Battle of the Olympics, part1 - Background

Olympics is probably going to be the biggest driver for earning growth for the portals all the way until next summer. While all the portals will benefit from this once in a lifetime event, not all will benefit the same.

Last year, we have a similar event for the World Cup. Back then, Sohu was the official sponsor for the World Cup in China. Sohu spent a lot of money to be the sponsor. But since World Cup organizers won’t give Sohu much special previledge, it was Sina (because it is the largest portal in China) who get most of the benefit. The money Sohu spent to be the official sponsor were completely wasted.

For 2008, Sohu is again the official sponsor. From the experience of last year’s World Cup, most analysts thought it will be a repeat story again.

But this time, I think Sohu gets smart. She is pushing for special right to be an Olympic sponsor. She is also trying to get other perks though her role as the operator of official Olympics website. Using that role, she hooked up with China Interactive Sports and CCTV to get Sohu’s reporters into the Olympics village.

Sohu is also trying to push Beijing Olympics Committee to exclude other internet companies to do Olympics related activities.

On 8/23/2007, Beijing Olympics Committee officially confirmed Sohu’s right as an Olympic sponsor, see the following article:

http://2008.sohu.com/20070823/n251747241.shtml

In the above article, the vice director of the marketing department of the Beijing Olympics Committee gave two examples of what is not allowed:

The first example is not Sohu specific.

In the second example he gave, there is an ad that said “It is two years from Beijing Olympics, what is your thought?, co-sponsored by Beijing TV and Sina”. In it, it said “will report on Beijing Olympics work that day and other related celebrations”.

It is not allowed because Sina is not an official sponsor.

But still, his example is pretty vague and Sina still insists that she is not affected whatsoever. Sina also bring the World Olympics body to wade in.

But since the World Olympics committee is not involved in this argument, it strikes me as Sina’s attempt to confuse people.

The arguments is not whether Sohu has exclusive right to report in the USA, Russian, etc. The arguments is whether Sohu has certain advantage in reporting Olympics in China. For that, it is the Beijing Olympics committee (and not the world body) that holds all the cards.

On 9/7/2007, Sina had a press conference to brief reporters of her Olympics strategy. Not to be outdone, on 9/10/2007, Sohu had a press conference to do the same.

This is a four part report. This article sets up the background for this Olympiad struggle. In part 2, I will give a briefing on Sina's press conference. In part 3, I will give a briefing on Sohu's press conference. In the final part 4, I will provide my final thought.

NTES – XY3 marketing

Back when NTES starts TX2’s open beta, one thing I criticize NTES the most is its apparent penny pinching on marketing. My last post on TX2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/05/ntes-tx2-progress-3-what-shall-ntes-do.html

TX2 would have been a minor (but still profitable) game if NTES would be willing to spend some marketing dollars.

I think NTES had learned its lessons. There is definitely much more marketing done for XY3 even before XY3 went open beta.

Its marketing may not be as successful as SOHU’s TLBB, but still they are major improvement over TX2.

The most significant promotional activities is the co-sponsoring deal with a ice cream maker. Buy ice cream cones and get a chance to play XY3 for free. See the following web site:

http://xy3.163.com/2007/dantong/

This deal is definitely not as exciting as the deal NCTY had with McDonald back when NCTY were promoting WOW. But this deal lasts from August this year to August 2008. So NTES is going for the long haul.

NTES’s marketing effort may still not be as good as that of SOHU or NCTY, but they are apparently improving.

In addition, I hope NTES can hires thousands of salesmen all over China to promote its products, much like what Baidu did for its search and Zhengtu did for its game.

Interestingly enough, NTES had stop most major marketing effort the last two weeks.

Considering XY3 is going to commercial operation this week, NTES’s marketing strategy can only be described as confusing.

Quck update on WOW, TLBB, and XY3

This is a busy week. NTES's XY3 just announced they will go in commercial operation. SOHU's TLBB came out with a pretty extensive patch (not an expansion pact by any mean, but still a lot of functions were added this week).

And of course, the biggest thing is NCTY's WOW expansion pact, "The Burning Crusade" had been released in China.

This week is coming back to school week in China, we shall see significant drops in the number of users.

As of China time Friday night, there are 78 lines of users waiting in queue to try to get into WOW to play!!!

I know WOW will have tremendous growth, but for a Friday night on the first week of school night, it is extremely impressive indeed.

For Sohu's TLBB, there is a little pop Friday night from the early week. While TLBB is a little weak this week due to the back to school in China, Friday night had seen a pretty nice pop. Actually, there are more people play this Friday than a week ago. Very impressive indeed.

For NTES's XY3, there are definitely noticeable decrease in the number of users. But the amount of decrease is much less than what I expected. Of course, we won't really see the result until after 1 to 2 months.

WOW's strength is very impressive indeed considering that it is a paying game while China is flooded with free-to-play games.

Netease – XY3 – Official Operation on 9/12/2007

My last post on XY3 is all the way back from March 8th, 2007. It is linked below:
http://chinese-net-gaming-stock.blogspot.com/2007/03/netease-xy3-ahead-of-schedule.html

According to the official website, XY3 will go into commercial operation on 9/12/2007. The link:
http://xy3.163.com/2007/9/6/906_181720.html

Considering that right now that the summer vacation is over, NCTY’s WOW’s Burning Crusade just went on-line today (see http://news.17173.com/content/2007-09-06/20070906104528828,1.shtml ), and with all the free-loader leaving, we shall see some significant drop in the number of players in XY3 in the next two to three weeks.

On the other hands, XY3 hadn’t started the XY2 conversion yet, there shall be some significant players pickup when the conversion starts. How much? That is the thousand dollars questions!

Nobody knows how many players playing XY3 right now are the old XY2 players or are completely new players.

Sohu – TL – TL’s Peak Concurrent User estimate

This is the final part of 4 part series. The 3nd part is here:
http://chinese-net-gaming-stock.blogspot.com/2007/05/sohu-tl-reasons-i-think-tl-is-popular.html

Now we have all the data we can use to provide some estimate for TL’s PCUs. I will be doing this through two completely different approaches. The first approach is by comparing to its peer. The second approach is by extrapolate from its server counts.

Approach A. Estimates from peers.

The idea in this approach is by comparing with it peer’s PCU, we can get an estimate of TL’s PCU. In this case, peer means a MMORPG game that just started open beta.

We can’t compare it with an existing game that had been in operation for years because relationship between the number of downloads and the number of searches to PCU is different between new games and older games. For a new game, there will be more downloads simply because it is a new game.

In this case, NTCY’s SUN provides a reasonable base of comparison because SUN is a new game. From the data in the last two articles, we can formulate the following table:

________iResearch___Baidu____Xunlei Download___ Xunlei Search
TL______5711182____43758_____36688__________6373
SUN_____391959____26523_____9292___________1602
TL/SUN___146%_____165%_____395%___________398%

For this study, I will ignore the last two columns (Xunlei download and Xunlei search). There is no way TL has 4 times as many users as SUN.

Xunlei’s one day numbers seem to be skewed. A possible reason is that since these are one day numbers, they may be subject to wide fluctuations. (As a matter of fact, Xunlei’s one day numbers always seem to have problem with accuracies.)

Now, if we take the result from the iResearch (which is really Xunlei’s one week statistics) and Baidu column and average them out, we would have gotten a combined TL/SUN = 155%.

Since NCTY proclaim that SUN has a PCU of 400k, we can estimate the PCU for TL to be 1.55 * 400k = 620k.

Approach B. Estimate from the number of servers.

As of now, TL has 159 servers. Each server’s maximum capacity is 5200 players. Sohu had been adding servers like crazy. It means tremendous new users. But after more than one month, I believe it is able to support almost all users now. Therefore, I estimated that a small number of servers still have servers that are almost full (30) while the majority has a very good balance of users in them (90).

But since Sohu is adding servers so fast, it also means that some older servers may neve get the chance to get fill up. I picked an estimate of 39 servers that have numbers that are lower than expected, but not low enough to warrant server consolidation.

Thus, the calculation is as follows:

30 servers @ 4500 players per server
+ 90 servers @ 3000 players per server
+ 39 servers @ 2000 players per server
= 483,000 players.

Or PCU = 483k.

Clearly, this is a highly subjective estimate. By varying the numbers, you could get very different results.

Now, if we combined the two numbers (just average them),

We get a PCU = 552k

This is a truly amazing number from a game nobody saw it coming. Well, I predicted TL will be a successful game. But I was thinking about a mid-level game that can give 5M per quarter surprise to Sohu. But a PCU of 552k for open beta is indicating something completely different.

PCU like this for open beta is un-precedent. It is indicating a major blockbuster in the making.

In summary, in this series, I pointed out 1 possible inconsistency, I dispelled 2 myths and I gave 5 reasons for a strong TL. In the end, the evidence is just too strong in one direction. Hopefully, I answered the question why I think TL is on his way to be a blockbuster.

Sohu – TL – Reasons I think TL is popular

This is the 3nd part of 4 part series. The 2nd part is here:
http://chinese-net-gaming-stock.blogspot.com/2007/05/sohu-tl-myths-that-tl-is-not-popular.html

Reason 1: iResearch said so
See the link: http://www.iresearch.com.cn/html/online_game/detail_views_id_44137.html
It is the cumulative number of downloads between 5/14 and 5/20 as compiled by Xunlei. There are 571k downloads of TL. TL is ranked 3rd behind two casual games. Thus, it is number 1 in MMORPG games. Netease’s XYQ is number 4, Zhengtu is number 5, WOW is number 6 and NCTY’s SUN is number 8.

Reason 2: Xunlei’s download ranking said so
See the following for Xunlei game download ranking for the previous day:
TL is number 1 with 36688. SUN is number 4 with 9292. XYQ is number 7 with 6240.

Reason 3: Xunlei’s search ranking said so
See the following for Xunlei game search ranking:

TL is number 3 behind two casual games.XYQ is number 4, Zhengtu is number 6, WOW is number 7, and SUN is number 14.

Reason 4: Baidu Game ranking said so
See the following for Baidu’s top 50 game search ranking:

TL is number 2 and is sandwiched between the two casual games. WOW is number 4 and SUN is number 5.

Note that Xunlei is a download accelerator and a P2P program. Sohu’s biggest focus now is P2P video (with download accelerator function provided for free). Thus, they are direct competitors.

In addition, Xunlei is allied with Google. Google is Sohu’s direct competitor because Sogou is Sohu’s property. For the same reason, Baidu is direct competitor to Sohu also. There is no reason that Xunlei and Baidu will do TL’s bidding by hyping TL’s popularity.

In addition, this is not something you can fake. We are talking about half of millions of downloads or searches. If all these downloads or searches are coming from a few thousands IP addresses from a few cities, alarm bells in Xuelei and Baidu would ring of possible fraud. I am sure Xuelei and Baidu would lick their chops in sticking it to Sohu without mercy if that is the case.

Reason 5: It (faking server numbers) could kill the game
To me, this is the biggest reason why I think TL is popular. There are 159 servers. TL can’t fake it. If there are phantom servers, players would know since they can’t get into these servers, nor can they register with these servers. Assuming Sohu is faking it, Sohu could annouce that these servers are in maintenance or full. But how can they be full or in maintenance all the time. Players will get awfully suspicious if any server becomes full on 4am every day.

Similarly, if there are very few players in the servers, players will notice also. A server can handle 5200 players. If there are only 500 players during peak time, players will notice and complain because it would be no fun to play in a sparsely populated game. It would be awfully easy to spot in various game forums.

But there is a possibility that the sever only have one or two thousand players during peak time. Players might not complain and TL gives people the impression that they are 2 or 3 time more popular than they really are.

But I don’t think it is the case. By doing that, they could kill the game completely.

The reason they potentially want to inflate the server number is to create hype to attract players. But if they start to adds new servers when the old servers (in the same geographic location) only has 1000 or 2000 players, they will start to create ghost servers.

Ghost servers are naturally created event for MMORPG. Netease’s XYQ, XY2, and DaTang consolidate servers to get rid of these ghost servers. Zhengtu consolidates ghost servers almost every two weeks.

There is a threshold on the server that when the number of player goes below that, that server starts to lose players quickly. As more players leave, it becomes less fun for existing players. It then becomes a vicious cycle.

This is not something game companies would do. They would do anything to get rid of ghost servers. They definitely won’t do anything to help create many ghost servers.

Tomorrow I will conclude this series by providing my calculation for TL’s PCU.

Sohu – TL – Myths that TL is not popular

This is the 2nd part of 4 part series. The 1st part is here:
http://chinese-net-gaming-stock.blogspot.com/2007/05/sohu-tl-is-its-server-counts-for-real.html

Before I went further, I just want to say that I created this article on 5/25/2007. Therefore, all the data supplied are up to the date of 5/25/2007. As of today, TL has 159 servers.

Myth 1 – Why does the Sogou Game ranking ranks TL so low?

Well, they rank them so low that you can’t even find it on Sogou’s top50 game search ranking:
Actually, the answer to this is very simple.

If you go to the Sogou top50 book ranking:

There is it, number 3 right behind “adult novel” and “Love novel”. There is no way TL the book is so popular. TL is popular not because of the book, but the game.

The lesson from this is not TL is not popular, but Sogou is still immature in classifying phrases. Another lesson is Sohu’s various divisions are very independent. Most times, I got the impression that there are very few coordination between the divisions.

One thing is for sure; there are is no vast Sohu conspiracy to lie about TL’s popularity since both Sogou and TL are Sohu’s property.

Myth 2 – Why does 17173.com rank TL so low?

Again, another Sohu’s property seemingly dissing TL! From the following 17173 game download ranking:

TL is down all the way to number 211!

I will give a possible reason.

If you go to TL’s download site:

You can see the latest version is dated 5/10/2007 and the file has 471MB of data. But if you go to 17173’s download site for TL:

You see the version is dated 4/28/2007 and the file is 456.15MB. 17173’s file is a couple of versions back.

Actually, it doesn’t matter whether you start out with 5/10 or the 4/28 version, during the installation process, it will auto-patch to the latest version anyway. But new players don’t know that. Given the choice, they download the latest one. They either got it from Xunlei or from the official site, or other places that has the latest, rather than from 17173.

The answer is really simple. 17173’s game ranking ranks by the number of downloads. TL has low ranking because gamers don’t download TL from 17173. They don’t download from 17173 not because TL is not popular but because 17173 doesn’t have the latest file for TL.

Again, no vast Sohu conspiracy to lie about TL’s popularity since 17173, Sogou and TL are all Sohu’s property.

Tomorrow, I will provide 5 reasons why I think TL is extremely popular.

Sohu – TL – Is its server counts for real?

My previous post on TL is here:
http://chinese-net-gaming-stock.blogspot.com/2007/05/sohu-tl-start-charging-money-during.html

The author of the intelligentinvesting blog had the following comments:
“Please explain why you are so certain that Sohu's TL is a blockbuster. I am still not very sure about that right now even though I really wish TL will be a big hit. One concern I do have is whether Sohu's claim of TL operating 145 servers is credible. Yes, TL is ranked top on Baidu's most searched online games. But it is not ranked at all on Sogou's website(http://www.sogou.com/top/class19_1.html). It is also not ranked very high on its own 17173.com webiste or xunlei.com, another popular online game portal.”

As the matter of fact, the same concern bothers me a great deal until I looked more into it. In the next series of articles, I will dig deeper into it. By the end of this series, I will provide my estimate for TL’s PCU (Peak Concurrent User).

In today’s article, I will talk about one possible reason why TL’s server numbers are just marketing hype. In tomorrow’s article, I will provide many reasons why TL’s number is for real. In the third and concluding article, I will provide my calculation for TL’s PCU estimate.

The case for caution:

I can only see one symptom that might arouse caution. Why didn’t Sohu published its PCU number if TL is so hot? It makes no sense. Game companies want to hype its games to create momentum. They hype their games by announcing PCU numbers. Average gamers understand PCU numbers. They don’t really care about the number of servers.

One possible reason could be that they are holding the PCU number back until commercial operation to give maximum PR impact.

Or one could say since Sohu is a public company, they don’t want to give out false PCU numbers.

As of 5/26/2007, they have 159 servers. I believe these are 159 physical servers for TL. But each server might only have 500 players playing rather than 5000 players playing. This way, they are not lying about the number of servers, but they also accomplish the purpose of giving people a false impression that TL is extremely popular.

Well, there are major holes for arguing pro or con of why Sohu didn’t publish its PCU number. But either way, it is very unusual why a company won’t publish PCU number for a popular game.

Tomorrow, I will dispel the myths that TL is not popular. After that, I will provide 5 reasons that that indicates TL is popular. In part 4, I will provide the calculation of TL’s PCU.

NTES - XYQ - server count

My previous post on Netease's XYQ:
http://chinese-net-gaming-stock.blogspot.com/2007/03/netease-xyq-accelerated-growth.html

Tomorrow is Netease's earning conference. For those of you who actually check for server counts, just a friendly reminder that XYQ is in the mist of server consolidation.

Therefore, about 40 to 60 (I think it is 49 servers) that are being consolidated. These are the ghost servers. They are usually in yellow or green (little or no players), but are now pink or red (many players or completely full). In addition, they are being double counted.

In a nutshell, there are about 49 extra servers that are listed as full.

These newly created servers were doubled counted to ease the player transition. But they also let the server count looks a lot more impressive than reality.

Sohu – TL – Start charging money during open beta

My previous post on TL is here:
http://chinese-net-gaming-stock.blogspot.com/2007/05/sohu-tl-open-beta.html

TL was a successful story in Sohu. Sohu gives TL’s chief designer (hired away from Kingsoft) plenty of time and resources to develop the game right. It is a game that will make a lot of money for Sohu investors.

But 2 things happened recently that might cast a dark cloud over it. I won’t talk about one because I need to investigate it more. But I will talk about the other now.

I think Sohu is starting to charge players now. First, its final stage of “close beta” is really an open beta. And now they are treating the open beta as commercial operations?

When in beta stages, players are not supposed to pay!

From the following official site:
http://tl.sohu.com/content/tlissue/contentdetail.php?id=6340&type=service

TL had started to charge money for in game items. There are four places you can purchase the game card:
1. Internet Bar
2. UDPay
3. Convenient Stores, Supermarket, and Newspaper Stand
4. Through Sohu’s Online Store: http://esales.sohu.com/online/tlcost/index.jsp

To purchase in-games items, go to the online stores (where you can buy goodies).
http://tl.sohu.com/events/shop/
Not a lot of stuff yet, but I am sure they will add a lot more goodies as time goes by. Also, players who killed too many other players can lessen the punishment by paying game currency.

Some players had already started buying the game card already.

At this point, the game is still growing like crazy (nothing I ever seen before). I am pretty certain this game is going to be a blockbuster.

In the just concluded 1Q earning conference, Sohu said that there won’t be any revenue from TL in the 2Q. Now, it looks like there might be some significant revenues in the 2Q from TL after all.

I am sure it will make short term investors very happy. But is it necessary for Sohu to do this? It is awefully short-sighted of Sohu.

Earning Season

It is the earning season the next 2 to 3 weeks. This blog is just a hobby of mine and my time is limited. Most of the free time in the next few weeks will be in listening in on the earning conference calls and reviewing what is being said.

I won't talk about anything being said in the earning conferences since there it won't provide anything extra.

Therefore, I won't update this blog as often in the next three weeks.

A lot of people had asked me for an estimate for the revenue for Sohu's new game TL. I said it might be 5 million per quarter a couple of months ago. Given what had happened in the last two months, it is clear that estimate is way too conservative.

I am in the middle of doing a series of articles on turmoil happening in China's gaming industry, the new Free-to-Play game model vs the existing Paying game model. By the end of that series, I will have a new revenue estimates of TL.

I haven't work out all the numbers yet, but it looks like my TL's revenue estimates could be many times of my original estimates. I also need to recalculate the numbers to make sure I didn't add a 0 somewhere.

Anyway, for the people who is waiting for that article, I am still working on it. But it might be a few weeks later.

Have fun with the earning season!

SOHU – TL – Open Beta

My previous post on TL is here:

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

TL just keeps on surprising me. From the “Final Closed Beta” (which is really the open beta) on 4/4/2007, it started out with 16 servers. It continues on growing and went all the way to a total of 103 servers on 5/8/2007. Most games would have started to peak after few weeks. It is doubly surprising considering that NCTY’s SUN went into open beta on 4/18/2007.

But what is truly surprising happened yesterday. Yesterday (5/9/2007) is the date of the official “Open Beta” for TL. Netease planned to add 10 more servers. But the servers were overwhelmed. Netease eventually added 24 more servers in one day. See the following link:

http://tl.sohu.com/20070509/n249925682.shtml

It is not surprising that a game has big jump in the number of game players for an open beta. But it is surprising that a game has big jump for a second open beta.

As of today, TL has 127 servers. With the maximum capacity of each server at 5200 players, I would conservatively estimate a PCU = 550k.

One thing that bugs me is that Sohu is not advertising its PCU number. Usually, game companies would have broadcast the PCU number to build up the hype.

But I am pretty sure this is a very popular game. There are a lot of players everywhere you go and players were still complaining to being too crowded and asking for new servers.

Maybe Sohu did change to a low-key company. The Sohu of a year ago would have the CEO and other senior management in the news pushing the story. Well, the CEO of Sohu is climbing the high mountains for Sohu's Olympics events. Maybe that has something to do with the low profile.

It is interesting to see if TL will just keep on going up. I do expect that they will add a few servers before this weekend. But the key to see if TL is still growing is if they are still adding servers the next few weeks. Another key point is if they will lose a lot of users after commercial operation (free-to-play games don’t usually lose as much players as Paying games right after commercial operation).

From the game players comments and game developers reaction, there are less and less bugs, and TL doesn’t have a lot of bugs to beginning with. TL is starting to test out the pay-for-item features (by giving players free credits).

Unless there is a big hidden design flaw (which is unlikely), I can’t see this open beta last more than a month.

Ntes – TX2 – Progress 3 – What shall NTES do?

My previous post in this article is here:

http://chinese-net-gaming-stock.blogspot.com/2007/05/ntes-tx2-progress-2-development.html

From the following article:

http://tech.sina.com.cn/i/2007-04-29/19381491954.shtml

Netease had changed the chief designer of TX2. See also the following article for about the same news:

http://tech.sina.com.cn/i/2007-04-29/20321491964.shtml

The chief design has a personal blog, it is on http://blog.163.com/gao_bell_ring/ His name is Gao and he is a 29 years old young man.

I had been reading his blog for a few months to get some insight. It is a pretty good read. His blog gives some hints about Netease the company. It confirmed my impression that Ntes is a technology company that really treasures talents. It gives tremendous amount of responsibility and trust to its legends of lead game designers.

The chief designer of a game has a lot of authorities. Sometimes, I got the impression that they regards Vice-presidents’ and CEO’s directions as suggestions rather than orders.

Ntes may have over-done it in this case. Sometimes the game designer wants to develop the most revolutionary or innovative game rather than the most profitable game. The game designer wants to build the most artistic game rather than the game most gamers want to play. A game other game designers would woo and aah, but also a game that can’t keep players.

After reading his blog for the last six months, I do get the sense of knowing the guy (of course, I don’t). He is very talented and artistic. He has a sensitive soul. He is also supremely confident. He seems to have a fragile ego that he doesn’t take criticism well. He is so confident in his grand vision that game players will be in awe once he finished TX2’s development. In his mind, TX2’s full potential is still many months (or year) away.

He believe that as long as he build it, they (the game players) will come. He is supremely talented, but somewhere along the way, he starts to deviate from what the gamers want. Let me give an example:

Gamers had been complaining about the background music in one of main playing area on the game map. These music come from the true ancient Chinese music. The chief designers spent a lot of resources to get historical and musical experts to duplicate these music. They modify some for modern time. They do capture the essence of a time so ancient that most players are definitely not familiar with.

Most players hated it. But the chief designer believe in it and the music stays.

An analogy would be for Lord of the Real Online uses Shakespearean English as the mean to communicate! Or to make Beethoven or Mozart's music as the background music for Harry Potter's game.

It maybe truly be a master piece, but it doesn’t satisfy the popular taste.

Something drastic must had happened for Netease to do this. Most other companies would have try to get another guy in charge while making the current design lead the deputy. Maybe the egos involved are just too big for them to coexist together. But it will lose whatever continuity for the game development.

TX2’s Chief designer is probably not feeling very well now. His baby for the past 4 years had been taken away from him. But I don’t feel sad for him. I am sure by now, CEOs of NCTY, SNDA, and 10 others game companies had already left messages on his answering machine to beg for appointments.

TX2’s chief designer and his core team were the one who developed XYQ. The rumor is Netease uses its XY2’s core team to take over (it is just a rumor and I can’t confirm it).

Something this drastic has to cause cascading affect to the whole company. We are talking about basically the two best design teams Netease have.

This will not just affect TX2, it will probably have a negative affect on XY3 as some of its designers were shifted away to TX2. I am certain most other new major games will be affected as well.

At this point, Netease is probably trying to figure out what is the next step for TX2. If I were Netease, I would not have a regular open beta for TX2.

A regular open beta usually last for 1 to 2 months. That would be just too soon. I wish TX2 could be revamped, not just patched.

As I mentioned many times, TX2 (even if successful) would just be a niche product. A game with so much emphasis on gang warfares won’t ever be a true blockbuster. What TX2 aught to be a WOW clone.

As I mentioned before, there is a great need for a WOW-clone game with the only difference of that this game builds around ancient Chinese mythology. Make TX2 be that game. Build lots of quests. Put more relationship into the game.

Doesn’t need to down-grade the existing PvP features (they are unique and shall be a selling point), just don’t make them the only selling points.

WOW’s expansion pact is rumored to be out in China at the end of June. It would be suicidal for TX2 to compete head to head with the Burning Crusade.

Give TX2 and its new chief designer 9 to 12 months to revamp the game.

Yes, it would probably cause short term pain on Ntes’s stock price. But I invest for the long term, and I hope Ntes ship herself right again.

Oh, Ntes, how about start marketing for TX2 now. Sohu started marketing for TL more than a year ago. NCTY starts marketing for SUN long time ago also.

Ntes, please forget about these stock buybacks.

Ntes – TX2 – Progress 2 – Development Direction

My previous post in this article is here:

http://chinese-net-gaming-stock.blogspot.com/2007/05/ntes-tx2-progress-1-status.html

There is another TX2 movie that can be downloaded:

http://czdltx2.163.com/tx2/wl.rar

Right click and save as to download the file. You would need winrar to unzip.

It is another fan made movie. It has a sappy plot (good guys got killed, bad guys got killed. Good guys become bad guys become good guys become animals become good guys). But all the graphics are coming from in-game graphics. It is not specially produced trailer made by professional computer graphic artists. It is made by ordinary game players. It has to be captured and then compressed. Those two steps degrade the graphics. But even with that, as you can see, the graphics is absolutely gorgeous.

Next, let me talk about some of the major playing features the game designers had added.

In every sense, Netease is adding tremendous amount of new contents every week during the open beta. It allows gangs/tribes to conduct castle sieges. At the beginning of the open beta, there were 2 cities. Now, there are 5 cities. Eventually, each server would have 9 cities.

After the gang/tribe captured a city from enemy gang, it can start to build out the city. The game developers were busying in adding the amount of goodies that can be build in a city.

In addition, Netease adds another Player vs. Player (PvP) feature, gang warfare, a couple of weeks ago. While castle siege is the domain of major gangs (with member greater than 200), gang warfare allows minor gang a chance to fight it out with a major gang. While city siege is limited to a city and its vicinity, gang warfare is conducted spreading out all over the whole map. Therefore, it allows for smaller gangs a chance to prevail by conducting guerrilla warfare.

Couple of weeks ago, Netease came out with a very unique way for individual PK (player kills). It groups all users into three groups, sheriffs, bandits, and regular guys. Players become bandits after they killed a regular. The sheriffs can kill bandits and get the stuff bandits have. On the other hand, bandits can also kill sheriff. Bandit would only be penalized after they killed regular players.

I will have to say that this is truly unique. Unlike where WOW or most other games that allows unlimited PK only on special servers, TX2 gives its game a rich environment much like ancient world where fights breaks out from time to time while most innocent players were left alone.

Some of these contents were really unique. Big gang can fight it out with another big gang in castle siege. Unlike the severe player limits of 40 for WOW (War of Warcraft) and 12 for Guild War, TX2’s castle siege has no upper limit (it has some severe side effects, but that is another story for the future). Every day, there are battles involve 4 or 5 hundred players battling out each other.

In addition, smaller gangs can get into the act by doing gang warfare. For individuals, they can do PK with other players either as a sheriff or as a bandit.

As you can tell, TX2 development team had been busying in adding PvP features.

There were flaws in TX2. Actually, there are a lot of flaws. Most of them are in PvE (Player vs. Environments) area.

For one, there are insufficient help for the new users. There really is no official user guide on its official web page. There are some “unofficial guides” written by game players. But they are written during closed beta and are not up to date.

Frankly, it is not a big deal. Write some users guides and add more dialogs for NPCs (Non Player Characters) to give more guidance to newbie are really not that time consuming.

After the first 10 levels, the players are no longer the newbies. For the first 30 levels, the main storylines are rich, fun and rewarding. But after level 35, it becomes very boring. The main story lines are not finished. All that players can do is to kill monsters.

The main emphasis of the young chief designer in on PvP features. Even something as important as the main storyline are assigned to lower priority. Simple things like more help for new players are left unfinished because it has lower priority.

In addition, the economic systems is incomplete. The relationship system is incomplete.

Rich relationship features are the fortes of all existing Netease’s games. If a player doesn’t want to fight, he may become a doctor who goes out to collect herbs to make into medicine. He may marry another player, etc.

There is none of that in TX2 yet. I am sure these features will eventually be part of TX2. But they are just not the priority to TX2’s design team.

In addition, as I predicted in my previous articles:

http://chinese-net-gaming-stock.blogspot.com/2007/03/ntes-ncty-tx2-wow-guilds-war-shootout.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/ntes-ncty-tx2-wow-guilds-war-shootout_16.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/ntes-ncty-tx2-wow-guilds-war-shootout_19.html

Some server becomes dominated by a gang. The gang becomes so dominate, no other gangs can compete on that particular server. As a result, that server starts to lose players.

Finally, as I mention many times, TX2 is a high resource game. Players who have old computer is not going to have a good time in TX2. I thought they improved a lot on this front. But this is going to be a never ending quest to optimize the game code.

So, in a nutshell, that is what happens to TX2:

Netease won’t provide marketing for TX2. There is little new players to start out with. The game is not friendly to new players (in terms of documentation and other things that only require minor changes). For those who is not part of a gang or for those who don’t want to PK (Player Kill) all the time, these are very little reason for them to be there. Even for members of the gangs, there is little reason for them to hang around after their gang loses the war.

Next, I will talk about what I hope Netease will do to fix TX2.

Ntes – TX2 – Progress 1 - Status

My previous articles on TX2 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/03/netease-tx2-strange-marketing-strategy.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/netease-tx2-interesting-interview.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/ntes-ncty-tx2-wow-guilds-war-shootout.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/ntes-ncty-tx2-wow-guilds-war-shootout_16.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/ntes-ncty-tx2-wow-guilds-war-shootout_19.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/netease-tx2-my-prediction.html

On April 30, 2007, NTES provides the following news: see link:

http://biz.yahoo.com/ap/070430/netease_com_beta_test.html?.v=2

NetEase said its Tianxia II research and development team will work on making the game easier for beginners and improving group play and hardware functionality. They are going to add another phase of open beta.

It sounds somewhat minor. Adding another phase of open beta usually mean another 1 to 2 months of open beta.

But I think it is going to be a lot worse than that! For one, you probably had heard by now the lead designer had been reassigned. Many of the group leads had changed.

But before I talk about it, I would give some background first. Today, I will talk about the progress of the game to this date.

So far in this stage of open beta, TX2 is still losing players, although at a very slow pace.

The marketing is starting, although at a very slow pace. From 4/1/2007, they put commercials on the bus in six cities (not 1^st tier cities, only six second tier cities) , see the following:

http://tx2.163.com/2007/4/4/413_176369.html

From 4/6/2007, they put ads in the subway in a southern city. They planned to expand it to all other cities and in bus stations, subways, and convenient stores. See the following:

http://tx2.163.com/2007/4/6/413_177057.html

During the last week of April, they started to put ads on some internet sites and applications such as Xunlei. But there is still no ads on 17173.com yet.

Of course, given what happens now, the current marketing program probably won’t be expanded.

In some sense, Netease had never given its young chief designer a chance. With so little marketing, TX2 is not going to get too many game players.

Ntes has so much money, they would spend 200m to buy their own stock, why are they pinching pennies in marketing their flagship game?

On the other hand, from the way Netease changes course in DaTang and TX2, it is clear that Netease has certain internal control. Its games probably have to pass certain performance criteria before the game can go to the next stage. Maybe Netease checks the percentage of the number of player (who started the day of open beta) remaining after 1 month over the number of players the day of open beta.

Regarless of what performance criteria Netease uses, it allows Netease to do mid-course correction to salvage the game.

In the end, I think it is fault of both Netease and TX2’s chief designer. Netease didn’t provide its young chief designer enough marketing support. On the other hand, TX2’s chief designer designed an innovative game that game designers (but not game players) like.

The game is so far capped at level 60. Therefore, with virtually no marketing, there is little new users. As the players get to level 60, they don’t have much to do (except those who are in a gang and is involved in gang battles), older players start to leave.

The game developers were adding a lot of contents every week. But it is also clear that the game is far from a finished product. Compare to another recent game, Sohu’s TL, TX2 has much less playable features.

Tomorrow, I will talk about which direction TX2’s development team had gone so far in the open beta.

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.

Sohu – TL – Game Progress

My previous posts on TL can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/04/sohu-tl-final-closed-beta.html

http://chinese-net-gaming-stock.blogspot.com/2007/04/sohu-tl-game-status.html

http://chinese-net-gaming-stock.blogspot.com/2007/03/sohu-tl-open-beta-soon.html

Also, for much more detailed coverage on TL, the following blog site seems to do a better job than I can: http://intelligentlyinvest.blogspot.com/

Anyway, let me get to the point.

I was going to report on the horrible news on TX2 of Netease. It is not a minor course correction. Adding another phase of open beta usually mean another 1 to 2 months of open beta.

But it is going to be a lot worse than that!

I was going to go through the game progress on all of Netease’s games. But with the Sohu’s latest earning conference call, I will just spend two days on Sohu’s TL.

On 4/4/2007, TL went into the final stages of “closed beta”. But since it allows anybody to play and the player stats would not be erased, it is really an “open beta” except in name only.

On 4/4/2007, Wednesday, it starts out with 15 servers, it adds 16 more servers later on. It has a total of 31 servers.

On 4/5/2007, Thursday, it adds 3 new servers, It has a total of 34 servers.

On 4/6/2007, Friday, it adds 8 new servers. It has a total of 42 servers.

On 4/7/2007, Saturday, it adds 6 new servers. It has a total of 48 servers.

On 4/9/2007, Monday, it adds 4 new servers. It has a total of 52 servers.

On 4/10/2007, Tuesday, it adds 6 new servers. It has a total of 58 servers.

On 4/11/2007, Wednesday, it adds 4 new servers. It has a total of 62 servers.

On 4/12/2007, Thursday, it adds 2 new servers. It has a total of 64 servers.

On 4/13/2007, Friday, it adds 5 new servers. It has a total of 69 servers.

On 4/14/2007, Saturday, it adds 5 new servers. It has a total of 74 servers.

On 4/15/2007, Sunday, it adds 2 new servers. It has a total of 76 servers.

On 4/16/2007, Monday, it adds 3 new servers. It has a total of 79 servers.

On 4/17/2007, Tuesday, it adds 2 new servers. It has a total of 81 servers.

On 4/18/2007, Wednesday, it adds 4 new servers. It has a total of 85 servers.

On 4/20/2007, Friday, it adds 1 new server. It has a total of 86 servers.

On 4/21/2007, Saturday, it adds 2 new servers. It has a total of 88 servers.

On 4/24/2007, Tuesday, it adds 2 new servers. It has a total of 90 servers.

On 4/25/2007, Wednesday, it adds 2 new servers. It has a total of 92 servers.

On 4/27/2007, Friday, it adds 5 new servers. It has a total of 97 servers.

On 4/30/2007, Monday, it adds 4 new servers. It has a total of 101 servers.

On 5/1/2007, Tuesday, it adds 2 new servers. It has a total of 103 servers.

As can be seen, it has even more success than what I expected. (and I was expecting very good success). It hits a little rough spot on 4/18/2007, the date that NCTY’s SUN went into open beta. But it seems to start growing again.

The game is developed by the Firefox branch of the company. It takes about 100 developers 3 years and about 100 million RMB to make.

At this point, the server can hold 5200 players. Therefore, I would estimate that TL had already achieved a PCU of 450k.

Also, it is official now, TL will be a free-to-play game. See the link:

http://tl.sohu.com/20070410/n249329243.shtml

As I mentioned, it spells good things about TL. TL can’t compete with the likes of TX2 or WOW. But as a free-to-play game, it is going to be a very successful game.

A new trailer had come out (right click, save as): http://files.sohu.com/tlbb/tlbb_trailer.avi

From the movie, it is clear that the graphic is nothing to brag about. If TL is successful (and I predict it will), it is another confirmation that game-play features are much more important than eye-candy.

On 5/9/2007, TL will go into open beta. See the following link:

http://tl.sohu.com/20070424/n249651653.shtml

I will talk about why I think TL will be a very success game tomorrow.

NCTY – SUN – Background Information

My last post on SUN can be found:
http://chinese-net-gaming-stock.blogspot.com/2007/04/ncty-sun-open-beta.html


SUN went to open beta in China on April 18, 2007. It is extremely difficult to find any review for Soul of the Ultimate Nation (SUN). But let me just writes down all the things I think is interesting.

It is a MMORPG produced by Webzen, a Korean company. SUN had undergone multiple betas in Korea from September 2005 to May 2006. I had heard conflicting reports of SUN goes into commercial operation either on May or November 2006 in Korea. SUN went into open beta on December 20, 2006 in Taiwan.

Therefore, like all other foreign games, it shall be an extremely stable game with full playing features by the time of open beta in China. It is a free-to-play game.

NCTY purchased the right to this game for a sum of 18 millions with 22% royalty.

For the life of me, I can’t find any information regards to the success of this game in Korea or Taiwan. If this game is a great success in Korea or Taiwan, Webzen and NCTY would have publicized it. Therefore, I don’t think this game was a great success in either Korea or Taiwan. If anybody has more information about this, please let me know.

Let me talk about the unique features of the game play. For large scale combat such as siege warfare, SUN uses a combat map with partitions that divides players into multiple fields each containing 20-40 characters; the outcome each battle having direct affects on the combat occurring on other fields.

There are three types of maps. The mission maps are the primary places where players play the mission. The hunting maps are for tracking down monsters. The quest maps are for the quests.

There is a battle zone system. Players create “room” for battles. Players can select different types of maps, set the entry numbers, degree of difficulty and types of monsters.

Players go from missions to missions. When the current mission is near completion, tips will appear for the player to go to the next mission. There are also side quests to complete.

One thing that could slow down SUN is its high minimum PC requirement. It has higher PC requirement than even Ntes’ TX2. Its minimum requirement is Pentium 4 1.8GHz CPU, 512MB of RAM, and GeForce TI4200 or ATI Radeon 9200 GPU.

Except for a few areas, this game doesn’t really sound all that impressive. But NCTY had done a marvelous job in marketing this game in China. There is a tremendous amount of curiosity about this game. There is no doubt that this game had generated insane amount of hype at the beginning. You really have to tip your hat to NCTY for its mastery of marketing.

At this point, SUN is definitely one of the most advanced games (in terms of graphics, and technologies) among all the free-to-play games. Compared with the recent hit, Sohu’s TL, I think SUN will open the gate faster. There is no comparison in the quality of graphics between TL and SUN. SUN is also much more polished at this point (considering that SUN had being in commercial operation for many months while TL is not even in open beta).

But because of its high PC requirements and because it is an import, while TL would most likely have a great run of 4 to 5 years, SUN will most likely fade in a year. But in the short term, SUN will steal a lot of thunders from TL.

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?

Sina – Investment Conference Presentation – Part 3 –

Sina Presentation – Part 3 – My Comments

For part 2, see http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-investment-conference-presentation_18.html

Future is looking bright for Sina. By replacing video ads for text ads, she can charge more per ads. In addition, she is going into so many exciting new business areas.

Sina truly has many strong channels. As times go by, especially with more multimedia contents, the cost of entry will increase and the number of competitors will decrease. In addition to just ad based, many channels can be fee based. For example, Sina is number 1 in both the finance channel and auto channel. I am certain there are premier products Sina can develop that would be fee-based in those two channels.

Sina is also number 1 in sports channel, 3 times bigger than the next competitor. For the 2008 Olympics, Sina has to be the biggest beneficiary. Because Sohu is the official sponsor, I don’t think Sina can get 3 times the Olympic revenue of Sohu. Or in other words, Sina will benefit the most from Olympic in absolute term while Sohu might benefit the most from Olympic in percentage term. Nevertheless, Sina will benefit greatly from the Olympics.

On the mobile front, I don’t see mobile continues to go down by 15% for the next two years. But I guess one would never know. But most importantly, by 2008, if 3G really gets started, Sina might found herself in a different business model.

Rather than just two mobile telecom operators (Mobile and Unicom), there will be 4 (maybe even more). Rather than just a service provider, Sina would be a content provider. Her music boxes gives her great music contents. Her WAP and portal gives her great news contents. Her video initiative gives her great video contents.

Right now, in the current SP model, we have 2 mobile providers with hundreds or thousands of SPs, the power resides in the mobile providers. But if we have 4 or 5 mobile providers and maybe 4 or 5 dominant content providers, the business model will be different.

Right now, life is hard to be a mobile service provider. But after 3G, the cost of entry is so high to be a dominant content provider; only giants like Sina can be one. By then, the equation of power would have shifted. The power of the mobile operators and the content providers will be of equal footing. That would only mean good things for the industry as a whole.

It is interesting that Sina is developing Sina Music Box. It is hard to see how can this initiative can be successful unless China really crack down on piracy. Would China go after Baidu or Sogou or Yahoo? I don’t know. But if I can figure out a way to track its popularity, it might be a fun thing to do.

Sina is probably doing the same thing on the video front. It is probably going into the video aggregator business. If Sina can do what she does on the Music Box, she has a much better chance of success. These P2P startups are in a much weaker position than Baidu or Sohu. Even though they are darlings of venture capitalists now, but they are not Baidu and Sohu. The record companies can’t stop Baidu or Sohu from searching pirated songs. On the other hands, Chinese TV stations like CCTV can (and had) stop these P2P startups from “officially” provide CCTV programs on their programs. It is entirely possible that even if Sina music box fails, the experience would carry over to allow Sina to develop a successful “Sina video box”.

The recent punitive measure from USA to pressure China on the piracy front is good news for Sina. Her Sina Music Box and her video initiatives only carry legal contents. Sina’s music and video platform initiatives can only work when China starts to take piracy seriously.

Finally, Sina is in such a strong position and is going after so many promising new businesses, with their track record of great executions, it is hard not to like the company. But its so expansive. Its PE is 50.1 (compare with 32.2 for Sohu and 15 for Ntes). Most of its major new business expansion won’t start to see profit kick in until 2008 (Olympic in 2008, video ads and embedded video ads in 2008, 3g mobile contents in 2009, other initiatives like video TV channels, video aggregator business, music box, fee based services for premium financial and auto contents maybe in 2009 or latter). There doesn’t seem to have a kicker in the short term.
My final verdict: as long as Charles Chao is the CEO, own Sina until retirement. That is if one can find a reasonable point of entry.

Sina – Investment Conference Presentation – Part 2 –

Sina Presentation – Part 2 – Mobile and P2P
For part 1, see http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-investment-conference-presentation.html

Mobile -

Next, Charles Chao, CEO of Sina, talked about the mobile business. He think under the current model, the SP model, the mobile business will continue the decline. But for the long term, he believe many users will access the internet through mobile phones.

Sina is currently doing two things for the long term future:
1. All the efforts Sina is doing on the portal side, be it contents or applications, all have mobile phones in mind.
2. Invest in the free WAP service.

He see the future business models for the mobile phone business is:
1. through advertising and
2. through m-commerce (similar to e-commerce on the internet).

He thinks for the next two years, ad will grow 40% YoY, while mobile will decrease by 15% YoY. Thus, by 2008, mobile will present a very minor part of Sina.

P2P –

In the Q&A session, he talked about the challenge he faces from the new startups. There are many startups in China who have a head start on blogs and P2P. They are the hottest recipients for venture capitalist’s funding right now. But he believe these companies’ products can be easily copied. They will be crushed by big established company’s like Sina. Sina is starting to dominate the blog in china and will likely do so on video sharing or P2P (point to point).

In part 3, I would have my comments.

Sina – Investment Conference Presentation – Part 1 –

Sina Presentation – Part 1 – Advertising
On 3/28/2007, Charles Chao, the CEO of Sina, gave a presentation in the 10th Credit Swisse Asian Investment Conference. His presentation provides a roadmap of where Sina is going.

The following is the main point of his presentation:

Sina is consists of five major business lines:
1. SINA.com (online news and content)
2. SINA Community (community-based services and games) – blog, podcasting, video, instant messaging, casual games.
3. SINA Mobile (mobile value-added services)
4. SINA.net (search and enterprise services)
5. SINA E-Commerce (online shopping)

On the advertising part of Sina:
- Online ad. is expected to grow 35% YoY per year for the next five years.
- Sina generates traffics from its contents (most other companies from sticky applications.) Content offering generates 70 – 75% of traffic.
- Used to be content aggregator for traditional media.
- Starting last year, Sina placed much emphasis on self generated contents and user generated contents.
- Right now, it is focusing on the multimedia content, specially the video contents and the multi-device contents (PC & Mobile Phone).
- Currently has more than 2000 media companies as partners.
- Starting 3 years ago, put great effort in self developed contents. It builds its own editorial staff. In the entertainment area, most contents are self generated. An example is Sina VIP chat where it interviews more than 10,000 celebrities (or is it 10,000 celebrities’ interviews).
- The following channels are specially:
- News: number 1 in China
- Sports: number 1 in China, 3 times bigger than the next competitor
- Finance: 1st in China. It experiences five times traffic growth in 2006.
- Auto: 1st in China for all media company (not just online).
- Entertainment: 1st in China.
- Technology:
- Women channel

Next, he talked about the users generated contents. Starting from late 2005, Sina starts to work on user generated contents.
- Sina Blog: It already has more than 30% of market share. The contents of Blogs also contributes to the portal. For example, some celebrity wrote a scoop on the Sina Blog, Sina news picked up the story and it become big national stories. It really helps both the Blog and the portal.
- Sina podcasting (youtube-like service): Launched 3 months ago and had already become one of the leaders. It integrates with Sina Blog and vertical portal channels. Sina will invest in this in 2007. It hopes for video ads in the long term.
- Sina circle: a Facebook, Myspace like service.
- Sina Post-it: Online classified ads.

After that, Charles talks about Sina’s Multimedia effort:
- podcasting
- Sina Video: Becoming like TV stations. One major accomplishment is in the popular sports match. Sina cornered the European football area.
- Sina Music Box: All legal music. It has 400,000 songs on the platform already. It shares advertising money. It allows for free listening on the PCs. It charges for the mobile download. Eventually, Sina hopes to be the default music platform in China.

In part 2, I will have what Charles Chao said about Mobile and Q&A session. Part 3 has my comments on his presentation.

Sohu – Video – Sohu starts video sharing?

Sohu starts video sharing?

For background information, see the following links for video related info:

http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-sohu-us-vs-china-trade-war-looming.html
http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-sohu-ntes-video-shootout-part6.html
http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-sohu-ntes-video-shootout-part5.html
http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-sohu-ntes-video-shootout-part4.html
http://chinese-net-gaming-stock.blogspot.com/2007/03/sina-sohu-ntes-video-shootout-part3.html
http://chinese-net-gaming-stock.blogspot.com/2007/03/sina-sohu-ntes-video-shootout-part2.html
http://chinese-net-gaming-stock.blogspot.com/2007/03/sina-sohu-ntes-video-shootout-part1.html

One thing I was disappointed in Sohu is its apparent lack of a youtube-like video sharing service. I felt it is extremely short sighted on Sohu’s part to not get into this business.

But I came across something interesting as I investigating some games for another article. It seems Sohu does have video sharing site. Except it is not really Sohu’s.

It actually is part of 17173.com. 17173.com is Sohu’s premier game site. Interestingly, 17173.com provides video sharing service. It has the link:

http://vlog.17173.com/

Its web site is as follows:

The graphic is self-evident. It is just a video sharing site modeled after youtube.

But why is it part of 17173.com but not part of sohu.com? It could be part of Sohu’s blog service or part of Sohu’s video service. But I went to these two Sohu channels and could’t find any youtube like video sharing service.

Does this new service in 17173 serves as an experimental platform for the real thing in Sohu.com later? But why goes through all this trouble? It is much easier just start a trial service in Sohu.com to begin with.

Or is Sohu going to offer multiple video sharing services, one for each major channel (game, news, etc.)? But why? That doesn’t sound like a smart strategy.

Or is this a case of left hand (17173.com) doesn’t know what right hand (Sohu.com) is doing?

But either way, I am just glad that Sohu is starting to get into this business. But I hope Sohu can expand this service to cover more than game video.

NCTY – SUN – Open Beta

On 4/18/2007, Soul of Ultimate Nation (SUN) will start open beta. It is going to be a free-to-play game. It is made by Webzen of Korea.

Like all Korean games, the graphics are gorgeous. Its PC requirements seems to be even higher than that of Ntes’s TX2, especially now that Ntes has optimized TX2 pretty well.

Unlike most other foreign games, SUN is not an old game. There were virtually no review for this game anywhere. Webzen doesn’t seem to plan to release this game to the west in any hurry.

Did Webzen make this game with Chinese market foremost in mind? Interesting.

That will mean this game will have to go through what Ntes’s games or Sohu’s TL have to go through. It will be pretty rough (with lots of bugs) at the start.

By all indications, SUN will be extremely hot starting open beta.

But will Chinese players tolerate a foreign game that is buggy at the beginning? Probably yes.

Will SUN fades quickly from the scene like most foreign games in China? Well, that depends on whether Webzen and NCTY can work together to provide bug fixes and adds new features quickly. The logistics to do that considering that NCTY and Webzen are not just in different cities, but different countries. Different companies also have different bureaucratic hurdles that needs adjustment to work together. The odds of these two working seamlessly together is not very high (not saying these are not two good companies).

The other recent NCTY game, Guild War, seems to fade rather quickly. I predicted quick start for this game. I also predicted it will fade quickly for this game.

It looks like I was right on both counts.

Sohu – Sogou – Gift for Sogou, part 2

God’s (Google’s) Gift for Sogou, part 2 – Conclusion

Today I am not going to talk about what Sohu "shall" do because it has some moralistic component to it. But rather I would talk about what Sohu "could" do to maximize this great opportunity.

I have to smile on how ironic this is. Google, with a reputation of the best technology and of highest ethics, got caught with their hands in the cookie jar. The victim, Sogou, is regarded as technologically 2nd tier and ethically challenged.

This is not Google’s first time getting caught stealing competitor’s code. Google stole some video player’s code before.

Google did the right thing in fessing up right away. They got their hand caught in the cookie jar. It is just too obvious. The result from Google’s Pinyin Input Method Editor is just to similar to that of Sogou’s. Even the mistakes are the same!

There is no way Google can hide it. By coming out with an apology, they try to stop this story dead on its track.

We don’t know exactly what Google stolen. But we do know it involves with two areas that Sogou is best at, Sogou Pinyin Input Method Editor and Sogou database (with world’s largest Chinese indexed web page database).

It is to Google’s advantage to stop this story as fast as it can. On the other hand, it will be to Sohu’s advantage to prolong this story as long as it can.

First of all, Sohu could change the subject of contention form Pinyin Input Method to Search database. Pinyin Input Method Editor is just a little useful tool that really doesn’t mean much. But Search and its embedded technology is the mother lode.

To maximize publicity, Sohu could advertise on all major newspapers with the demand that basically said that it believe this is only the tip of an iceberg. It demands source code for the Google search engine, Google Chinese database, Google Pinyin Input Method Editor, as well as all internal memos involved with the management strategy on the development of Google Chinese database and Google Pinyin Input Method Editor.

Will Google comply? Of course not. But it does keep the story going.

Sohu could make its CEO, President and Sogou chief designer available to all the TV interviews (and there will be tons of TV interviews if Sohu plays her cards right) telling why is it necessary for Sohu to have those information from Google. Talk about the possibility of a google spy in Sogou development team. 99.9% of Chinese are not going to know the intricacy of database programming or interface between front end query and back end database search. But they do know Google already confessed and Sogou is the victim.

Sohu has a wonderful story to push. USA is the sole superpower in the world and is the dominant number 1 in terms of technology. Information technology is the pinnacle for the current stage of technology revolution. Google is by far the standard bear of the Information revolution. Google is the number 1 company in the forefront of information technology revolution in the world’s sole superpower.

But even a company like that has to resort to stealing of a home grown Chinese company. That is because Sogou is absolutely the best (at least that is what Sohu could claim).

Talk about how Sogou has the best spider technology in the world. Not just best in indexing Chinese web pages, but web pages period. Have the Sogou Chief designer talked about Sogou's "made in china" spider technology and its crawling speed.

Sohu needs to keep concentrating on one point. It is not really about Pinyin Input, but search. It is not really about search of Chinese web pages but search technology of any web pages.

Hammering the point that why Google would went through the trouble to steal Pinyin Input Editor, a tool of so little significance and generates zero revenue? Google is really stealing the internal Sogou database search technology and Pinyin Input Editor just happened to manifest the result.

It is the best not because of some unnamed users said so, or some commentator said so, but because Google said so. Google say it, not with her mouth, but with her action. She is willing to suffer the consequence of getting caught. That alone shall say plenty of how good Sogou’s technology had become.

Sohu shall talk about this is the very first instance of truly significant reverse IP theft. We are not talking about toys or teddy bear, we are talking about database programming and search engine technology.

Talk about this is the first in modern Chinese history, but it won’t be the last. This is just the vanguard of things to come, as China resumes her rightful place as the “middle kingdom” of the world.

Yes, stroke average Chinese’s nationalistic instinct. Make this story as big as it can and as long as it can.

Place ad on all the major news paper with the demands. Sohu could grant interviews to major TV stations. To keep the story going, Sohu could go to court to sue Google for not complying with the demands.

Oh, if average Chinese want to know what the story is all about, tell them to download Sogou Toolbar. (and Sohu, please no more spy ware or uninstallable applications).

(By the way, do I believe in the above? Not really. But if Sohu can do it right and milk it for all its worth, as a Sohu stockholder, I am all happy. Besides, as China gets more capitalistic, it makes the world a better place.).

If Sohu can play it right, it will not just repair Sogou’s reputation. It will also make average Chinese users break their habit of using Baidu or Google and give Sogou a shot.

In summary, Sohu could do the following to maximize this opportunity:

1. Ask for oversized demands that google is not able to meet
2. Move the subject away from Pinyin Input Editor and toward internal database technology
3. Major marketing campaign on Sogou
4. Many TV interviews granted by Sohu executives and programmers.
5. Trying for a long and protracted negotiation process
6. Take Google to court
7. Again, trying for a long and protracted court proceeding

This thing is just starting. Let's see what would Sohu do.

Note: I just remember that this blog belong to google, I hope this article won’t get deleted.