Sina next great new frontiers – e-commerce and 3G

One can find my last article talking about WVAS (Wireless Value Added Service) here:
http://chinese-net-gaming-stock.blogspot.com/2009/04/date-ntes-had-been-waiting-for.html

Whenever there is a new revolution, people usually fixated their view on the thing they can see. But in most cases, it is the companies that deals with the content and information that comes out ahead.

During the PC revolution, people talks about Gateway, Dell, HPs, but it is Microsoft that become the symbol of that era.

During the internet revolution, people can see what Cisco is doing. But it is Google that symbolize that era of technology development.

Today, as we going into 3G, everybody talks about the carriers such as China Mobile or the hardware maker such as Nokia, but most likely, the real winner is the content providers. In this case, the real winner might be some WVAS player.

In the following article, the CEO of SINA talks about what areas will SINA emphasize in the next 10 years:
http://news.cnyes.com/stock/dspnewsS.asp?fi=\NEWSBASE\20090414\WEB2181&vi=33865&date=20090414&time=16:20:40&pagetype=usastock&subtype=home&cls=usastock_totalnews

First, he talks about the state of 3G in China. Before, China Mobile was a virtual monopoly. But now, there are three big carriers. As more and more Chinese uses 3G and its contents, SINA, as a WVAS provider, will greatly benefit.

Second area of great potential growth is in the area of ecommerce. Right now, no portals make money in ecommerce. Sina’s online store is not doing great either.

But ecommerce is the wave of the future. Right now, Sina is busying develop infrastructure. There will be explosive growth in ecommerce.

As far as I know, Sina is the only portal that openly talks about the potential of ecommerce. It does make it natural for Sina to become the amazon.com of China.

Sina correctly selected its two great growth areas. But it also makes its recent purchase of FMCN so confusing. Situation in China are changing so fast that 3G and ecommerce has arrived. They are waiting for the right company to take advantage of. But none of them have much to do with outdoor advertising.

Gobbling up FMCN take attention away from Sina. Sina shall be concentrating on the next two great potential growth areas.

The date NTES had been waiting for

What gets NTES’s shy CEO so excited?

NTES just got the license for World of Warcraft. that must be the reason that gets him so excited? No.

How about the two other license games in Starcraft 2, and Warcraft 3 as well as the battle.net system? No.

Then it must be NTES’s new portal rejuvenation effort? No.

Maybe it has something to do with its two block-buster games (XYQ and XY2)? No.

Maybe it has something to do with its other existing game (XY3)? No.

How about those eight new major MMORPG games that would be out in the next few quarters?

Maybe he is talking about the rejuvenation of DT? No.

Maybe he is super excited about DT’s sequel, DT2? No.

Maybe he is talking about NTES’s first major 3D game, TX2, that is currently in closed beta? No.

Maybe he is talking about that hot new XY3 derived game, XYW, that already had PCU of greater than 100k and is currently in closed beta? No.

Maybe he is talking about western themed (XYQ-liked) game in new Fly for Fun, FF? No.

Maybe he is talking about that ghost story game, QN? No.

Maybe he is excited about that major 3D turn based XYQ typed game, CSXY? No.

Then he must be talking about that transformer themed game, BB? No.

No, it is none of the above.

So, what gets him so excited?

…………..

My last article on the Wireless Value Added Service (WVAS) in China can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/03/china-mobile-taking-action-to-stop.html

In the following article, the CEO of NTES talks about 3G.
http://tech.163.com/09/0418/10/5765JP7D00093B2F.html

In it, he think 3G would provide great opportunity to China’s internet industry. It was a general talk and he didn’t specify what exactly NTES will do to take advantage of it. By itself, it wouldn’t be an article to pay much attention to.

But obviously, he alone with the head of Google China and MSN China did a commercial for China Telecom 3G. You can find the commercial in the following video:
http://tech.163.com/09/0415/15/56UU5K6J000915BE.html

The above is the commercial that China Telecom ran correspond to the launch of its 3G service in 120 cities in China.
http://www.interfax.cn/news/9159/

Starting on 4/24/2009, NTES will open the special web site for the mobile phone users. See the following news:
http://tech.163.com/09/0424/00/57KHAIQ1000915BF.html

Right now, NTES provides the news, the emails, mobile search, stock checking, community (forum, commentary), watch NBA, blog, mobile games, and dictionary. NTES has the following web site to provide a demo of what NTES’s mobile 3G services:
http://help.3g.163.com/

Even though companies like SINA and KONG had been working on this for awhile now, but NTES does have something that could kick start this effort. NTES has China’s largest email service. Almost every Chinese internet users have an email account with NTES. NTES could use this advantage to push her mobile 3G services.

Before today, China’s mobile industry is dominated by China Mobile. China’s thousands of Wireless Value Added Service Providers (WVAS) are completed dominated by China Mobile. Worse yet, China Mobile tried to muscle in on the WVAS itself.

China’s 2G services were dominated by simple song fragments, and short messages that has very little barrier to entry.

Therefore, you have an industry where there are thousands of WVAS (who only care about getting rich quick) on one end and a monopoly who wants to get in on the action on the other end. It was an abnormal industry.

Chinese government allows China Mobile to be the issuer of regulation, the enforcer of regulation, the judge to decide who are the offenders, and a competitor who tried to dominate the competition. As a result, the whole industry (WVAS) suffers. There are no innovations and is slowly dying.

But as 3G becomes to heat up, now we have 3 big carriers, China Mobile, China Unicom and China Telecom. In addition, 3G services consist of news stories, and videos. It will become much harder and way too expensive for new guys to compete. The 4 portals (SINA, SOHU, Tencents, and NTES) are naturally suited to provide these new contents.

Eventually, we might be seeing an industry where you have a few dominant MVAS providers (the 4 portals plus a couple of others) together with 3 carriers.

It will be a much healthier industry.

NTES is not a big MVAS player. But China Telecom asked NTES as one of three anchors in its commercial. This may be a precursor of this new industrial arrangement.

In the end, some of the biggest beneficiaries may be the 4 portals.

But ironically, I don’t think Wall Street has any idea of this new development.

Finally, to answer the original question at the beginning of this article, see the following news article:
http://tech.163.com/09/0424/00/57KFRVMO000915BF.html

Let me quote exactly what he said:
“Within 2 to 3 years, 3G will be exceedingly popular in China. It will exceed every other country in the world by a big margin. NTES had been waiting for this date for a long time. We are completely prepared. We had prepared all the products. We had accumulated all the technologies. We had also developed brand new business models.”

He believes that some will become truly gigantic internet-wireless companies that dwarfs today’s internet companies.

Finally, he took a dig at the government. He asked for a better system to foster innovation in this field.

China’s WAP survey

My last post on the WVAS (Wireless Value Added Service) can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/04/td-scdma-cost-comparison-and-potential.html

iResearch had just released a survey on China’s WAP (Wireless Access Point) market. It can be found here:
http://www.iresearch.com.cn/html/consulting/WAP/DetailNews_id_84226.html

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.

China to launch trial of 3G mobile phones

China Mobile (CHL) is going to start the TD-SCDMA commercial trial on 4/1/2008. The following is the news in English and in Chinese.

http://www.usatoday.com/tech/wireless/phones/2008-03-28-china-3g_N.htm?csp=34

http://tech.sina.com.cn/t/2008-03-28/11182106926.shtml

My last post on WVAS is here:

http://chinese-net-gaming-stock.blogspot.com/2007/04/rumored-china-mobiles-chl-wap-policy.html

The Chinese news from sina has a lot more information in them.

TD-SCDMA is a 3G cellular phone standard. The world only have three 3G standards, the WCDMA, the CDMA2000 and TD-SCDMA. WCDMA is the standard developed by Europe (its 2G equivalent is GSM). CDMA2000 is developed by American (its 2G equivalent is CDMA95). TD-SCDMA is developed by China.

It was a tremendous technical break through for China.

Chinese mobile operators don’t like TD-SCDMA. They have good reasons. A cellular phone standard is so complicated, it will be impossible for TD-SCDMA to be even close to the two existing standards in terms of performance and robustness.

Even if Albert Einstein and Thomas Edison are the one invented TD-SCDMA, it will be at least 10 years behind both the WCDMA and CDMA2000.

The only way TD-SCDMA can survive is for the Chinese government to dictate China’s mobile operator to use it.

But to conform to WTO charter, China has to give WCDMA and CDMA2000 level playing field. But if China follows the intend of WTO charter, TD-SCDMA won’t have any chance to survive.

But I guess lawyers have to have some use in them. I think China will do anything and everything to ensure TD-SCDMA will not just survive, but to thrive.

Expert had been predicting this date since 2005. It had been delayed so many times. The date is finally here. So this is a pretty big news.

I think there are several type of companies that will benefit from the wide-spread usage of TD-SCDMA.

First, equipment maker like SPRD will benefit for obvious reason. Second, I think WVAS companies such as KONG and SINA will benefit greatly. The WVAS companies that specialize in WAP will be the winner. KONG is betting it future survival on this date. SINA has been gearing all its web site to be compatible with WAP. For SINA, every story SINA generated have WAP counterparts. Both KONG and SINA had been throwing money into the drain for the past few years just to gear up for the arrival of 3G.

Of course, for the WVAS companies, the mobile operators such as CHL or CHU can throw monkey wrenches into this. But, unlike for SMS where KONG and SINA are just distributor and middlemen, now KONG and SINA will be content generators for the WAP. KONG and SINA will be in a stronger position. In addition, there is talks about China shaking up the mobile operators. That may prove positives to the WVAS companies since the mobile operators will be busying in re-structuring. Also, China will have a new ministry that will handle this function. The charter of the new super ministry can change also. That adds some uncertainties. The power of this industry is so lopsided tilt toward mobile operators such as CHL and CHU, any change to the existing structure can only help the WVAS companies such as KONG and SINA.

But according to sina link above, only 20,000 users will take part in the trial. There is no news of how long the trial will last. Therefore, it will not have any material contribution to all the companies that are discussed here. But in a year time, this could be an exciting growth driver for all the company mentioned here.

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):
http://www.techweb.com.cn/news/2007-04-20/184367.shtml
http://www.techweb.com.cn/news/2007-04-19/183716.shtml

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?