CYOU – Why does Sohu have to set CYOU free?

This is my first post on CYOU. My last post on Cyou’s game can be found here:
http://chinese-net-gaming-stock.blogspot.com/2009/02/sohus-surprise-new-game-dj2.html

I wrote this article a while ago. For some reason, I never got the chance to put into my blog. It may be a little late. But here it is.

After Sohu decided to split up its game division and having an IPO for its gaming division, its stock had been under great pressure. All of the Wall Street analysts hated it.

Why are they so short-sighted?

Many years ago, Charles Zhang, the CEO of Sohu knew of a young and talent engineer named Robin Li. He wanted very much to hire Robin to take charge of Sohu’s search engine business. He did everything he could to convince the young Robin Li. But eventually, Robin wants to be his own boss and starts a company called Bidu.

If the Mr. Charles Zhang had offered Robin Li the same deal that he offered to Mr. Tao Wang, the CEO of Cyou, Robin would probably agree to work for Sohu. If that was the case, today Sohu would own 70% of Bidu. How much would Sohu worth now if that is the case?

From the following articles,
http://tech.163.com/09/0409/01/56E16DNS000915BF.html
and
http://tech.163.com/09/0409/03/56E9785F000915BF.html
and
http://tech.163.com/09/0409/04/56EAL64Q000915BF.html
and
http://it.sohu.com/20090413/n263356894.shtml

Charles Zhang talked about the decision to split off Sohu’s gaming division.

Even way back in 2002, Charles knew of the importance of MMORPG gaming in China. He license games and develops in-house games, but Sohu’s gaming business continues to flounder. Mr. Charles Zhang was so desperate, he went to Great Wall, puts on a ancient knight costume and hop on a horse. It made some nice PR on the news in China. But the game sucks and people still don’t want to play.

Each MMOPG game is heavily influenced by its chief game designer. Just like a director for a movie, the chief game designer determines the overall feel and the general direction of the game. Just like movie directors, those hot shot chief game designers have ego the size of Texas.

By 2004, Mr. Charles Zhang finally find a hot shot named Mr. Tao Wang. Mr. Wang had a great resume. He developed PC games as a software developer. He was the chief game designer for internet games. He then become vice President of a company who is responsible for game operation and distribution. Then he became the top guy in Sina responsible for gaming operation and development.

In 2004, Sina is number 1 and Sohu is number 2. To a guy like Mr. Tao Wang, to become the top game guy for Sohu would equate as a demotion.

Mr. Charles Zhang can see the future in the gaming business in China. But he just can’t find the right guy to do it. Finally he found Mr. Tao Wang. Eventually, they worked out the agreement. Mr. Tao Wang basically guaranteed the success of Sohu’s gaming business and Charles allows Mr. Wang to be his own boss through the IPO of Cyou.

In addition, with the IPO of Cyou, it also allows Cyou to attract more top level chief gaming designers. By providing more share based compensation, it allows these finicky game designers the monetary rewards they can’t refuse.

Today, more than 50% of the revenue for Sohu comes from its gaming division. Without Mr. Tao Wang, these revenue would not have been there. I for one am extremely happy of the decision that Charles had made.