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.

Wednesday, April 25, 2007

NCTY – SUN – Background Information

My last post on SUN can be found:

SUN went to open beta in China on April 18, 2007. It is extremely difficult to find any review for Soul of the Ultimate Nation (SUN). But let me just writes down all the things I think is interesting.

It is a MMORPG produced by Webzen, a Korean company. SUN had undergone multiple betas in Korea from September 2005 to May 2006. I had heard conflicting reports of SUN goes into commercial operation either on May or November 2006 in Korea. SUN went into open beta on December 20, 2006 in Taiwan.

Therefore, like all other foreign games, it shall be an extremely stable game with full playing features by the time of open beta in China. It is a free-to-play game.

NCTY purchased the right to this game for a sum of 18 millions with 22% royalty.

For the life of me, I can’t find any information regards to the success of this game in Korea or Taiwan. If this game is a great success in Korea or Taiwan, Webzen and NCTY would have publicized it. Therefore, I don’t think this game was a great success in either Korea or Taiwan. If anybody has more information about this, please let me know.

Let me talk about the unique features of the game play. For large scale combat such as siege warfare, SUN uses a combat map with partitions that divides players into multiple fields each containing 20-40 characters; the outcome each battle having direct affects on the combat occurring on other fields.

There are three types of maps. The mission maps are the primary places where players play the mission. The hunting maps are for tracking down monsters. The quest maps are for the quests.

There is a battle zone system. Players create “room” for battles. Players can select different types of maps, set the entry numbers, degree of difficulty and types of monsters.

Players go from missions to missions. When the current mission is near completion, tips will appear for the player to go to the next mission. There are also side quests to complete.

One thing that could slow down SUN is its high minimum PC requirement. It has higher PC requirement than even Ntes’ TX2. Its minimum requirement is Pentium 4 1.8GHz CPU, 512MB of RAM, and GeForce TI4200 or ATI Radeon 9200 GPU.

Except for a few areas, this game doesn’t really sound all that impressive. But NCTY had done a marvelous job in marketing this game in China. There is a tremendous amount of curiosity about this game. There is no doubt that this game had generated insane amount of hype at the beginning. You really have to tip your hat to NCTY for its mastery of marketing.

At this point, SUN is definitely one of the most advanced games (in terms of graphics, and technologies) among all the free-to-play games. Compared with the recent hit, Sohu’s TL, I think SUN will open the gate faster. There is no comparison in the quality of graphics between TL and SUN. SUN is also much more polished at this point (considering that SUN had being in commercial operation for many months while TL is not even in open beta).

But because of its high PC requirements and because it is an import, while TL would most likely have a great run of 4 to 5 years, SUN will most likely fade in a year. But in the short term, SUN will steal a lot of thunders from TL.

Monday, April 23, 2007

Rumored China Mobile’s (CHL) WAP policy change

Imaging the following scenario:

Southwestern Bell is your internet service provider. It is Saturday and you just got up. You decided to browse the internet. You turned on the computer and opened internet explorer. You would like to go to www.cbs.com

But instead of going there directly, you were re-directed to www.news.swbell.com first. You would need to click one more time before you were allowed to go to www.cbs.com.

Next, you would like to go to www.youtube.com. But youtube.com is classified by Southwestern Bell as a “black” site. First you are redirected to www.video.swbell.com. If you insist to go to youtube.com, you will get a message saying since youtube.com is considered a “black” site, you will be charged additional fee based on how much traffic you use through www.youtube.com.

Yes, I am talking about the sorry state of Wireless Value Added Service (WVAS). Here, in the United States, there is no WVAS industry since all the major service providers such as Sprint or Verizon had complete killed off any independent WVAS companies.

But in China, there used to be a thriving industry of WVAS companies. A lot of WVAS companies are unethical, but just like early days of internet, eventually, the bad will get weeded out.

But instead of following Japan, the WVAS industry is following USA where a whole industry died out because it allows the service providers (like China mobile or China Unicom) to be both competitor and regulator.

According to the following two links (this is reported in all major portals, I only provide the two links for representation purpose):

On May 17, China Mobile is going to have three policy changes.

When 3G arrives in China, WAP will be the most lucrative business. As a result, there are 10’s of thousand independent WAP sites coming out in the last two years. China Mobile’s own WAP site is losing market share fast.

Against this backdrop, CHL is going to publish three policy changes on May 17, 2007. The policy changes are done in the name of providing a filtering service to protect the public from harmful contents. The proposed changes are:

1). All WAP web sites will be first redirect to CHL’s WAP site first before going to the intended WAP site.
2). All WAP companies will be classified into three categories: White, Grey, and Black. Users could get complete access to the white’s site. But the white site is on CHL’s WAP platform. Users might not even know he/she is on company white’s web site. Users can only get limited access to the Grey sites. Users either can’t access Black web sites, or requires extra bandwidth charge to access Black sites.
3). Users will be charged extra bandwidth charges for going to Black sites.

I am sure all these represents extra revenues to CHL in the short term. That is until they kill off the whole industry. Then nobody make any money.

At this point, this is a very reliable rumor. I think if there is little public outcry, the rumor will become policy.

Is this what China really wants, the extinction of a thriving industry?

I don’t blame CHL. They are just doing what all monopoly is suppose to do. But how dumb can the Chinese regulator gets. How can they let a competitor be a regulator?

What is next, let a fox guards a hen house? Or a cat protects a bird nest?

Thursday, April 19, 2007

Sina – Investment Conference Presentation – Part 3 –

Sina Presentation – Part 3 – My Comments

For part 2, see http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-investment-conference-presentation_18.html

Future is looking bright for Sina. By replacing video ads for text ads, she can charge more per ads. In addition, she is going into so many exciting new business areas.

Sina truly has many strong channels. As times go by, especially with more multimedia contents, the cost of entry will increase and the number of competitors will decrease. In addition to just ad based, many channels can be fee based. For example, Sina is number 1 in both the finance channel and auto channel. I am certain there are premier products Sina can develop that would be fee-based in those two channels.

Sina is also number 1 in sports channel, 3 times bigger than the next competitor. For the 2008 Olympics, Sina has to be the biggest beneficiary. Because Sohu is the official sponsor, I don’t think Sina can get 3 times the Olympic revenue of Sohu. Or in other words, Sina will benefit the most from Olympic in absolute term while Sohu might benefit the most from Olympic in percentage term. Nevertheless, Sina will benefit greatly from the Olympics.

On the mobile front, I don’t see mobile continues to go down by 15% for the next two years. But I guess one would never know. But most importantly, by 2008, if 3G really gets started, Sina might found herself in a different business model.

Rather than just two mobile telecom operators (Mobile and Unicom), there will be 4 (maybe even more). Rather than just a service provider, Sina would be a content provider. Her music boxes gives her great music contents. Her WAP and portal gives her great news contents. Her video initiative gives her great video contents.

Right now, in the current SP model, we have 2 mobile providers with hundreds or thousands of SPs, the power resides in the mobile providers. But if we have 4 or 5 mobile providers and maybe 4 or 5 dominant content providers, the business model will be different.

Right now, life is hard to be a mobile service provider. But after 3G, the cost of entry is so high to be a dominant content provider; only giants like Sina can be one. By then, the equation of power would have shifted. The power of the mobile operators and the content providers will be of equal footing. That would only mean good things for the industry as a whole.

It is interesting that Sina is developing Sina Music Box. It is hard to see how can this initiative can be successful unless China really crack down on piracy. Would China go after Baidu or Sogou or Yahoo? I don’t know. But if I can figure out a way to track its popularity, it might be a fun thing to do.

Sina is probably doing the same thing on the video front. It is probably going into the video aggregator business. If Sina can do what she does on the Music Box, she has a much better chance of success. These P2P startups are in a much weaker position than Baidu or Sohu. Even though they are darlings of venture capitalists now, but they are not Baidu and Sohu. The record companies can’t stop Baidu or Sohu from searching pirated songs. On the other hands, Chinese TV stations like CCTV can (and had) stop these P2P startups from “officially” provide CCTV programs on their programs. It is entirely possible that even if Sina music box fails, the experience would carry over to allow Sina to develop a successful “Sina video box”.

The recent punitive measure from USA to pressure China on the piracy front is good news for Sina. Her Sina Music Box and her video initiatives only carry legal contents. Sina’s music and video platform initiatives can only work when China starts to take piracy seriously.

Finally, Sina is in such a strong position and is going after so many promising new businesses, with their track record of great executions, it is hard not to like the company. But its so expansive. Its PE is 50.1 (compare with 32.2 for Sohu and 15 for Ntes). Most of its major new business expansion won’t start to see profit kick in until 2008 (Olympic in 2008, video ads and embedded video ads in 2008, 3g mobile contents in 2009, other initiatives like video TV channels, video aggregator business, music box, fee based services for premium financial and auto contents maybe in 2009 or latter). There doesn’t seem to have a kicker in the short term.
My final verdict: as long as Charles Chao is the CEO, own Sina until retirement. That is if one can find a reasonable point of entry.

Wednesday, April 18, 2007

Sina – Investment Conference Presentation – Part 2 –

Sina Presentation – Part 2 – Mobile and P2P
For part 1, see http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-investment-conference-presentation.html

Mobile -

Next, Charles Chao, CEO of Sina, talked about the mobile business. He think under the current model, the SP model, the mobile business will continue the decline. But for the long term, he believe many users will access the internet through mobile phones.

Sina is currently doing two things for the long term future:
1. All the efforts Sina is doing on the portal side, be it contents or applications, all have mobile phones in mind.
2. Invest in the free WAP service.

He see the future business models for the mobile phone business is:
1. through advertising and
2. through m-commerce (similar to e-commerce on the internet).

He thinks for the next two years, ad will grow 40% YoY, while mobile will decrease by 15% YoY. Thus, by 2008, mobile will present a very minor part of Sina.

P2P –

In the Q&A session, he talked about the challenge he faces from the new startups. There are many startups in China who have a head start on blogs and P2P. They are the hottest recipients for venture capitalist’s funding right now. But he believe these companies’ products can be easily copied. They will be crushed by big established company’s like Sina. Sina is starting to dominate the blog in china and will likely do so on video sharing or P2P (point to point).

In part 3, I would have my comments.

Tuesday, April 17, 2007

Sina – Investment Conference Presentation – Part 1 –

Sina Presentation – Part 1 – Advertising
On 3/28/2007, Charles Chao, the CEO of Sina, gave a presentation in the 10th Credit Swisse Asian Investment Conference. His presentation provides a roadmap of where Sina is going.

The following is the main point of his presentation:

Sina is consists of five major business lines:
1. SINA.com (online news and content)
2. SINA Community (community-based services and games) – blog, podcasting, video, instant messaging, casual games.
3. SINA Mobile (mobile value-added services)
4. SINA.net (search and enterprise services)
5. SINA E-Commerce (online shopping)

On the advertising part of Sina:
- Online ad. is expected to grow 35% YoY per year for the next five years.
- Sina generates traffics from its contents (most other companies from sticky applications.) Content offering generates 70 – 75% of traffic.
- Used to be content aggregator for traditional media.
- Starting last year, Sina placed much emphasis on self generated contents and user generated contents.
- Right now, it is focusing on the multimedia content, specially the video contents and the multi-device contents (PC & Mobile Phone).
- Currently has more than 2000 media companies as partners.
- Starting 3 years ago, put great effort in self developed contents. It builds its own editorial staff. In the entertainment area, most contents are self generated. An example is Sina VIP chat where it interviews more than 10,000 celebrities (or is it 10,000 celebrities’ interviews).
- The following channels are specially:
- News: number 1 in China
- Sports: number 1 in China, 3 times bigger than the next competitor
- Finance: 1st in China. It experiences five times traffic growth in 2006.
- Auto: 1st in China for all media company (not just online).
- Entertainment: 1st in China.
- Technology:
- Women channel

Next, he talked about the users generated contents. Starting from late 2005, Sina starts to work on user generated contents.
- Sina Blog: It already has more than 30% of market share. The contents of Blogs also contributes to the portal. For example, some celebrity wrote a scoop on the Sina Blog, Sina news picked up the story and it become big national stories. It really helps both the Blog and the portal.
- Sina podcasting (youtube-like service): Launched 3 months ago and had already become one of the leaders. It integrates with Sina Blog and vertical portal channels. Sina will invest in this in 2007. It hopes for video ads in the long term.
- Sina circle: a Facebook, Myspace like service.
- Sina Post-it: Online classified ads.

After that, Charles talks about Sina’s Multimedia effort:
- podcasting
- Sina Video: Becoming like TV stations. One major accomplishment is in the popular sports match. Sina cornered the European football area.
- Sina Music Box: All legal music. It has 400,000 songs on the platform already. It shares advertising money. It allows for free listening on the PCs. It charges for the mobile download. Eventually, Sina hopes to be the default music platform in China.

In part 2, I will have what Charles Chao said about Mobile and Q&A session. Part 3 has my comments on his presentation.

Monday, April 16, 2007

Sohu – Video – Sohu starts video sharing?

Sohu starts video sharing?

For background information, see the following links for video related info:


One thing I was disappointed in Sohu is its apparent lack of a youtube-like video sharing service. I felt it is extremely short sighted on Sohu’s part to not get into this business.

But I came across something interesting as I investigating some games for another article. It seems Sohu does have video sharing site. Except it is not really Sohu’s.

It actually is part of 17173.com. 17173.com is Sohu’s premier game site. Interestingly, 17173.com provides video sharing service. It has the link:


Its web site is as follows:

The graphic is self-evident. It is just a video sharing site modeled after youtube.

But why is it part of 17173.com but not part of sohu.com? It could be part of Sohu’s blog service or part of Sohu’s video service. But I went to these two Sohu channels and could’t find any youtube like video sharing service.

Does this new service in 17173 serves as an experimental platform for the real thing in Sohu.com later? But why goes through all this trouble? It is much easier just start a trial service in Sohu.com to begin with.

Or is Sohu going to offer multiple video sharing services, one for each major channel (game, news, etc.)? But why? That doesn’t sound like a smart strategy.

Or is this a case of left hand (17173.com) doesn’t know what right hand (Sohu.com) is doing?

But either way, I am just glad that Sohu is starting to get into this business. But I hope Sohu can expand this service to cover more than game video.

Thursday, April 12, 2007

NCTY – SUN – Open Beta

On 4/18/2007, Soul of Ultimate Nation (SUN) will start open beta. It is going to be a free-to-play game. It is made by Webzen of Korea.

Like all Korean games, the graphics are gorgeous. Its PC requirements seems to be even higher than that of Ntes’s TX2, especially now that Ntes has optimized TX2 pretty well.

Unlike most other foreign games, SUN is not an old game. There were virtually no review for this game anywhere. Webzen doesn’t seem to plan to release this game to the west in any hurry.

Did Webzen make this game with Chinese market foremost in mind? Interesting.

That will mean this game will have to go through what Ntes’s games or Sohu’s TL have to go through. It will be pretty rough (with lots of bugs) at the start.

By all indications, SUN will be extremely hot starting open beta.

But will Chinese players tolerate a foreign game that is buggy at the beginning? Probably yes.

Will SUN fades quickly from the scene like most foreign games in China? Well, that depends on whether Webzen and NCTY can work together to provide bug fixes and adds new features quickly. The logistics to do that considering that NCTY and Webzen are not just in different cities, but different countries. Different companies also have different bureaucratic hurdles that needs adjustment to work together. The odds of these two working seamlessly together is not very high (not saying these are not two good companies).

The other recent NCTY game, Guild War, seems to fade rather quickly. I predicted quick start for this game. I also predicted it will fade quickly for this game.

It looks like I was right on both counts.

Wednesday, April 11, 2007

Sohu – Sogou – Gift for Sogou, part 2

God’s (Google’s) Gift for Sogou, part 2 – Conclusion

Today I am not going to talk about what Sohu "shall" do because it has some moralistic component to it. But rather I would talk about what Sohu "could" do to maximize this great opportunity.

I have to smile on how ironic this is. Google, with a reputation of the best technology and of highest ethics, got caught with their hands in the cookie jar. The victim, Sogou, is regarded as technologically 2nd tier and ethically challenged.

This is not Google’s first time getting caught stealing competitor’s code. Google stole some video player’s code before.

Google did the right thing in fessing up right away. They got their hand caught in the cookie jar. It is just too obvious. The result from Google’s Pinyin Input Method Editor is just to similar to that of Sogou’s. Even the mistakes are the same!

There is no way Google can hide it. By coming out with an apology, they try to stop this story dead on its track.

We don’t know exactly what Google stolen. But we do know it involves with two areas that Sogou is best at, Sogou Pinyin Input Method Editor and Sogou database (with world’s largest Chinese indexed web page database).

It is to Google’s advantage to stop this story as fast as it can. On the other hand, it will be to Sohu’s advantage to prolong this story as long as it can.

First of all, Sohu could change the subject of contention form Pinyin Input Method to Search database. Pinyin Input Method Editor is just a little useful tool that really doesn’t mean much. But Search and its embedded technology is the mother lode.

To maximize publicity, Sohu could advertise on all major newspapers with the demand that basically said that it believe this is only the tip of an iceberg. It demands source code for the Google search engine, Google Chinese database, Google Pinyin Input Method Editor, as well as all internal memos involved with the management strategy on the development of Google Chinese database and Google Pinyin Input Method Editor.

Will Google comply? Of course not. But it does keep the story going.

Sohu could make its CEO, President and Sogou chief designer available to all the TV interviews (and there will be tons of TV interviews if Sohu plays her cards right) telling why is it necessary for Sohu to have those information from Google. Talk about the possibility of a google spy in Sogou development team. 99.9% of Chinese are not going to know the intricacy of database programming or interface between front end query and back end database search. But they do know Google already confessed and Sogou is the victim.

Sohu has a wonderful story to push. USA is the sole superpower in the world and is the dominant number 1 in terms of technology. Information technology is the pinnacle for the current stage of technology revolution. Google is by far the standard bear of the Information revolution. Google is the number 1 company in the forefront of information technology revolution in the world’s sole superpower.

But even a company like that has to resort to stealing of a home grown Chinese company. That is because Sogou is absolutely the best (at least that is what Sohu could claim).

Talk about how Sogou has the best spider technology in the world. Not just best in indexing Chinese web pages, but web pages period. Have the Sogou Chief designer talked about Sogou's "made in china" spider technology and its crawling speed.

Sohu needs to keep concentrating on one point. It is not really about Pinyin Input, but search. It is not really about search of Chinese web pages but search technology of any web pages.

Hammering the point that why Google would went through the trouble to steal Pinyin Input Editor, a tool of so little significance and generates zero revenue? Google is really stealing the internal Sogou database search technology and Pinyin Input Editor just happened to manifest the result.

It is the best not because of some unnamed users said so, or some commentator said so, but because Google said so. Google say it, not with her mouth, but with her action. She is willing to suffer the consequence of getting caught. That alone shall say plenty of how good Sogou’s technology had become.

Sohu shall talk about this is the very first instance of truly significant reverse IP theft. We are not talking about toys or teddy bear, we are talking about database programming and search engine technology.

Talk about this is the first in modern Chinese history, but it won’t be the last. This is just the vanguard of things to come, as China resumes her rightful place as the “middle kingdom” of the world.

Yes, stroke average Chinese’s nationalistic instinct. Make this story as big as it can and as long as it can.

Place ad on all the major news paper with the demands. Sohu could grant interviews to major TV stations. To keep the story going, Sohu could go to court to sue Google for not complying with the demands.

Oh, if average Chinese want to know what the story is all about, tell them to download Sogou Toolbar. (and Sohu, please no more spy ware or uninstallable applications).

(By the way, do I believe in the above? Not really. But if Sohu can do it right and milk it for all its worth, as a Sohu stockholder, I am all happy. Besides, as China gets more capitalistic, it makes the world a better place.).

If Sohu can play it right, it will not just repair Sogou’s reputation. It will also make average Chinese users break their habit of using Baidu or Google and give Sogou a shot.

In summary, Sohu could do the following to maximize this opportunity:

1. Ask for oversized demands that google is not able to meet
2. Move the subject away from Pinyin Input Editor and toward internal database technology
3. Major marketing campaign on Sogou
4. Many TV interviews granted by Sohu executives and programmers.
5. Trying for a long and protracted negotiation process
6. Take Google to court
7. Again, trying for a long and protracted court proceeding

This thing is just starting. Let's see what would Sohu do.

Note: I just remember that this blog belong to google, I hope this article won’t get deleted.

Tuesday, April 10, 2007

Sohu – Sogou – Gift for Sogou, part 1

God’s (Google’s) Gift for Sogou, part 1 - Background

God smiled on Sogou today! In yesterday’s news, Google got caught when they try to steal Sohu’s programming code. See the link:


At this point, it is not very clear what part of code was stolen. But what is clear is God (or Google, but aren’t they the same entity) gives Sogou a great marketing opportunity.

I uses google (English) exclusively. My officemate uses Yahoo. One time, we try to compare and to my surprise, the result is virtually indistinguishable from each other. But no matter what happens, Yahoo can’t get American users to switch. It became a habit for American users to use google. And habit is hard to break.

The same thing faces sogou. Ever since Sogou v3.0 came out, it is competitive with Baidu and Google. If you go to the search engines comparison tool:

One can tell Sogou is very competitive. To this date (4/10/2007), Google has the best score with 18692 users ranked it as the best, Sogou is next with 17839 and Baidu is last with 15926.

I tried the test and I absolutely can’t tell who has the best search results. If I try it 6 times, the result will be 2 for Google, 2 for Sogou, 2 for Baidu.

One thing that Sogou is the best is it has 10.5 billion indexed pages as its database.

But Sogou has horrible reputation in China right now. Remember two years ago, in 2005, how strong was Sogou when the version 2.0 came out? See the following for the Alexa chart for Sogou:

The reason Sogou v2.0 was so hot has little to do with Sogou itself but has everything to do with a tool that Sohu pushes. That tool is called Sogou Toolbar. The following is the Sogou Toolbar:

As one can see, it has Sogou search, it has page ranking, it has TV, Music and RSS news feeder. It also has Popup blocker and download accelerator. If the users want, they can also put weather, stocks, etc. on the toolbox.

This is a great idea. Sohu knows if they want to get Chinese users to break the habit of using Google or Baidu, they have to give them something extra.

But in their haste, they did something abhorrent; they made Sogou Toolbar a spy ware. The toolbar will be downloaded to the Chinese users without their permission. Part of the toolbar is hard to uninstall.

Sogou did grow exponentially in 2005 for a period of six months, until Chinese users get sick of its practice.

Sohu no longer does that. But the damage is done. Sogou and Sogou Toolbar have a stench of bad reputation around them.

Sohu try to repair the damage by providing a free tool called Sogou Pinyin Input Method. And so far, that free tool seems to be pretty popular.

Another thing that is a little different in China is that, to a lot of Chinese, the number 2 (Google) has better technology than the number 1 (Baidu).

But for reasons out of control of Google, such as slow query time (because the server is not in China) and occasional blockage by Chinese government, Chinese users can’t form a habit to use Google.

Now, let me summarize the background information:

1. Sogou is technologically competitive to the leaders, Baidu and Google. Not better and not worse.
2. But Sogou does have the largest indexed web pages database.
3. Sohu tried to push Sogou through Sogou Toolbar. But it did it in unethical mean.
4. Sogou and Sogou toolbar has horrendous reputation as spy ware (even though Sohu had stopped that practice).
5. Sohu developed a free tool called Sogou Pinyin Input Method Editor to try to repair the tawdry image of Sogou.
6. Google actually has better reputation than all other search engines to many Chinese users.

In part 2, I will talk about what I think Sohu shall do.

Monday, April 9, 2007

Sina – Sohu – US vs. China Trade War Looming?

Today (April 9th, 2007) US filed with WTO two trade cases against China over copyright piracy and restrictions on the sale of American movies, music and books there.

This action, together with the recent penalties it places on China’s glossy paper, indicated the growing willingness on the US side to start a trade war.

It is going to be a long two years before the US election. US’s economy is growing so well, but that matters little to US politicians as they try to out-tough each other by appealing to American’s most basic instincts.

China is between a rock and a hard place. If they don’t do nothing or capitulate, US politicians would just add more and more punitive measures with no end in sight. If they do retaliate, it will be a trade war, and everybody suffers.

In terms of stopping piracy, it may be to China’s own self interests to start IP enforcement. As Chinese companies get more sophisticated, the result of their own R&D efforts needs protection. As many Chinese companies went up the value chain, they need IP protection.

Just like CCTV needs protection from these P2P companies, there is monetary incentive for the domestic media company to protect their contents.

All this has to be positive to Sina. Sina has the music box initiative where all the contents are legal. She is probably doing the same thing with the video.

If China really starts to get serious with piracy, in 2 years, the biggest winner might just be Sina. By then, she will have four brand new lucrative businesses: China’s default music platform on the internet, China’s default music platform for the 3G mobile phone, China default video platform on the internet, and China’s default video platform for the 3G mobile phones.

Sohu, are you listening? Better hurry up and get busy.

Friday, April 6, 2007

Sohu – TL – Final Closed Beta

Sohu’s TL game goes into final closed beta on 4/4/2007. But according to Sohu, anybody can get an account and the account will not be terminated. How is this any different than open beta? Nothing! My guess is that since this is Sohu’s first major internally developed game, they want to be absolutely certain. So if there are anything wrong, they can always pull it back before the “official” open beta.

Anyhow, the response had been overwhelming.

It starts out with 15 servers. All the servers overflows after 5 minutes. It adds 16 more servers (for a total of 31 servers) before the first day is over. After one day, 4/5/2007, it adds 3 more servers (total of 34 servers). On the third date, 4/6/07, it adds 8 more servers (total of 42 servers). So far into the fourth date, 4/7/07, it had added another 6 servers (total of 48 servers). And we are not even into the weekend yet!

Holy cow, only one word can describe this, tremendous success!!!

You would have never heard of this game in wall street. Sohu doesn’t talk about this game in its earning conference. But somehow, Sohu knows how to market its game in China and Chinese players knows a good game when they see one.

From now on, it is all up to Sohu on how it executes. It is still Sohu’s first major internally developed game. She will still hit some potholes. But indeed, the future looks bright.

Finally, I hope this game is free-to-play. If Sohu think this game can compete with the likes of TX2 or WOW, she will be badly mistaken.

If this game is free-to-play, and it will most likely be, it has to be bad news to SNDA and NCTY. It will also be bad news to the upcoming NTES’s two free-to-play games, DT2 and FF2.

Thursday, April 5, 2007

SINA – SOHU – NTES – Video Shootout part6

Video Shootout Part 6 – Conclusion

At this point, we are able to provide a side-by-side comparison of the three portals. On each category, I will assign a score next to each portal. The higher means better.

Number of stories with video contents – Sina 8, Sohu 4, Ntes 1
Peer-to-peer channels – Sina 1, Sohu 2, Ntes 0
% of original contents in the P2P channels – Sina 3, Sohu 5, Ntes 0
3rd party channels – Sina 20, Sohu 7, Ntes 0
Quality of the 3rd party channels – Sina 9, Sohu 4, Ntes 0
Cost of the contents (higher cost gives lower score) – Sina 2, Sohu 5, Ntes 10
Cost of the hardware and bandwidth (higher cost = lower score) – Sina 2, Sohu 5, Ntes 10
Youtube like service – Sina 10, Sohu 0, Ntes 0

Another way of ranking it is by the type of videos:
- Embedded Video (attached to a story): winner is Sina
- 3rd party TV channels: winner is Sina
- Self generated TV channels (through P2P technology): winner is Sohu
- User generated videos (youtube-like): winner is Sina

Now my comments on each company:
At this point, it is clear that Ntes is dropping the ball big time. One has to be very concerned with its video activities. Considering that it is dropping some channels on its portal, one has to be concerned on the execution of its portal strategy. Considering companies like FMCN that adds new areas every few months and is able to keep the management talent. Ntes really need to take a page from company like that. Can Netease do more than one thing (online game) at a time?

Instead of doing stock buy-back of 100 millions every few months, whey can’t they use the money for better execution and invest for the future? 3rd place in web portal is such a valuable asset, Ntes is really not using its asset wisely. I am afraid that Ntes is falling further and further behind other portals.

It is a little disappointing that Sohu doesn’t have Youtube-like service yet. A youtube like service gives Sohu tons of original video contents. And original video contents are the things that portals really need. I hope Sohu can start working on this.

By concentrating on original contents in its P2P TV channels, it is doing a better job than Sina and Ntes. Where is Sohu going? Is it going to have more channels so that it is becoming more of a TV stations with all the original contents? Are they going to create a TV news team? Whether they are successful or not depends on their execution.

Because Sohu is the official Olympic sponsor and is able to get lots of Olympic contents, if Sohu can build up competent editorial teams, news teams, and broadcast teams, it can really make some noise in 2008.

But in the end, I will have to give Sina the tentative nod for the time being. By signing up many 1st tier contents providers, it gets lots of embedded video in a hurry.

If China’s traditional TV stations start to get serious in combating piracy, Sina might just become the default online video stations of China.

In addition, it already had started the blog video (youtube like service). By signing up many celebrities, it gets traffic going quickly. By combining it with the blog and instant messaging, it has the potential to outdo all the stand-alone youtube-like companies in China.

At this point, there are hardly any ads on these video contents. Sina is burning cash to get market domination position. If successful, and with a little less piracy, 2008 could be the year to see explosive growth for Sina.

Final Notes:
I can break the state of video activities into six separate levels:

1. Just Text based content:
This is the basis. All three portals had achieved this.

2. Text Based contents with some video ads:
I did not rank video ads in this article. Video ads and video contents are related but different. Sohu has already started to do some very minor video ads.

A portal can have all text based content and still have video ads. I am absolutely certain all three portals will eventually have these video ads on their web site regardless how many video contents they have. Thus, I didn’t rank them.

But unlike TV, online video ads by themselves will probably be ignored by most users.

3. Multimedia contents (in the form of embedded video) with video ads:
From the experience of cnn.com or msnbc.com, they have 10 seconds video ads before any embedded video contents. Users will have to watch those video ads before they get to the content.

But most importantly, the portals of the future will provide the users a multimedia experience. I am absolutely certain that mostly text based portal will slowly die out.

It is in this area where Sina executed the best while Ntes disappoints. This is also a growth area that the web portals can be rewarded handsomely.

4. Self generated video contents with video ads:
This represents a brand new business that portals expand into. In some ways, its competitors are traditional TV stations like CCTV or Phoenix TVs. This represents a brand new revenue stream. It is clear that Sohu is doing the best in this area.

5. User generated video contents:
This is youtube-like service. I don’t really know if the web portal can run ads on these videos. It is still early in the game. Sina is the only portal that has started this. She has to compete with the dozen of early starters like 56.com. This represents a brand new business.

6. Video Content Aggregator business:
This is another brand new business. If successful, it can create very rich new revenue source. Its competitors are the independent P2P programs. But as mentioned in part 4 and 5, it is just such a big question mark. Sina is in the best position to get into this business. Not quite sure it can be rewarded in the short time. But the least it can do is to participate in China’s DTV standard development. At this point, it is still too early to see where Sina is going in this area. But one does need to keep track of its development.

Wednesday, April 4, 2007

SINA – SOHU – NTES – Video Shootout part5

Video Shootout Part 5 – Portals’ competitors – Others

TV –
Another major competitor is of course the regular TV.
First, the quality of TV is better than the streaming video on the computer. Second, it is more comfortable to be sitting on the couch than in front of a computer.

What can the web portals do?

The portals shall start by producing the kind of programming that will fit with the computer. If I were Sohu, I would give some grant money to some universities’ marketing apartment and drama apartments for them to investigate what kinds of programming fit better on the PC than on a TV.

An example can be a gaming channel where it show real time in-game plays for some popular show. For example, TX2’s castle warfare can make some great TV action.

Another good example is what Sohu does with Houston Rockets programs. CCTV carries some Houston Rockets games, but not all. Sohu carries the rest. The most popular shows on Sohu are the Houston Rocket’s games.

Sohu can do the same thing with the Olympic Games. CCTV is going to carry the cream of the Olympic programs like basketball and soccer. But Sohu can provide the 2nd tier programs, especially if they develop a strong TV program team (producers, cameramen, and editorial experts).

Secondly, by integrating online video with other computer tools; it will create a fuller experience than just watching TV. Computer tools such as users forum and instant messaging will allow the viewer a chance for truly 2 ways interactive experience.

How to put ads –

Somehow web portals have to make money out of all these video contents. The video from the 3rd party traditional TV station already has commercials in them. But web portals don’t get any money for these commercials. Somehow, web portals need to put their own commercials over the existing commercials. The more I think about it, this presents the most challenge. There are 4 ways the web portals can do:

More self generated content. For video channels such as Sohu’s S and V channels and Sina’s SinaTV, it will be easy to put video ads inside the video stream.

For 3rd party traditional TV channels such as CCTV channels, web portals can ask for a cut of the advertising dollars traditional TV stations get. Because the web portals created additional eyeballs than just traditional TV, CCTV is able to get more ad dollars. Web portals have the right to ask for part of the money. But this is not recommended. I don’t think traditional TV stations will like it. It also gives too much leverage to the traditional TV stations.

Right now all the TV programs are analog TVs. When the web portals receive the TV programs from traditional TV stations, they shall ask for 2 separate data streams. One is the analog TV stream and another is digital timing information. This digital timing information has the precise time of the existing commercials. The web portals can use this information to put web portals’ commercials on top of the original commercial. But this will require new equipment in the traditional TV studio. Web portals need to work with traditional TV studios and the hardware manufactures to come out with the equipment modifications.

China is going to start her digital TV initiatives. She is developing a new DTV standard. With digital TV stream, it doesn’t require two separate streams. The timing information for the commercials can be embedded inside the digital TV data stream. Web portals need to start working with the DTV standard developers to make sure this capability exists. But this is going to be a few years away.

In part 5, I will have the conclusion.

Tuesday, April 3, 2007

Sohu – TL – Game status

Was planning to continue with the Video article, but I think I need to report Sohu’s new game. I will continue with the Video article tomorrow.

TL is going to be Sohu’s flagship game. It could be a dark horse that surprises most people.

It is going into the final stage of external closed beta on April 4th, 2007. It will accept all applications and would not close the account at the end of closed beta. How is this different than open beta?

My guess is they are not absolute certain of the stability of the game and by claiming final closed beta, they could always pull it back.

They are starting to do marketing now. Since Sohu own 17173.com, it already has a very powerful marketing tool. In addition, they are letting the player select who would be TL’s spokesperson. By looking at the choice (all are the most famous movie stars), Sohu is sparing no expense. See link:

It is also starting cross promotion with Haier and Intel. It has Haier’s PC, with Intel’s CPU, running Sohu’s TL game. See link:

According to Sohu, Sohu spends 3 years and 100M (RMB) to develop TL. I believe it. Even through the graphics is not that hot, it has many features. It is a game with much playability. See the following link for some major play features:

According to the following link:
It will have 15 servers on 4/4/2007 and will be a free-to-play game.

At this point, Sohu is doing what Ntes is famous for, they take their time and effort to make great games. But Sohu is also much better in marketing.

TL is not going to be a revolutionary type of game. But it is extremely playable and fun. It graphic is not top notch. But it is acceptable and is accessible to even players with weak computer. It will most likely be a free-to-play game. In that genre, it will definitely be a top contender in the free-to-play genre.

At this point, it is too early to tell how successful this game will be. But I don’t think anybody in wallstreet has expected anything out of this game. This game could really give a good upside surprise later in 2007 and 2008. An unexpected 5 to 10 million extra revenue per quarter for a 35M/Q company will definitely surprise the street.

Sunday, April 1, 2007

SINA – SOHU – NTES – Video Shootout part4

Video Shootout Part 4 – Portals’ competitors – P2P

Independent P2P Video Streaming Programs -

Major competitors to the portals are actually the 3rd party P2P programs. Programs such as PPLive, PPStream, TVAnts, and TVKoo allow the users virtually all the programs on the internet for free.

If you want to watch a 007 movie, search for it and having it streaming to you. All the major TV channels in China can be found on these programs. In addition, these programs do not add any additional ads.

Let me give an example of these 3rd party P2P programs. Let me just use PPStream as an example. The following is the web site for PPStream, www.ppstream.com

Not much to see here. On the top, there is a button called Total Channels. Let me click that, and we go to the following page:

It goes to the first page of the complete TV schedules of all the programs that is currently playing. There are a total of 12 pages, each page has 30 TV programs, and a total of 349 TV channels that are playing at the same time.

That is 349 simultaneous TV programs that are playing at any given time. PPStream does not have to pay a dime to get any contents (they are pirated content). PPStream does not provide the content, but they do provide the schedule and organize it so any viewer can search for any video they want to watch.

There is no way the portals can afford to provide so much content.

So how can the portals compete?

Maybe this is the reason that Sohu is concentrating on self-generated contents. But in that case, the portals have to make the content interesting so people want to watch.

Another thing of interests happens in the last couple of months. Almost all 3rd party P2P programs stop claiming to carry certain CCTV channels. Actually, one can still use the program to get CCTV programming. But the program itself stops providing internet links to the CCTV programs. More importantly, the program no longer provides statistics of the links to the CCTV programs to the viewers. It makes it more difficult for the viewers to watch the CCTV video. As China gets more serious in stopping piracy, then Sina’s approach does make sense.

If China gets serious in stopping piracy (at least for China’s own channels), it might just be too cumbersome for Chinese viewers to use these 3rd party P2P programs. If Sina signed all the major channels in China, the user might go to Sina instead even though Sina’s video will have ads.

So far it is clear that if the Chinese TV channels care about it, they can put pressure on those 3rd party P2P programs to make these pirate programs’ life difficult.

For a local TV channel like Guangdong TV, there is no incentive for them to stop programs like PPStream. In fact, PPStream gets their TV contents more eyeballs.

This is where the portals can come in and be pro-active.

At this point, there is little incentive for most Chinese TV stations to care about P2P. But if a portal like Sina, Sohu, or Ntes can come in and provide revenue sharing with these TV stations. As these TV stations realize that they can make additional revenue (that is not available to them before) without doing anything extra, they will put pressure on these pirated P2P programs.

Of course, even if these 3rd party P2P programs stop claiming to support these TV stations, because of the distribute nature of P2P, TV programs like CCTV will still be carried on these 3rd party P2P programs.

Right now PPStream no longer claim to support CCTV, but one can still get CCTV on PPStream. But that would be easy for the portals to fix.

Because of the open nature of P2P technology, it is impossible to stop CCTV feed on PPStream. But the same open nature of P2P allows somebody (like Sina or Sohu) to create more CCTV feeds. Therefore, instead of 2 or 3 CCTV feeds on PPStream, there will be 20 or 30 feeds carrying the same program on PPStream. Because the main PPStream website is no longer allowed to provide link statistics, a viewer has to click on many feeds before he can get a good link. It makes for a cumbersome experience for the viewers to use PPStream to watch CCTV.

In summary, right now P2P programs like PPStream dominate the internet video market. They don’t give any revenue to the TV channels. But these TV channels don’t care because they are not in this market.

But there is a clear path for the portals to take this market away from these independent 3rd party P2P programs.

In part 5, I would talk about the other challenges that face the portals. Part 6 concludes this article.


A test for now