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Friday, August 29, 2008
There are significant developments on XY3. First, on 8/15/2008, XY3 had a new record. It achieves a new PCU record of greater than 170k. See the following link for the official announcement:
This is significant because the jury is still out on XY3 on whether it will be a successful game. If we tabulate the statistics of XY3 ever since its birth, we would have the following table:
4Q2007 1Q2008 2Q2008 3Q2008
XY3 PCU 163k 108k 123k > 170k
XY3 ACU 53k 46k 51k
From the above table, it is clear that after going through the initial weakness, XY3 is starting to grow. It is going to have two consecutive quarters of growth.
It is especially significant that the new record happened during the Olympics where most people are concentrated on the Olympics game. It is also significant that this new record didn't come about because of a new expansion pact. As matter of fact, NTES is going to come out with an expansion pact either late 3Q or 4Q. That means it will have continued strength through the 4th quarter 2008.
I remember that the CEO of GA (Giant Online) once said that he believed in blockbusters and when a game achieved a community of 200k, this game would then become self sustaining and will then becoming a blockbuster.
I think XY3 is starting to get there.
By the way, there is a new player movie that can be downloaded. This movie illustrates how beautiful is the game TX2. Better be hurry, the download link will only be available for three more days.
TX2 Download link.
Tuesday, August 26, 2008
Now that Olympics is over, so who won?
Certainly, there are independent survey organizations in China that will survey the popularity of China’s portals. Yes, there are.
But there is too much information, it is virtually impossible to make anything out of it. In addition, every portal would use part of these surveys to justify why they are number 1.
The following two independent articles give pretty good summaries of the confusion involved:
For qq.com (or Tencent), it quoted Alexa and Nelson rating to justify that they are the winner on China’s internet war during the Olympics. For Sina, it quotes Chinarank and CTR to say that it won. For Sohu, it quoted 8 different organizations’ (CNNIC, DCCI, iResearch, Analysys Internation, Tsinghai University, etc.) survey to justify that Sohu is the winner.
The following are articles from each portal to justify why she is the winner.
It is so confusing that it is virtually impossible to say for certain who won. I went though these articles a couples of times each and still having trouble making much sense.
But if I have to make a judgment, I would have to give the following impression.
Tencent has the dominant instant messaging service, qq. It uses qq to push the Olympics news to its users regardless whether its users want it or not. If you include the information that is delivered to the users (whether it is solicited or not), QQ would definitely be the number 1.
But if you only count the web traffic that is initiated by the users themselves, then it seems Sohu has the upper hand. Most of the survey results seem to give a slight upper hand to Sohu with Sina be the number 2.
In addition, the top two (Sohu and Sina) have traffics that are significantly greater than the next two (qq.com and Ntes).
While I think the biggest winner is Sohu, Sina definitely benefited greatly from the Olympics as well.
Tencent is an up and coming threat. It is able to leverage its dominant position on the instant messaging service to push into the portals. Every Chinese netizen has a qq IM on his/her desktop. When a text bubble with interesting Olympics news comes up, it is so tempting for the user to click on it. When they do, they would go into Tencent’s portal.
Having a stand alone desktop application gives the company so much leverage, it is also the reason Sohu is sparing no expense in its next secret weapon, Sogou Chinese Pinyin Input system. (But that is another story for future date).
While Sohu, Sina, and QQ.com have similar look and feel for their portals, Ntes’ portal is very distinct. Much like McIntosh in the US, Ntes’ portal has a very loyal following. In addition, while Ntes portal used to cater to the second and third tier companies, during the Olympics, I noticed that there are a lot of ads from 1st tier multi-national corporations on Ntes portal.
Monday, August 25, 2008
iResearch had just released a survey on China’s WAP (Wireless Access Point) market. It can be found here:
WVAS had been hammered badly in the last couple of years. But when all the bad news had been out, there is nowhere to go but up.
In addition, as China getting into 3G, the next frontier is in the area of mobile internet. Whoever has established a position on WAP would get the first bite of the big apple.
From the iResearch survey, its result can be summarized as follows:
QQ mobile (Tencent) has 34.9% of market
3G Portals have a combined market share of 18.5%
Sina mobile has a market share of 11.9%
Baidu mobile has a market share of 5.8%
China Mobile’s WAP has a market share of 5.0%
I was a little surprised at the strength of qq WAP. Sina had always been very strong in this area and this survey confirmed it.
This is going to be a very lucrative area in the next few years. In addition, as all the telecom operators busying re-organize, there will be a period of few years for other players such Sina, QQ and others to get established.
Sometimes iResearch’s survey can be inaccurate. But if this survey is accurate, QQ and Sina will be handsomely rewarded in the future. Sohu and Ntes need to start to get busy.
Wednesday, August 20, 2008
On 6/6/2008, NTES started the final “closed beta” of TX2. On 8/14/2008, during the 2nd quarter earning conference call, NTES call that was an “open beta”.
For the expansion pact, it would be released in three parts. The first part will be released by the end of August. The second part will be released by 9/24. The third part will be released by October.
The contents of the expansion pact are extremely substantial. In addition to the usual higher levels, new maps, new quests, new assignments and new equipments typically found in an expansion pact, it also has multiple new combat systems. Most importantly, it would come out with the calling card of TX2, the castle siege system.
For companies such as SOHU or GA who are much more sophisticated in marketing, they would have combined the three parts into two parts. Then they would have released it in two parts. The first part would be called open beta and second part called the first expansion pact. Then they would market the heck out of it. They would had start the marketing 6 months before the open beta. Have a great opening. After a couple of months, when the traffic is slowing, they would come out with an expansion pact (with another big marketing campaign).
But that is not NTES’s style. They tried to do it for DT and DT was a failure. They are going back to their root. They are not doing big marketing campaign at all.
It becomes clear to me that TX2 didn’t have the same big opening of NCTY’s WOW or Sohu’s TLBB. But that is by design.
Netease ignored all kind of opportunities to do marketing campaign. They did very little marketing for their final close beta on 6/6/2008. They don’t even bother to have an official open beta and go straight to the first expansion pact. And so far, they are not doing much marketing for the expansion pact as well.
So there are two ways to gauge the success of TX2. If you are expecting a great opening like that of GA’s ZhengTu, NCTY’s WOW, or Sohu’s TLBB, TX2 is a failure.
But if you are expecting a slow and steady growth until it becomes a mega-hit such as NTES’s XYQ and XY2, then TX2 is right on schedule.
Tuesday, August 19, 2008
Given this background, you would think NTES’s management could have easily explained what happened. A great opportunity for them to do so is on the 2nd quarter earning conference call on 8/14/2008.
Let’s see what happened on the 2nd quarter earning conference. First, they stopped giving revenue breakdown per game (even though they had always done so before). This continues a pattern where they are providing less and less information to the wall street analysts.
In the question and answering session, an analyst specifically asked a question on the expansion pact schedule. Netease managers refuse to provide exact date.
The very next date, 8/15/2008, NTES announced on their web site they are coming out with the expansion pact of TX2 by the end of this month. See the following link:
During the earning conference, another analyst asked about the “perceived” recent weakness of TX2. Rather than explaining that is due to the strength of Netease’s anti-piracy technology, Netease’s management sneered and said something to the effect of what weakness and what confusion. That wall street analyst had to bring up the announcement made by NTES’s CEO that TX2 would be a million player (in PCU) mega-hit in one year. NTES’s management then basically just repeat that announcement again. No additional information is provided.
I know NTES’s management are all programmers and engineers. Their antipathy and aversion to the bean counters of wall street is palpable.
Of all the Chinese game companies, NTES had always been the one that provide the most information to their game players. It continues to be the case. They are open and friendly to the game players.
But it is also the company that would freeze out the wall street analysts.
Monday, August 18, 2008
Last night, 8/17/2008, FMCN reported its 2nd quarter earning conference call. It derived most of its revenue from LCD screens, etc. But it also has a big slice of internet online advertising business.
Because it serves as the middle man between the portals and the advertisers, FMCN usually has information about the state of online advertising before the portals.
I will provide some quotes from the FMCN 2Q conference below. Then I will conclude with my own comments.
The transcript of FMCN's 2Q earning conference call can be found here:
I will provide some important quote below:
「While we continue to see strong advertising demand from consumer goods advertisers in China, in particular, non-Olympic-sponsor advertisers are increasing their advertising spending in the later half of the year after the Olympic Games. ….. Our outlook for the remainder of 2008 and 2009 is getting stronger.」
Jason Brueschke – Citigroup
」…………there's been growing concern about the demand outlook in advertising in China after the Olympics as the Chinese economy is showing some signs of strain. I know that Tencent and Sina, for example, both gave a relatively cautious outlook after the Olympics for the Internet, and qualitatively in the prepared remarks you had indicated that you thought the demand outlook was going to be strong in the second half of 』08 as well as 2009. Could you maybe give us some more color……..」
Dr. Tan Zhi
「We see that even the Olympic Games are happening right now, we see many, many of our advertisers are not spending money during the Olympics because for those non-Olympic sponsors, they are waiting for doing that to catch up their advertising budget. So we see some big strong demand for those advertisers doing advertising business with us after the Olympics. That's why we feel that we have received some answers from our sales team, so we do believe that we will have a strong growth post-Olympics for our business.」
「You mentioned the demand after the Olympics -- yes, I totally agree with Dr. Tan's comments on that. Most of the advertisers now during the Olympic Games are the sponsors of the Olympics. But these advertisers are a small percentage among all the advertisers, so we've got the information that those unsponsored advertisers do not want to spend money now, just noisy enough among this lot of sponsors. So after the Olympics, those non-sponsors will spend money after that. So we see that will be the growth for the next, the second half of the year. Thank you. 「
Jason Brueschke – Citigroup
「David, just a quick follow-up -- because of your ownership of so much of the interactive agency business, are you in position to see demand sooner than your clients, Sina and Tencent for example? Is that one of the reasons why there might be what appears to be a slight disconnect between what you are seeing and being [inaudible] about their cautious position that they've given recently?」
「Yes, we -- [the amount of agencies] for the digital Internet business, yes, we are closer with the advertiser, so for those they do not spend the money now, they have a plan to place the ads after the Olympic Games. Thank you, Jason. 「
ames Lee - Sterne, Agee & Leach
「And lastly, a question for Dr. Tan -- I just want to get a clarification on your comments about 2009. It seems like you indicated that the slowing economy is certainly on the minds of the advertisers but you feel confident that even if that's the case, the shifting to a more targeted cheaper platform will be a point in your favor. You seem to indicate that the sentiment from the advertiser in general is neutral to cautious and your assessment is if that's the case, this could be benefiting your platform. Thank you. 「
Dr. Tan Zhi
「We feel the confidence on 2009 based on two factors, I think. Number one is that we -- this year, China's advertising budget is about RMB230 billion and in the last three years, the increase every year is about 15% to 20% the last several years. But conservatively speaking, if market [inaudible] goes well, if the economy [situation is going down], it is at last a 10% increase for next -- for overall budget.
However, those increases will be, if the market goes well, economy is good, everybody will be benefiting. If not, if the economy is not good, then people will take on the effective media to do business and we have been viewed by most advertisers as the most effective media for them to do business. Therefore, as a last -- for example, as Q3 of this year, as we talk to our advertisers, we have received the message from them that they want to spend money wisely if the economy goes well. Therefore, they will use us as a major advertising channel. So that's one part.
Second is that right now, we do have a better structure, better system, and best sales team in place. The message I received from my sales team is that they are very confident to achieve the goals set this year, and also we are in the process to define what we are going to do next year. And in fact, we are starting very early, trying to get this as early as possible, the [sense we received] where it's very confident, very strong and therefore our management team is very confident about 2009.
So I cannot give you a number but the feeling I've received is very good. Thank you. 「
I felt this is very significant information. Even though SINA and Tencents had been providing cautious view of the post Olympics time frame, their can't see China's online market as far ahead as FMCN can see.
FMCN gave a very good rational for a very strong (stronger than the Olympics quarter) 4Q for China's online advertising market. It also give a strong 2009 online advertising forecast based on the feedbacks from its ground sales team.
If you read my articles, I had been suspecting (since 6 yo 9 months ago) that Olympics will serve as the kick off point for the acceleration of China's online advertising market.
I had always think Olympics (and 3rd quarter 2008) will not be as great as some people think as far as online advertising revenue goes. But Olympics will serve as the coming out party for all the new online features such as web2.0, online video, streaming video, etc. All of these new features will enable the acceleration of the migration from other advertising venue (such as TV, newspaper, etc.) to online advertising.
As a result, the growth in the 4Q008 as well as 2009 will be much stronger than what analysts had been predicting.
FMCN, as the middle man between the portals and the advertisers, occupies the unique position to foretell the future direction much earlier than the portals themselves. I am glad what FMCN see is what I had been predicting.
Saturday, August 16, 2008
My last TX2 post can be found here:
This is going to be the first part of a three part article.
NTES just came out with the announcement of a new expansion pact for TX2. Usually, I don't write much about expansion pacts. But the timing of this expansion pact and how it is announced says a lot about NTES the company.
Recently, about a couple of weeks ago, a wall street analyst came out with a warning that TX2 is not doing well. It knocked the stock down from $25 back to $21 or $22 in the next couple of days.
If you do the server count, you would have observed this already. There were weakness to TX2 server statistics. The server count seems to indicate that the number of players playing TX2 is decreasing.
Well, what those analysts didn't realize is that it is actually related to the strength of all Netease's games: all Netease's games have very strong anti-piracy features.
Starting about couple of weeks ago, NTES starts to put features into TX2 to combat players that use pirate servers. Those players who use pirate servers get to level-up extremely quick and are able to get lots of power-ups.
They destroy the balance of the game and most importantly, they don't pay anything to Netease.
This is a problem that infects all MMORPG games in
If you monitor TX2』s server counts, you would have notice an immediate decrease in the number of players. But that is a GOOD thing.
The following is the link to the announcement that shows all the players that were banned from playing TX2 because they were caught using pirate servers:
Of course, the actual number of users who use pirate server is a lot more than shown in the above link. Most of these players either stopped using pirate server (so not to be caught) or left TX2 completely.
But it is something a successful game has to go through. Many popular games failed because they can't find players using pirate servers. It looks like NTES is pretty successful in its attempt at combating piracy.
I consider this a good thing for the long term success of TX2.