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.

Monday, September 30, 2013

China's Mobile Internet Messaging (IM) War, part 9: YiChat gets VOIP

One can find part 8 of China's Mobile IM war here:

Yesterday, YiChat provided a major update and upgrade from version 1.1.2 to v.1.2. Please see the following articles for details:

Two major functions are added to YiChat. First, YiChat will start Voice Over IP (VOIP) service. In addition, calls from foreign country to China will be free (there could be a time limit however). Since YiChat has a sugar daddy in China Telecom, it will be China Telecom that will supply all the cost for this free service.

The second major function is that when a user uses YiChat and when the other party doesn't have access to internet, YiChat can convert the message to either SMS (if the message is text) or telephone messages (if the message is voice).

None of these two functions will grow the users by a lot in the short term. But both are very significant.

It is nice to have a sugar daddy, especially a sugar daddy who is a monopoly. Skyp had been trying to get into China for a long time now. In addition, all of China's private companies had known that VOIP is an incredibly lucrative business to get into.

But Chinese government won't allow any private, be it foreign or domestic, to get into this area because of the objection of its three state owned telecom operators, China Mobile (CHL), China Unicom (CHU), and China Telecom (CHA).

But now, Netease is able to get into this area through its cooperation with China Telecom. This is potentially a lot bigger than China's Mobile IM. If China truly allows VOIP, it could completely overtake all of China's telecommunication industry, considering the horrible reputation of the three state own companies among ordinary Chinese.

At this point, VOIP is not fully allowed yet. But China is allowing a crack, and only for the telecoms and Netease.

I am certain at this point, companies like Tencent, Alibaba, Sina, Sohu, are drooling with envy with Netease's great luck.

The second major feature is very important in YiChat's competition with Tencent's WeChat. Almost all of the analysis in China are on whether YiChat can replace WeChat. Well, I think the possibility of that is zero. If somebody comes up with a product that basically does what Facebook does. Even if that product is superior to that of Facebook. The possibility of that product to replace Facebook is basically zero.

I guess YiChat could be to WeChat for what Google+ is to Facebook. It could become a 2nd place player in China's Mobile Internet Messaging market. But I think YiChat can be much more than that.

Here in the US, we have Facebook, Twitter, LinkedIn, Tumblr, Instagram, Foursquare, Pinterest, etc. Any one person can have more than one social circle. Similarly in China, the top 3 are QQ, Weibo, and WeChat. But there is definitely more room for more.

But there are a basic limitation for the top 3 social media products. They are limited by that both side have to have internet access at the same time. This is where there is a niche for YiChat to thrive.

Because YiChat has the support of China Telecom, it provides its users free access to home phone and SMS (Short Messaging Service). Its true advantage that nobody else have is it allows its users  free access to 3 networks (internet, home phone, and SMS). This second feature is the start of Netease's attempt to start to integrate the three networks together. If China truly allows Netease to have full VOIP service, YiChat can combine that and we will have four networks integrated into one.


Saturday, September 28, 2013

NTES is going to create a new niche in China's online gaming, the Online Card game, part 2

There are an explosion of new games in China's top two game companies, Tencent and Netease. Just as I wrote an article on Netease's upcoming new online card game, NTES just announced another online card game that is close to come out. One can find my previous article here:

In the last article, I reported that NTES's partner, Blizzard's new online card game, Hearthstone, is really catching fire in the west. I just checked its placement on twitch.tv. Hearthstone was still number 4 at 8pm yesterday (8/25/2013) and is number 5 right now (10 am 8/26/2013). It was an amazing performance, and somewhat unexpected.

That game is coming to China and it is starting to catch a lot of press and starting to catch on among gamer circles.

But it is clear NTES had been worked on this new area more than just being partner with Blizzard. A couple of days ago, NTES had announced that its in-house developed game, XYM, or loosely translated Westward Journey Mini, will be going into public Beta in a few weeks (in October). See the following two articles:

Netease had been dominant in the area of MMORPG (Massive Multiplayer Online Role Playing Game). As a player play a role or a character, gaming company need to create a massive virtual world for player to play in, thus it is the most complicated games. But MMORPG is starting to get saturated. Its growth in China had slowed down drastically.

But in the last few years, it is the other simpler forms of multiplayer online games that are growing. Tencents had captured this market. None of its top three games, League of Legend, Cross Fire, and Dungeon and Fighter, are MMORPG.

Tencent made 1.229 Billion dollars in 2Q2013 from online games. Majority of it comes from 3 games along. I estimate that its top three games along made 60% to 70% of total gaming revenue (about $800M, or about $266M per game). In comparison, NTES got $317 million dollars from gaming operation in 2Q2013. NTES got that $317M from operating about a dozen hit MMORPG games.

In another words, just about any one of the top three games Tencent operates made about as much money as NTES made in all its games combined.

The top three games Tencent has is League of Legend, Cross Fire, and Dungeon and Fighter. League of Legend is a MOBA (Multiplayer Online Battle Arena) game. Cross Fire is FPS (First Person Shooter) game. Dungeon and Fighter is a 2D side-scrolling multiplayer PC beat 'em up game.

In the next year or so, Netease will come out with its own games in each of these three areas. That is the reason I think in the next year or so, there will be a defining moment in the future of China gaming market. There will finally be a true competition between the number 1 and number 2 in all areas of online gaming market in China. But that is for another series of articles that I will write (assuming I have some free time).

Netease is famous for being careful, meticulous. Its products are always to be of high quality. But that also means that it will always being late.

But this is the first time that Netease is able to being the first (among major players) to come out with serious products in a new area.

China's online card game is largely a virgin territory. Tencent did had a online card game. But that game (like a lot of Tencent's self developed games) is of bad quality and flame out quickly.

Netease is going to have two major games in this area. One is licensed from Blizzard and is starting to be the talk of town in China. The other one is a self developed game based on its own number 1 property, Westward Journey.

By being the first to market, of high quality, and highly anticipated, one or both can have excellent chance of becoming major hit.


Tuesday, September 24, 2013

Netease starts internal Beta for Blizzard's HearthStone

My last NTES related post can be found here:
Last NTES related post

That was part 8 of China's Mobile Messaging war. Netease's YiChat is still doing very well. Netease is concentrating on adding feature to its YiChat product right now. I suspect there will be major YiChat update soon.

But this article is not about YiChat.

Netease got the licensing right to operate Blizzard's (ATVI) Hearthstone. Hearthstone is not a MMORPG game. It is a new card game that is played on the internet on PC or through mobile phone.

I didn't think very much of this game at the beginning. But I start to think I could be wrong.

This game is all the rage in USA right now. Twitch is a pretty good place to find the games that are popular in the USA:

The following is a screenshot taken on 9/22/2013 at about 8 pm Central time:

Note that is the fourth most popular games (in terms of number of viewers). It is about the same level as DOTA2 (licensed by PWRD). It is twice as popular as Blizzard's mega hits World of Warcraft and four times as popular as Starcraft 2. It is about 7 times more popular than another mega hits World of Tanks (licensed by KONG).

While I don't think DOTA2 will be extreme popular in China because it is much more complicated to play than League of Legend (definitely the most popular and most likely the most profitable game in China right now).

But this game fits all the criterions:
1. It is made by Blizzard. Blizzard had a mythical reputation in China.
2. It is designed to be free to play. Thus, it is pirate-proof. Starcraft 2 is very popular in China. But nobody in China pay for Starcraft 2 due to piracy. It won't be the case for Hearthstone.
3. It is designed to be free to play and it is not MMORPG. World of Warcraft is MMORPG and it is fee-based game, it is fading in China right now. Hearthstone is none of that.
4. It is easy to play. Tencent made 1.229 Billion dollars in 2Q2013 from online games (in comparison, NTES got 317 million dollars in 2Q2013). Virtually most of those money comes from three games: League of Legend, Cross Fire, and Dungeon and Fighter. All three games are not MMORPG and extremely easy to play. Hearthstone fit those profile.

5. It is a very social game. Just like all card game, it is a social game. You have to have a lot of social factor to be a hit game in China.

6. It is designed to play on mobile phone (in addition to PC) to start out with. Mobile gaming is the next frontier in China.

7. It is talk of the town in US gamer circles. As the above screenshot showed, gamers in US love this game. If this game is super popular in USA, Chinese gamers will play this game just try to be hip.

From the above reason, this game has a very good chance to be a truly major hit.

I see this game as either hit or miss in China. If it is a hit, it will be a hit so big it will be much bigger than anything Netease has. It will probably be the same type of game as Tencent's three true blockbusters.

But it also could be a complete miss. It is such a different game that Chinese just can't get use to it.

I give it 50/50 chance for either.

Anyway, this game is already in open beta in USA and Europe. Today, this game will also go into beta in China (open to Netease employees). See the following news:


Sunday, September 22, 2013

Rumor: Sina will IPO its Weibo division early next year (9/22/2013)

One can find my last Sina related news here:

There is a rumor today that Sina will let its Weibo division go on IPO early next year. The following two articles talks about it:

I don't know how reliable is this rumor. But those two web sites are somewhat reliable.

If this is true, this will be great news considering that Twitter is going to IPO. Sina could probably get a good reaction from Wall Street by hopping on Twitter's coat tail.


Wednesday, September 4, 2013

Rumor: Alibaba to invest in Sina's Video Channel

This is a just a rumor for now. But the source of the rumor is of high quality. Sometimes, those rumors can affect the price of stock a great deal.

My last post is part 8 of China's Mobile Instant Messaging War. It can be found here:

But that largely involves Netease and Tencent.

My last post on Sina related can be found here:

The source of the rumor comes from a very prestigious financial daily newspaper in China. The story can be found here (in Chinese):

Summary of the artice:
- Secret negotiation for Alibaba to invest in Sina's Video Channel had started.
- Negotiation are between the highest level of both companies (CEOs of both Alibaba and Sina).
- Alibaba had recruited the guy who is in charge of the video channel in Tencent.

My comments:
If this becomes true, it would be good for both companies. For Alibaba, they are an E-commerce company. They don't have the infra-structure to run a internet/mobile video company. It is a great way to expand to this high growth area. Since they already own a big part of Weibo, as they gobble up more part of Sina, and the ownership of Sina is very spread out, they could eventual won Sina (by stealth).

But the biggest winner is Sina. All of Sina's cash is devoted to portal and Weibo. They have no money to invest in video.

As the biggest portal in China, it is such as waste. As the biggest portal as well as company great in entertainment, they shall be a major player in the area of internet/mobile video. Except all their money is tied up in Weibo and portal.

Now, if this rumor becomes true, Sina will have the cash to invest in the video area. They could become a contender this area.

The loser is of course Sohu and Yoku.


Monday, September 2, 2013

China's Mobile Internet Messaging (IM) War, part 8: Quick Status after 2 weeks

It had been two weeks and it is still a hot topic in China. Today, I am going to do a quick status update on the popularity of China's Mobile Internet Messaging (IM) products.

This is part 8 of long series of articles on this subject. Part 7 of this article can be found here:

From the following two articles (both are in Chinese):

I will summarize the important point in the above two articles:
Both of these articles talk about Netease's YiChat:
After the first day, YiChat had 700k new users.
After the first 24 hours, YiChat had more than 1 million users.
After the first 3 days, YiChat had more than 5 million users.
The majority of the users are IT workers, white collar workers, and students.
27% of users coming from China Telecom, 27% of users are coming from China Unicom, and 46% of users coming from China Mobile.
The short term goal for YiChat is 100 million registered users and 50 million active users within 6 months.

Those numbers are many times faster than when Tencent's WeChat first accumulate its new users. Netease's YiChat certainly had much faster start than the product it is trying to replace (Tencent's WeChat).

From part 5 of this series, Sina's WeMeet was also launched to compete with both Netease's YiChat and Tencent's WeChat. Let's see how all three products are doing in the last month. The following chart are the number of searches on Baidu for all three products.

 Note that green curve is the number searches in China for Tencent's WeChat. The yellow curve is for Netease's YiChat and the blue curve is for Sina's WeMeet.

The actual number for today, 9/2/2013 (Baidu made a mistake, it mistakes 9/2/2013 for 10/2/2013), is as follows:
The number of searches for Tencent's WeChat is 72242.
The number of searches for Netease's YiChat is 11088.
The number of searches for Sina's WeMeet is 854.

Note that we are talking about number of searches. One can't directly convert that to number of new users. For Tencent's WeChat, it had an install base of 500 million users. I am certain the vast majority of the searches come from existing users (bug fix, re-intall, etc.). But for both Netease's YiChat and Sina's WeMeet, since both are brand new product with install base of zero, vast majority of the searches come from potential new users.

From the above chart, we can already make two observations:
First, Netease's YiChat is for real. It is becoming a real competitor to Tencent's WeChat. Second, unless Sina's WeMeet really picks up steam in the near future, it is already dead on arrival.

Tencent got almost half its revenue from gaming. Frankly, it has virtually no expertise in developing games. But all its games (virtually all of them are from foreign licensed games, many of those licensed games are junks that nobody wants to play outside of China) are guaranteed to be popular at least for awhile due to its free QQ (Internet instant messaging) and WeChat (Mobile instant messaging) services.

By promising free elite QQ (or WeChat) membership or QQ (or WeChat) emoticons for one month, if the gamer will just play Tencent's game, Tencent can guaranteed any of its games great popularity (at lease for the beginning). And for some games that are not half bad, once sufficient player base formed, it starts to get a life of its own and Tencent would have a hit game.

But this is an unique advantage only Tencent has. But if Netease's YiChat becomes a significant player, life is going to be miserable for Tencent.

Netease had demonstrated its ability to develop popular games. If Netease's YiChat becomes a major player. It would truly be the worst nightmare for Tencent.

Tencent already show the world how to use its free popular instant messaging products (QQ and WeChat) to push for gaming and other Internet Value added services, even though it is pretty bad in developing games. Could one imaging if a competitor also get a popular instant messaging product (YiChat), except in this case, the competitor is much better in developing games?



A test for now