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- Netease - TX2 - Adds new servers
- Netease - FF2 - Expansion pact close beta
- Netease – TX2 – Open beta preview
- NTES - TX2 - Only 4 servers
- NTES - TX2 - Video
- Netease - My takes on the 4Q conference call
- 4th Q Conference Call Highlight
- Netease - A great article on NTES
- Netease - TX2 - Open Beta on 3/1/2007
- Netease - FF2 Info
- Netease - DT - New Expansion Pact
- Netease - XYQ - servers consolidation
- XYQ's new expansion pact out on 1/23/2007
- XY2's last expansion pact
- Let us get this started
- ▼ February (15)
Wednesday, February 28, 2007
Within minutes after 12pm (China time), the 4 servers are flooded. Within 1 hour, NTES adds 5 new servers. That makes it to a total of 9 servers.
By 3:30pm (China time), another 7 is added. That makes it to a total of 16 servers.
It is still day time in China and most of the players are either in school or at work. That means NTES will add more new servers tonight (that will be tomorrow morning US time). I also predict another round of adding servers this weekend.
Again, FF2 is a licensed Korean game that will be Netease's first free-to-play game. It may not be as important as TX2 or XY3 in term of revenue. But it is very important to indicate if Netease can compete in the area of Free-to-play games.
Fly for Fun had been in open beta for 2 years now. Netease has allows the players to play for free for a whopping 2 years.
But FF2 will be a completely new game. Every part of the game will be rewritten by Netease, even the game engine is written from the ground up. But before they come out with FF2, Netease will come out with a major expansion pact for FF.
But this expansion pact is no ordinary expansion pact. It will be powered by the brand new game engine that will eventually power FF2.
Therefore, this expansion pact will need to go through the close beta -> open beta cycle.
Tomorrow (3/1/2007), FF with expansion pact will go into closed beta. More than 50k players had signed up to participate in the closed beta. Will be interesting to see if the players like it.
From the behavior of this expansion pact, we can find out how stable is the underlining game engine. If the game engine is stable, FF2 will have a good probability of being a good game.
I think this is a great game. I think it is going to be a game that will be as popular as WOW (World of Warcraft) in China. But I don’t think it will get there right away. It will probably have moderate success at the beginning and start to build up from there.
The reason for my optimism:
1). Excellent 3D game. Right now, there is only one other Chinese made 3D game that has graphics as good as TX2, that is Perfect World. But Perfect World is not a real success (for many reasons that won’t affect TX2). Multiple Korean games have great graphics, but they suffer multiple ill effects that usually associated with Korean games.
2). Feels like Ancient China. Perfect World feels more like foreign games. People can tolerate the wizards, knights, witches, etc. when there is no choice out there. But TX2 give them the choice to play ancient chinese mythology rather than ancient England mythology.
3). NCTY drops the ball. The only game that can stop TX2 on its track is the WOW expansion pact, the Burning Crusade. But according to NCTY’s conference call, it won’t be out until end of 2Q. That means TX2 has 3 to 4 months of head start to gather momentum.
4). Unique game play. TX2 has everything that XY2 and XYQ has. But it will also have something that is unique that even WOW and other foreign games doesn’t. It will have PvP (player vs. player) on the massive scale in the form of castle warfare. Other games has PvP, but never close to the scale that TX2 would like to be (can they do it, see below)
5). The Netease way. When it comes down to it, Chinese like the way XY2 and XYQ plays. They like the economic system, the marriage system, the friend system, the tribe system, the market-trading system, the promotion system, … TX2 will have all of that.
However, there are two unknowns that can possibly stop TX2:
1). Game program refinement: The game engine for TX2 is the Big World from Australia and this game is the first 3d game made by NTES. There are two ways this can be a problem:
(a). Unstable server. They may not be able to write the server software to keep the server stable under stress. They did a stress test on the servers about 1 month ago. It is clear that they are satisfy with the result that they goes to open beta soon afterward. This doesn’t seem like a problem any more.
(b). Resource hog on users computer. This does seem like a problem. TX2 takes more resource than WOW on users computers. A lot of users are not able to turn on many eye-candies to play the game without the game turn stuttering. But there are two things that works in favor of TX2. First, it is 2 years after WOW was out and there are a lot more newer computers in China out there that can play TX2 satisfactorially. Second, Netease is still working on this and making progress on every revision.
From what I gather, a computer that has a spec of AMD 1.7G, 1G memory, and nVidia MX440 can probably gets to play TX2 satisfactorialy (about 15-20 fps) with many graphic options turn off. That is about a 4 year old budget computer (with memory upgrade from 250M to 1G). A 2 years old main stream PC with a video card of ATI 800GTO or nVidia 6600 (with memory upgrade from 500M to 1G) can pretty much play TX2 with all the options on and fps greater than 30.
A game like that won’t have any problem if it is in the US. But I don’t think average Chinese player has computers as powerful as average US player. Still, I don’t think this is the deal stopper.
2). Is there a paradigm shift in the market? This is the one thousand dollars question. Can any new game that is not free-to-play pay-for-item thrive? There are conflicting evidence that can go either ways. Paying games like WOW, XY2, and XYQ are still growing. That means pay-to-play games can still thrive.
On the other hand, in the last 2 years, no NEW pay-to-play games are successful. That seems to suggest that the gaming market in China had complete changed to the free-to-play model.
Is there a paradigm shift in the Chinese market? I don’t know and NTES doesn’t know. But we will find out soon.
But some times, I do have reservations about their marketing (or lack of).
They are going to start out with 4 servers for the 3/1 open beta.
So far, they haven't really even started their marketing champaign yet (just on some game websites or QQ).
I know they will overflow and they will add new servers after half an hour. But only 4 to start out with? To provide some perspective, XYQ has about 460 servers.
Tuesday, February 27, 2007
I also don't think much about that disastrous conference call. I don't think Netease ever had a good conference call. So, nothing new there.
I think the success of TX2 has much more effect than any conference call or any short term general market correction.
TX2 is going on real open beta on 3/1/2007. Let's see what TX2 is really like:
Official trailer (right click and save):
This trailer is 6 months old, the custume and graphics had changed completely since this trailer was out. Today is the day before open beta and NTES hadn't had a more recent trailer out yet. This speaks volume about how little they cared about marketing!
Anyway, it is just an official trailer and it is pretty. But it really doesn't offer much insight to us investors.
However, there are many fan made video. When players play the game, they captured the the game-play real time. Then they made a production out of these captured video.
These fan made video provides great insights to us investors because they show us the game in action.
Note that not all player have great computers, some computer don't play with all the eye-candies on. This creates video degradation. The act of video capture also create video degradation. The composition of the final video from different pieces also create video quality degradation. After the video is made, it is compressed so it can be of a small size to be downloaded. This creates video degradation.
In a nutshell, just remember these video don't represent the quality of the real TX2.
The fan-made movies (right click and save):
Righteous and Evil: http://www.dwcq3.com/down/TX2_video.avi
YunLu (Castle in the Sky): http://xyqu.com/video/yunlu_final1.wmvHave fun evaluating the game.
The management seems to have an adversary view on the stock analysts. Seems like Jekyll and Hyde. They treated their customers so well while it seems they can hardly tolerate those analysts (both Chinese and American alike).
Looks like this company is still run like a high tech start up company. All the people in management are technical guys. I don’t think MBA, marketing, etc. are their forte.
In 3Q conference call, they said they won’t provide guidance no more, and they didn’t in 4Q. In some ways, it makes sense. They are going to have so many new games coming out this year. Their guidance is probably not going to be much better than my guess. Again, I doubt they have a big rigorous structure and big marketing team where they would spend 6 months on doing a thorough marketing study. The advantage is they can be nimble and be able to change on a dime, the disadvantage is they can seem going blind some times. Again, a company ran like a high-tech start-up.
Because the company managers are clearly not enjoying this, even though they had a great quarter (blow away both earning and revenue), they just won’t divulge much information. You would get a lot more information from my blog than the conference call.
Let me run through some interesting stuff.
Effective tax rate for 2007 in the low teens. It was 10% for 2006. This can’t be good news. But what does that mean. 11% or 15%? Company is not telling. For a bunch of tech guys, they probably don’t really know.
They have a junior partner in search. They are also looking for partners to run their travel, health, and culture channel. I like it. To me, it is thinking outside of box. For peripheral business, you want to grow it, but you don’t have the time necessary to manage it properly. Might as well get somebody to do it. It is human nature that if it is a company employee, it is just a job to him and he probably doesn’t care. But if it is his baby, he would go night and day to get it right. NTES can always hire him as a manager later if it works out.
By the way, I enjoy the firework between that Citigroup analyst and the company management. That citigroup analyst asked some great questions and some not so great question.
First, the Citigroup analyst asked for the PCU and ACU for the TX2. No answer is given. Actually, I could have tell him the answer. The answer for PCU is 10k. Why? Because there are only two servers and each server can support a maximum of about 5k users.
NTES gave out 100k user accounts but they never expect to have more than 10k users at any given times. This information is out there 4 or 5 months ago. Nothing new.
As a matter of fact, just one month ago, they had an activity called “Crash the Server”. They would get as many players on it as possible to test the server load.
There is absolutely no reason for NTES to keep track of PCU or ACU at this point for TX2.
Second, the management first said they won’t license foreign game in 3Q, but in the 4Q call, they said they won’t reject to license foreign games or buy foreign R&D companies.
I like it. I hated it when they said they won’t license foreign games in 3Q. They will always be an in-house game company. But I want them to bid for game if not to actually license the game but to jack up the price of license and make the life of their competitors (NCTY, SNDA) hard.
But mostly, it is just the way these managers are. They really do change their mind quite frequently.
FF2 is probably the 2nd most important new game by NTES this year. It is going to be the first free-to-play game made by NTES. Guess what, it is a licensed game. It is a Korean game. NTES definitely will license foreign games.
From these two reason, the Citigroup analyst deducted that TX2 might not do well. I would talk about what I feel about TX2 in a day or two. But these two are definitely not the reasons to say how well or how badly TX2 will do.
The Citigroup analyst also asked a great question about what’s their strategy on video. The company management gave an answer that qualify as the worst answer of the year. Basically, he just said he doesn’t have a plan.
Again, knowing the management style, I am not very worry at all. But I will start to keep track of their video activities.
Finally, the company management feels their portal, email, blog technology is much better than their peers. That catches my ear. If it is other companies, it is expected for the company to show confidence. But Netease management is so low key that I actually starts to pay attention.
- Effective tax rate for 2006 is 10%, expect to be in the low teens for 2007.
- 4Q06: XY2: 28% XYQ: 70% DT: 2%
- XY3 is going to be a pay-to-play game, the same price
- Anti-addiction system will affect all companies. Don’t see big impact.
- weakness in 4Q is because NTES reduced the number of ads on its front page. They will increase the price per ad, but haven’t start it yet.
- Developing search engine. Open beta in 2Q. Search engine is developed with a junior partner (NTES 75% and partner has 25%)
- Cancel the travel, health, and culture channel. Looking for partners to run these channels. So to concentrate on the news and entertainment channel.
- The three big area is Email, Blog, and Contents. Feels like the technology is much better than their peers. Concentrate on integration.
- Video is part of the content. No specific plan right now.
Friday, February 23, 2007
- Both XY2 and XYQ hit a rough spot after the Japanese flag incident. But they are growing again. XYQ hits an all time high on December while XY2 hit an all time high on October.
- In 2007, XY3 will be replacing XY2. XY3 will have a completely new engine and graphics. All of XY2’s player statistics will be ported to XY3.
- Haven’t start the sequel to XYQ yet. But XYQ will have an expansion pact in January.
- Doing fundamental research on mobile games. But no plan in sight to have an actual game out.
- DaTang2 will be free-to-play. Has not made a decision on whether Fly for Fun 2 will use free-to-play model yet, but mostly like will also.
- Has no plan to export game.
- Feels the core value of the management is to provide employee a fun working environment.
- Doesn’t believe that player will play Netease’s game because it is made by Netease. Believe players play Netease’s game because of the games themselves.
- Talked about the popular ZhengTu game. Says Netease is trying to learn from ZhengTu in how to marketing the game and how to promote the game. Feels by seeing how ZhengTu doing its on-line game, Netease can learn a lot from it.
- Give prop to Shanda for completely change their games to free-to-play models.
- TX2 will probably in commercial operation on March 2007.
the link: http://tx2.163.com/2007/2/5/413_155967.html
It probably has something to do with the recent NCTY's announcement that WOW's expansion pact, the Burning Crusade, is coming to China.
I don't think the open beta will last more than 1 month. My best guess is commercial operation on late March.
I don't NCTY can modify the WOW expansion pact fast enough. Thus, it will probably give TX2 a few months to gather momentum.
Fly for Fun 2 will be Netease's answer to the free-to-play model. I think in the next year, Netease will come out with 3 free-to-play games (money will be made by selling in-game items).
FF2 will be Netease's first free-to-play game. On 1/27/2007, 19 selected guests will be invited for the announcement party.
Info. on the announcement party:
As expected, on 1/27/2007, NTES had an announcement party with 19 invited player guests. Many interesting information is being shared. The most interesting is this game can basically break into three different games.
I will give a summary of the three games as follows:
(I). The Current Fly for Fun:
I believe the current FF is still officially in open beta. That is NTES allows players play for free. NTES did not get any money at all.
At this point, the average concurrent users is about 10k. The number of users (not concurrent) is about 100k per day. After each patch, there are about 2000k unique downloads. That is, there is a sizeable users.
July, 2004 - Bought the game from a Korean company. NTES will build on top of the game to add play features, etc.
July/2004 to December/2004 – NTES adds playing features. But NTES found out that the underlining game engine is very limiting and has severe flaws.
December/2004 – FF goes into open beta.
December/2004 to Now – FF stays in open beta.
(II) Fly for Fun with major expansion pact:
December/2004 to June/2005 – NTES tries to fix the game engine.
June/2005 – It is determined that the game engine is not salvageable.
6/2005 to 7/2006 – NTES rewrite the game engine and build one from the ground up.
7/2006 – FF development team (20+ developers) breaks up into two teams. One will develop the expansion pact and another will develop FF2.
8/2006 to 2/2007 – The expansion pact will use the brand new game engine but will reuse all the graphics and the play features. The expansion pact will provides about 50% more playing features than the old FF.
3/2007 – Close Beta
4/2007 – Release to all players.
Again, this is complete free to the players. The fact that Netease is willing to do this for the players says much about Netease as a company.
As an investor, I don't know if I shall be laughing or crying. To an investor, this is just money down the drain. But to the ordinary players, Netease is doing something no just unheard of in China, but to the rest of the world also.
(III). Fly for Fun 2
NTES has not determined the name of the new game yet. I will call this new game FF2 for now.
8/2006 to 2/2007 – another team is working on this new game. In addition to the new game engine, the graphics, playing features, etc. will be written from the ground up. There are probably 2% reusable graphics from the old FF to keep some familiarity for the existing players. But this is basically a brand new game.
5/2007 – Closed beta
7/2007 or 8/2007 – open beta
To the investors, this is the game that really counts. This is going to be Netease's first foray into the play-for-free pay-for-items model.
The first part of the new pact is released on 1/16/2007. It is to be released on two servers only. If no major bugs were detected, it will be released to the rest of the servers next week. The second parts of the expansion pact will be released next.
The link that provides the details of the nine major functions on the first part of the expansion pact:
The second part of the pact comes out over two weeks, on 2/6/2007, and 2/13/2007, the info:
XYQ typically adds 1 or 2 new servers every week. Those new servers attracts users from old servers. In addition, some times a gang, a clicq, or group left the old server for whatever reason, and the old server are left with very little users. That created unbalance in the economic, and social system in the old server. As a result, more users migrated to the new servers. After a while, you created "ghost servers".
XYQ is undergoing server consolidation right now (from December 2006 to March 2007).
But to avoid user confusion, the servers being consolidated will still exist (in name only) on the server status page.
What that means to the server counter is that there will be multiple double counts and the counted results will be artificially high.
The link about server consolidation:
Info on the new expansion pact:
With the major expansion pact from both XY2 and XYQ out, (DaTang's also coming out with expansion), we are probably going to see much increased user numbers in the next 3 months.
Then after that we will probably see launch of TX2 (a game that will have the potential to eventually rival XY2).
After that, two free-to-play games (FF3 and another game based on DaTang engine) shall be out after TX2.
Right after that, XY3 shall be out.
2007 is going to be an extremely busy year for Netease. At least two major games (TX2 and XY3) will be out as well as 2 free-to-play games. Those are just the minimal amount of games that we know so far. Most likely there will be more.
2007 is going to be a very fruitful year for Netease investors.
Thursday, February 22, 2007
Based on my background (born in Taiwan which has identical culture and went through this process before) I am absolutely convinced that in the next 20 years, China will keep on growing at an extremely healthy clip. I would like to take advantage of it.
I don't trust the stocks listed on the mainland china because I don't trust their accounting standard.
That limits me to the stocks listed in US stock exchanges. I also don't like state own companies (I am a true capitalist pig!). Therefore, I won't be interested in companies like China Mobile or Unicom until they go completely private.
I created this blog to document my thinking process as well as any new information that I found out. Because of the language differences, many little tidbits of information are out there on the Chinese press can be lost here. I will try to document them here.
This blog is really only for my personal use only. But if it benefit other people, that is fine also.
Don't know how much longer I can do this. But lets get this started.