 million users. I am certain the vast majority of the searches come from existing users (bug fix, re-intall, etc.). But for both Netease's YiChat and Sina's WeMeet, since both are brand new product with install base of zero, vast majority of the searches come from potential new users.

From the above chart, we can already make two observations:
First, Netease's YiChat is for real. It is becoming a real competitor to Tencent's WeChat. Second, unless Sina's WeMeet really picks up steam in the near future, it is already dead on arrival.

Tencent got almost half its revenue from gaming. Frankly, it has virtually no expertise in developing games. But all its games (virtually all of them are from foreign licensed games, many of those licensed games are junks that nobody wants to play outside of China) are guaranteed to be popular at least for awhile due to its free QQ (Internet instant messaging) and WeChat (Mobile instant messaging) services.

By promising free elite QQ (or WeChat) membership or QQ (or WeChat) emoticons for one month, if the gamer will just play Tencent's game, Tencent can guaranteed any of its games great popularity (at lease for the beginning). And for some games that are not half bad, once sufficient player base formed, it starts to get a life of its own and Tencent would have a hit game.

But this is an unique advantage only Tencent has. But if Netease's YiChat becomes a significant player, life is going to be miserable for Tencent.

Netease had demonstrated its ability to develop popular games. If Netease's YiChat becomes a major player. It would truly be the worst nightmare for Tencent.

Tencent already show the world how to use its free popular instant messaging products (QQ and WeChat) to push for gaming and other Internet Value added services, even though it is pretty bad in developing games. Could one imaging if a competitor also get a popular instant messaging product (YiChat), except in this case, the competitor is much better in developing games?


Monday, August 26, 2013

China's Mobile Internet Messaging (IM) War, part 7, China's 360Buy is pushing YiChat

Netease's YiChat is all the rage right now in China. There are multiple significant developments virtually every days.

My last post on this subject can be found here:

The development of YiChat and the cooperation between China Telecom and Netease are capturing a lot of attention in China right now.

Over the weekend, China's largest B2C company (or China's Amazon), 360Buy, requires all its employees to use YiChat in all its official operation. See the following:

The company has 30k plus employees, 40k plus partnering companies, and 100 million plus customers. This development will definitely deliver many users for YiChat.

But more importantly, there is a sense of gathering momentum.

In addition, since everybody is talking about this, it is the best form of advertisement. It spares both Netease and China Telecom of advertising spending.

A week ago, when this news first hit, I was more excited about how Netease can take advantage of China Telecom's customer base. But I didn't think much about the chance of YiChat actually over-thrown Tencent's WeChat.

A week ago, I thought YiChat will have 0% chance of defeating WeChat. But I thought it might have 20% chance of being a 2nd place player (taking maybe 20% of the market).

But now, there seem to be an urge in China for YiChat to take it to WeChat. China's David vs Goliath story. I am adjusting my expectation. I think it might have 20% of actually defeating WeChat. But the more realistic goal for YiChat is to be a significant 2nd place player. I give that 60% chance of success.

To be a significant 2nd place player is nothing to be sneered at. Just look at QIHU. By being a 2nd place player in Search in China has cause its stock to quadruple in the last 6 months.


Sunday, August 25, 2013

China's Mobile Internet Messaging (IM) War, part 6, Netease's YiChat Update

China's Mobile IM is white hot right now. But the development of cooperation between Netease and China Telecomm represents something even bigger. This development had captivated the attention of China (even for those who have no intention of ever using mobile IM).

Part 5 of this series can be found here:

YiChat is for real!

Both China Telecom and Netease are devoting true and significant resources on YiChat. It is clear that, from the amount of new customers, the freebies from China Telecom is not going to be just from spare capacity. China Telecom is taking up real resources to give YiChat users free Short Messaging Services, free Mobile Bandwidth, etc.

For Netease, its technical excellence is shining through.

After the first day of YiChat, there are signicant complaints from Chinese users. The two biggest complaints are people can't register and SMS messages take a long time to deliver.

It is clear it is largely a capacity problem. Netease and China Telecom didn't anticipate the amount of user adoption.

The biggest YiChat tester is none other than CEO of Netease itself:

From the following images, it is clear the CEO of Netease is testing the YiChat:

Above is Netease CEO's YiChat account. Where he is doing his accounting of his YiChat usage experience. "Too many people, we were not prepared...". "Machine crashed..." A big Yellow "SORRY" sign with an emoticon show he kneel down on all four begging for forgiveness. "Emergency Capacity expansion."

One can follow his account. It is easy to see he is testing YiChat's service all day and all night.

Netease's CEO is a serious person. He is an engineer by heart and can be obnoxious toward people in finance or budgeting. For him to use that emoticon to apologize to YiChat users. Even though it is through an emoticon, it is clear he felt a little humiliated and he is putting his personal prestige in this product.

Netease's vaulted technical team are doing double or triple shift. Within 3 days of launching the product, 3 updates had been generated to eliminate all the software bugs that came up. See the following images:

As of Friday (4 days after the launch), YiChat had already gone from v1.0 to v1.0.1 to v1.0.2 to 1.0.3. With each version update, significant bugs had been squashed.

At this point, it is clear that YiChat is real. Both China Telecom and Netease are sparing no resource for it.

China Telecom is devoting whatever resource to give Chinese users free stuff while Netease's technical team is delivered its end of bargain.

Netease's CEO can be hard to get alone with (he used to like to snicker at Wall Street analysts). But he is an engineer in nature and he build his company devoted to be excellent in engineering. I always thought Netease is number 1 by far in excellence in engineering in China's internet sector. So far, Netease is delivering.

Finally, this story had create something more than just YiChat alone. This thing had create a life of its own. The story had becomes whether a new model had been created. A model that one day may breaks down China's state dominated market economic system.

This story had just becoming a lot more interesting than just China's Mobile IM market.


Saturday, August 24, 2013

China's Mobile Internet Messaging (IM) War, part 5, Sina's WeMeet

China Mobile IM battle field is white hot right now. There are shattering news every few days now. My last update is on Netease's YiChat, see the following:

Today, Sina is announcing it is launching its own version of Mobile IM application, WeMeet. See the following:

Quick observations from this announcement:
1. WeMeet is certainly a catchy name. Except it is catchy for English speakers. WeMeet actually sounds like "Micro-Rice" in Chinese. Sina needs to learn some basic marketing. Needs to know your audience. WeMeet is developed for Chinese (not English speaking customers). I am certain Sina can find another more catchy name for their product.

2. It is integrated with Weibo. I think this is the calling card for this application. If it has any chance of being popular, this is it.

3. Feature wise, it is not impressive at all. It didn't have any features of importance that current dominant application (Tencent's WeChat) doesn't have. Compared to Netease's YiChat that has quite a few significant features that are clearly superior to Tencent's WeChat.

4. It also didn't get a tie up with a telecom service provider unlike that of Netease's YiChat tie-up with China Telecom. Customers will not get any freebies from any of China's big three telecom service providers.

5. The application itself was not developed by Sina itself. The company that develops this product has some investment from Sina. It is not clear at this point whether this company is majority owned by Sina. For almost all cases, it would be a bad arrangement. Integration and inter-office politics usually doom those type of arrangement.

But for this case, I think it is good. Sina is terrible in developing technologies. Its own inter-departmental politics are terrible.

This new company will encounter significant resistance from Sina's many departments. But it is still a better arrangement than having Sina does it itself.

For me, I would rather have a company that I never heard of to develops a new technology product than having Sina itself develops it.

6. The timing is terrible. At this point, everybody is talking about Tencent's and China Telecoms' YiChat. It represents a truly significant event not just in China internet industry, but it is significant in China's overall economic development. It is a first time that a Chinese state own monopoly (China Telecom) cooperates with a private industry (Netease) and giving all execution power to that private company.

For Sina's announcement, it only has average Chinese customers' attention for a few hours. Vast majority of Chinese is much more interested in how the Netease/China Telcomm venture works out. Even those who don't care about Mobile IM products, they pay attention to Netease/China Telecomm venture because it represent a monopoly deliberately giving up power, a truly rare event.

I guess for Sina to pick this horrible timing, they are probably stuck between a rock and hard place. For Sina, now is the least worst.

In summary, under normal circumstances, Sina's WeMeet would represent the most formidable competitor Tencent's WeChat would face.

But this is not normal circumstance. Next, I would give another quick update on Netease's YiChat development.

Tuesday, August 20, 2013

New Killer application from Netease and China Telecom against Tencent's WeChat, part 4 A Quick Update

One can find my previous article on this subject here:

It is the first day after the official announcement. There are good news and bad news... and surprising development also. So this is a quick update.

First, I am a little surprised by how aggressive Netease and China Telecom are promoting YiChat. They are blanketing China's internet with ads right now. The following are screenshots of China's four internet portals (the red brush indicated YiChat ad).

Sina's Front Page:
Sina Front Page
Netease's Front Page:

Sohu's Front Page:

Tencent's Front Page (not surprisingly, no YiChat ads here):

YiChat's ads are completely covering Sina, Netease and Sohu portals. As expected, there is no YiChat ads on Tencent.

Tencent's WeChat may be monopolized China's mobile instant messaging space. But they content. It is companies like China Telecom that control the pipeline that these content goes. Companies like China Telecom are true monopolistic and behaving like one. They definitely have no problem in conducting monopolistic tactic that are completely illegal in most other countries.

They can always cut off the pipe that support Tencent's WeChat. Surprise, surprise, the same day YiChat is announced to the public, Tencent's WeChat suffers a major breakdown in service.

After the first 24 hours, there are quite a few technical issues that crop up facing YiChat. But a lot of it are because of the significant traffic YiChat is facing in its first day.

Most of these issues had been fixed already. But some non-China Telecom users (it is not if it is China Unicom or China Mobile users) still have problem in SMS service and telephone messaging services. But most of them are promised to be fixed in 1 week.

So far, within the first 24 hours, YiChat already accomplished the following:
700000 new registered users.
20000 new circles of friends.
300000 pictures uploaded.
1 million SMS delivered.
400000 phone messages delivered.

I am a little surprised at how fast they are promoting YiChat. Usually, for a nationwide service that provides so many functions to so many people, there are always great amount of technical issues.

I am a little surprised at how little those technical issues came up and how fast the early adoption there is. It is clear they already had significant amount of beta testing done. Yet no information on those beta testing were ever leaked.

So far, I will say they are doing great. I will have to say Netease is great at execution.


New Killer application from Netease and China Telecom against Tencent's WeChat, part 3

The news are coming hot and heavy. I will provide the latest update.

But first, one can find the previous part of this ongoing story here:

CEOs of Netease and China Telecom had a press conference. The exact deal is out now. The followings are some detailed story of this new company.

I will summarize all the important details here. Note that my own comments will be enclosed in square brackets [ - ].

1. China Telecom and Netease had created a new company. YiChat is its first product.

2. Additional products will be developed by this new company.

3. China Telecom will have 73% share of the new company and Netease will have 27% share of the new company.

4. The cooperation started in August 2012.

5. Netease's CEO was the one who initiated the cooperation.

6. The new company has capital of 200 million RMB.
                [ 200M RMB = 32.7 Million USD. This new company is tiny. Netease's share is 27% * 32.7M = $8.82M. Netease has 130M outstanding shares. Thus, in the third quarter 2013, the company's earning will be negatively affected by 8.82M/130M = -$0.07. That is it, a 7 cents write down.

                Netease really got a sweet heart deal. This is an earth shattering news in China right now. All Netease lose is 7 cents per ADS write down for one quarter!]

7. YiChat already offers more than that of Tencent's WiChat:
                7a. YiChat's voice quality is 3 times higher than that of WeChat.
                7b. WeChat free users can only send low quality pictures. Only the paid users for WeChat can send high quality pictures. YiChat users can send free high quality pictures.
                7c. WeChat group is limited to 40 users. YiChat group is limited to 100 users.
                7d. WeChat charges users for emoticons. YiChat offers them for free.
                7e. WeChat is only useful for mobile phone. YiChat expand it to mobile phone, PC, and even fix line phones.
                [ This is a killer application that WeChat can't compete.]
                7f. WeChat is a closed platform. YiChat is an open platform.
                7g.  Other companies can participate in this new company.
                7h. YiChat offers users free SMS (Short Messaging Service).
                [This is the single most important feature that WeChat can't compete.]

8. YiChat will not just be free. Users Mobile internet service fee (the part that uses YiChat) will be free also. There are conflicting report that this only apply for China Telecom users or for all users (including China Unicom and China Mobile).
                [Again, this is killer feature.]

9. In addition, during the promotion period, China Telecom will offer special deal all free Mobile internet service (not just the part used by YiChat).
                9a. Any YiChat registered users get 300Mbyte of free mobile Internet service free.
                9b. After the first month, All YiChat users get 60Mbyte of mobile internet service free as long as they remain active on YiChat. (Not quite sure this is for the rest of the year).
                [Again, promotion like this is killer feature that Tencent can't compete. Tencent can't afford to pay service providers to let users free stuff. But for the service providers like China Telecom, those are largely coming from spare capacity.]

10. YiChat account will be completely connect to all Netease products (Email users, News Readers, Netease games, etc.)
                [ Boy, Netease sure get lucky. Now, all Netease's products get access to China Telecom's users as well as large part of China Unicom and China Mobile's users.]

11. Chairman of the new company coming from China Telecom. CEO of the new company comes from Netease. Vice CEO comes from China Telecom. Head of Accounting department comes from China Telecom. Head of Marketing department, Head of Product Development department, Head of Personnel department come from Netease.
                [Basically, Netease is effectively running the new company.]

So, let me summarize. This new company is only a $32.7 Million dollar company. It is tasked to directly compete with the number 1 single most important core product of Tencent, a 700 Billion dollar company. To do that, China Telecom is going to foot the real money. The cost to provide all users free mobile internet services.

China Telecom behaves like a monopoly. It uses bullying tactic. Tencent can't afford to provide China's hundreds of millions of users free mobile internet as well as free SMS (Short Messaging Service). But China Telecom can. Because to a service provider, these are just spare capacity.

Especially important is the free SMS service. Even with some free Mobile internet promotional deal, it will not be enough to truly affect Tencent's WeChat. But SMS is different.

Just like here in the United States, the same people can have multiple circles, he could have his twitter circle, facebook circle, etc. Similarly, in China, the same people is going to have his WeChat circle, Weibo circle, and SMS circle. But now if YiChat took over the SMS circle but also provides WeChat function. Since it is the same group of people, there is a real danger that WeChat could lose those users to YiChat because the natural barrier of entry of a social media no longer exists.

Netease has to be the biggest winner by far. It is amazing what a sweet heart deal they got. They only have to put up 27% of a tiny $32.7 Million dollars. That equate to 7 cents (per ADS) write down of earning for one quarter only.

For that, they get effect control of this new company. More importantly, they get to develop the product and market it so that all Netease products can get access to China Telecom (and most likely big part of China Unicom and China Mobiles) users.

To the designers of Netease games and Netease Mobile applications, this is their dream come true.

For telecom service providers such as China Telecom, China Unicom and China Mobile, they are so frustrated with Tencent. Those monopolies are so furious that another company dare to get into their turf, they are willing to open their back door wide open to Netease, another super competitor.

Even with all that, even though this new company could take significant market share, Tencent still have better odd at retaining number 1 in this area.

But the service providers now have to open their back door to Netease. China is starting to phase out monopolies. I wonder if they just invite a wolf into their house.


Monday, August 19, 2013

New Killer application from Netease and China Telecom against Tencent's WeChat, part 2

Two months ago, I posted the following article regarding this subject:

It was a highly believable rumor two months ago. Now it is for real. The agreement was officially agreed. See the following link:

Netease and China Telecom (NYSE: CHA) jointly form a new subsidiary company and developed a new product called 易信, YiXin. It is a direct competitor against Tencent's WeChat product.

In 2011, the number 1 internet product in China is Sina's Weibo (China's Twitter). But in 2012 and 2013, it was eclipsed by Tencent's WeChat. It is similar to WhatsApp in the West. Due to the uniqueness of China internet space, a facebook like product couldn't take off like that in the west. Instead, its function was fulfilled by Tencent's WeChat.

Just like Facebook in the west, Tencent's WeChat completely dominate China's social media space (with the exception of Sina's Weibo that fills Twitter's role in China).

Nobody can compete with it. Major internet companies and major telecom companies tried. But none of them can even get close. But now this new joint venture represent a real threat.

Now, a little background on China Telecom. It is a state own company. Like all state own company, it behaves like a monopoly because it is a monopoly. It monopolized all home phone and internet services for all the south provinces (by 2008, it had >200 million users for home phones and home internet service). It has the largest Wi-Fi network in China. It is also the third largest mobile phone provider in China.

I don't have the latest user numbers. China's internet had been growing by leaps and bound, I am sure China Telecom has a lot more than 200 million users by now. In the Southern province, they are in all practical purpose, the only game in town as far as internet provider and home phone service.

From the announcement, China Telecom will be the majority owner. But Netease will operate the company. The chairman and vice President will come from Telecom. The CEO and all the departments heads (engineering, operation, marketing, etc.) will come from Netease.

This new product will have several killer benefit that Tencent's WeChat doesn't have. It will allow free short messaging service. It will have free voice messaging service to home phones.

In addition, any new users will get 300 Mbyte free mobile internet service for the first month. After that, all active users will get 60 Mbyte of free traffic per month afterward. In addition, all users will get free or reduced priced instant messaging service.

All those benefits not just apply to China Telecom's users but also China Mobile and China Unicoms' users.

The following is the speech of Netease's CEO during the product announcement:

I am certain there will be more details to follow.

Do I think this product will completely replace Tencent's WeChat? No. But I do think it will take significant market share from Tencent. Why? I will give the reason below:

Netease is a 8 Billion dollar company. Tencent is a 700 Billion dollar company. Why? There is only one product separate the two. That product is Tencent's instant messaging service, QQ. Back in 2003, Tencent's free instant massager QQ is starting to becoming the dominate IM service in China. But Netease came out with a competing product called PoPo (short for PP). It provided free instant messages. While Tencent provides free applications, Netease not just provide free applications, it will also pay the service to service provider for the users.

In the duration of few months, Netease's PoPo took significant market share from Tencents. But eventually, Netease's CEO just can't justify why Netease has to pay so much money so it can be number 1 for a "free" product.  Netease stopped paying free IM service for PoPo users before a critical mass can be achieved and surrender the fight to Tencent.

Of course, the rest is history. Tencent never charge users for its QQ application. But it build its empire around that single product. (just like today, Twitter and Facebook build their empire based around its free core product).

That single mistake on Netease's part cause Netease to be a 8 billion dollar company rather than a 700 billion dollar company. I don't think Netease will make the same mistake again.

On top of that, Netease got a sweetheart deal. From the structure of the deal, Netease provided technical and operational expertise while freebie services users will get come from China Telecom.

The big winners and big losers:

The big losers:
Tencent. Now Tencent finally have a real competitor. All of Tencent's services are build around its social service core (QQ Instant messager and WeChat application). Now, there is a real competitor that can attack its core.

China Mobile and China Unicom. There is no way their WeChat competitor can compete with the technical competence of Netease. Those stogy state own companies get ahead by being monopolistic and by pushing people around. But China Telecom is also a state own company and is not one to be pushed around.

All other private internet companies. They just can't provide those services for free like China Telecom can.

China Telecom. They got stuck with the bill to provide all the freebies to China's users. But at least there is now a real chance that they can be a player in the exciting new field of social media.

The big winners:
Sina. In the past two years, Tencent's WeChat had been the noose that tighten the neck of Sina's killer product, Weibo. Now that Tencent's own core product is under threat, Sina is going to get some breathing space.

Netease. This has to be the sweet heart deal of a life time. I bet Netease's CEO is smiling in his sleep tonight. Even in the unlikely event that this new venture fell. Netease will still make out like a bandit. Since Netease is in charge of the marketing and technical development of the new company, all of Netease's product can get access to China Telecom's users in the name of cross promotion. Just imaging the following: Netease developed a new game. In the name of cross promotion, it can leave a message to the home phone of all the Chinese in all southern provinces that says any new users of the new product can have free in-game items of the new game. One can't get more exposure than that. Now, all of Netease products can get access to all the home phones and internet connections in all of China's Southern provinces. They also get access to the largest Wi-Fi network and the number 3 mobile phone network. No amount of sales and marketing can get access like that.

Finally, the Iphone and Androit version of this new product, Yixin, had been developed. It can be downloaded here:
Yixin (in Chinese)



A test for now