Sohu – TL – Game Prediction

My previous post on TL can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/05/sohu-tl-game-progress.html

I had always have the idea that Netease is the best game company in China by far. But it is also a company like Apple. Just like a big fat apple, ready to be picked by a company like a Microsoft.

Netease is a great technology company. But it has so many flaws. The company has a distaste on marketing bordering on psychosis. It would try to save a few millions on marketing so it can spend 200 or 300 millions to buy back its own stocks.

It won’t expand its market share, it won’t buy companies or technology and it can’t do more than one thing at a time.

But how to be successful to be an online gaming in China? Easy, just follow what Netease do.

Kingsoft tried to do that. But Kingsoft has an overbearing CEO who think he knows everything.

I had been following TL for more than 6 months now. Sohu gives TL more than 100 developers and 3 years of time and ample of room for the developers to do their things.

It is also clear that Sohu will keeps on devoting resources to continuing updating TL.

In a nutshell, Sohu is following Netease’s formula to a tee. But Sohu definitely don’t have Netease’s distaste in marketing.

There is a difference in how to be a good paying game vs. free-to-play game. To be a good free-to-play game, you want the players to feel somewhat comfortable, but not too comfortable. It shall be somewhat fun to play for the players so they want to play the game. But it can’t be too much fun unless they pay for the in-game items.

TL seems to have the right balance. It allows for very liberal PK (player kills). There is definitely incentives for players to buy powerful swords, etc. so they can hold their own in PK battles. It allows for players castles. For gangs who want to develop their own castles and gangs, there are many things to buy. It will definitely be costly for the gangs to make their castle invincible.

I am certain that their recent experience in converting Blade Online from a paying game to a free-to-play game helps.

I used to think Sohu’s CEO could be somewhat overbearing. But Sohu, as a company, seems to slowly changing in the last 6 months. It is starting basic research in search. It build a lab (Sogou Lab) to do research on the internet. It is slowly mutating from a basic text-based internet company to a multimedia company. It has a game that will give Sohu a great run in the next 4 to 5 years. Dr. Charles Zhang seems to mutate from a CEO who gets into every details of the company into a CEO who gives out grand strategic vision while his vice-presidents do the day-to-day. Maybe the promotion of Dr. Yu Gong to COO had convert Sohu from a company of short-term profit (a company who would hide spyware in its software) into a company of long term vision.

Everybody seem to be so excited about next year, the year of Olympics. For me, I am more excited about 2009 and beyond when Sohu and Sina will mutate to completely different companies.

That mean there will be a lot of expanse on R&D in the next two years to prepare for the future. But for Sohu, there are the TL and Olympic to absorb the cost.

I guess that is the difference between me and almost everybody else. I see the Olympic and TL as merely the stepping stone for companies like Sohu and Sina to become the dominant multimedia companies of the next few decades.

That will also means they might disappoint the stock market as the margins fall. But they are not spending money out of the weakness, but out of strength. They are not spending money so they can keep their market share.

They are spending money so they can be one of the few dominant multimedia companies. It will allow them to be a dominant multimedia internet company. It would give them tremendous leverage in the 3G mobile phone’s content battle. It allows them into making new shows and TV productions. They could follow Sina and try to be the platform of choice for legal music and video contents (in case China does come down on piracy). They will also continue to invest in search.

For those who keeps on asking me of my prediction of what will the stock price be. I don’t give those out for the simple reason that I don’t really know myself.

I am a fundamental investor and I won’t do options. I try to find as much company information as I can. But I don’t really know how to put all these information into stock price prediction.

But I do know that TL will be a surprised hit.