China’s Internet Market Survey

On 9/17/2007 – China IntelliConsulting Corp (CIC) published the survey results based on users in three of China’s most important cities, Beijing, Shanghai, and Guangzong. The result speaks well for Sina and of course, Sina is all over this news.

The link is as follows:

http://tech.sina.com.cn/i/2007-09-17/13541744194.shtml

The result is more clearly shown in the following link:

http://tech.sina.com.cn/focus/2007search/index.shtml

For the search market,

9/2006 9/2007

	9/2006	9/2007
Baidu	61.9%	69.5%
Google	24.1%	23%
Yahoo	5.2%	2.3%
Sogou	3.2%	1.8%
Others	5.6%	3.4%

For the portals:

	3/2007	9/2007
Sina	34.5%	36.2%
sohu	26.1%	23.4%
Ntes	20.1%	17.7%
Yahoo	10.8%	8.8%
QQ.com	7.3%	7.5%

The following article gives the name recognition of the search engine

http://tech.sina.com.cn/i/2007-09-16/17321742430.shtml

Search Engine Name Recognition

	3/2007	9/2007
Baidu	81.7%	86%
Google	61.5%	67.1%
Yahoo	28.9%	23%
3721	3%	1%
Sogou	32.1%	27.1%
Soso	4.6%	5.2%
Sina	12.4%	10.1%
Ntes	4.1%	3.1%
MSN	1.5%	1.1%

First, the result gives a snapshot of the users preference for the three cities in the east coast. There maybe difference between the cities in the east coast and west coast. But more importantly, this survey doesn’t take into account of rural population.

In addition, some “independent” survey is not very independent at all. But I don’t know CIC and therefore can’t verify whether it is biased or not.

A quick summary:

For the search market:

Baidu is doing really well. Google went down from last year but went up from 6 months ago. All the smaller search engines are getting smaller.

For Sogou, it may have an extremely small market share (1.8%), but it does have a very large name recognition (27%). It may not be the 1^st choice for many users, but it is probably the 2^nd or 3^rd choice for a lot of users.

It strikes me that Baidu is really running away from the field. Google is a very distant second. Yahoo and Sohu’s Sogou may have a fighting chance to survive if the top two stumbles.

For the portals:

The result shows that Sina is increasing its distance from Sohu. The numbers for Sohu’s other properties (such as 17173, Focus, Chinaren, etc.) are included in Sohu’s number.

It is a little surprising in that Sohu had been pretty hot recently. Again, if rural population and west coast cities were included, Sohu won’t be fairing this badly. Sina had a reputation for users with higher education levels. Thus, it will have an inherent advantage for this survey.

But the trend is confusing as well. A possible reason could be that Sina had its blog, youtube, TV stations ready a good 6 to 9 months earlier than Sohu. Sohu just started these services and it hasn’t catch up to Sina’s head start yet. In addition, the effect of the Olympics hasn’t been felt yet.

In summary, Sina and Baidu have to be declared the winner at this point. Google is making a small comeback. But Google is not able to take market share away from Baidu. For Yahoo, it has to be disappointing in both Search engine and portal. For Sogou, it needs to keep on updating its technology and user friendliness. It still has an ace in his hand, the Olympics. For all other search engines, it maybe too late for them. Netease’s new search engine is still not out yet, but it may be a few years too late.

For the portals, Sina is sitting pretty. Its head start in coming out with blog, youtube, and TV stations, give it a competitive advantage. But Sohu has all of these now. In addition, Sohu seems to have an inside track on the Olympics. The game is not over by any means. Netease got to develop these web2.0 and video functions if its still want to stay in the game. China can support three major portals. Both Sina and Sohu are here to stay, if Netease screws up, then another will take its place.

Sohu – Video – TV stations opened

In April this year, I did a 6-part articles on the state of video development for China’s major portals. That article is here:

http://chinese-net-gaming-stock.blogspot.com/2007/04/sina-sohu-ntes-video-shootout-part6.html

On 9/6/2007, Sohu started Sohu TV:

http://tv.sohu.com/s2007/tvsx/

The link to Sohu TV is at:

http://tv.sohu.com/

Again, I am not able to capture the moving video in the screen capture. But the one being circled are the TV stations. If you click on one of them, you would get the following:

The left hand side has the TV stations, the middle is the TV program, and the right hand side is the schedule for the particular TV channels one is picking.

At this point, Sohu had signed up 49 TV stations. Most of these TV stations are also present for the similar service provided by Sina.

It seems to me that Sohu has more TV channels.

The good thing about these TV channels are that because they uses P2P technology, there are virtually no overhead.

Unlike these embedded video that requires lots of servers and bandwidths, P2P technology uses users’ PCs and phone lines.

For very little money, Sohu is getting a lot out of these TV channels. At this point, there is no ads present. It will be easy for Sina or Sohu to put some text ads on top or bottom of the video window. But to be real effective, Sina and Sohu had to figure out a way to take out the original TV ads and insert their own ads. (I am sure the TV stations will be fine with that as long as they got a cut of the revenue). But that is probably a year or two from now.

At this point, as far as the number of video products are concerned, I would say Sohu is now on par with Sina (if not more). But I am sure Sina is busying adding more contents, it will probably a two headed race.

Both of them have full function blogs. The blogs are anchored by a you-tube like service. The combination of blogs and you-tube videos give both Sina and Sohu a competitive advantage to China’s blog companies and China’s you-tube companies.

Sohu and Sina’s TV channels will take a large byte out of programs like PPstream or PPlive. If Sina and Sohu can keep on signing up more domestic TV channels (especially the big one), they will probably dominate the video aggregator business.

This development further confirmed my belief that both Sina and Sohu will start to mutate into a fundamentally different type of companies.

I can foresee that after the Olympics, both companies will mutate from a text based companies into a video based companies. It means the cost of entry will be so high, it will be extremely difficult for other competitor to get in.

As a video company, it will attract ads from more types of companies.

As they become the content providers, they will hold tremendous leverage in the upcoming 3G mobile phone contest. China Mobile might want to be a monopoly and kill off all the middle men, but it doesn’t generate contents.

Both Sina and Sohu had a lot of unpleasant experience in being a Wireless Value Added Service (WVAS) provider. It will be extremely difficult for WVAS players to survive, but as original content providers, and with the start of 3G in China next year, Sina and Sohu can re-enter this field with a bang!

In addition, by combining both the blog and you-tube like services, as well as other services such as photo album, music boxes, etc, both Sina and Sohu will probably starts to kill off all the blogs companies and you-tube companies in China.

These will eventually represents two new areas (blog and you-tube) of growing revenue sources.

As Sohu TV and Sina’s TV channels start to fill up, both will start to act like TV/Video aggregators. A user in Shanghai can watch Shangdong TV or Guangdong TV through Sina or Sohu. Eventually, the ads for traditional TV’s will start to go to both companies. Again, another new growing revenue source.

Finally, for the S and V channels for Sohu and SinaTV, these self-generating TV channels gives both Sohu and Sina the ability to generate TV program contents themselves. They are starting the movie and TV production studio. If some of the shows are successful, they might even be able to sell these shows to the traditional TV companies.

As both companies starts to mutate, it needs a grand entrance to show off all the new capabilities. What can be grander than the 2008 Beijing Olympics?

2008 will be a great year for both companies because of Beijing Olympics. But I think the Beijing Olympics will serves as the showcase for both companies. As more companies (through Olympics) start to realize that both Sina and Sohu had become truly multimedia companies, the real exponential growth will start in 2009.

Battle of the Olympics, part4 - Conclusion

This is the final part of a 4 part report, the previous part, part 3, is here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/battle-of-olympics-part3-sohu.html

Sina will have 15 reporters while Sohu will have 300 reporters inside the Olympics. Sohu claims it is the only internet company that is allowed inside the Olympics village. It may be half true. Sina probably is not allowed to go directly. But she will get 15 reporters in, probably though indirect channel (such as be part of a team from a traditional TV).

At this point, it is clear that Sohu has the upper hand for the Olympics. Beijing Olympics Committee is on their side. In addition, as long as there are confusion regards to whether companies can use Olympics logos or slogans on Sina, Ntes, or Tencents’ web site, it is to be Sohu’s advantage.

Frankly, I don’t think companies like Dell, GM, Toyota could care less about who is the official sponsor. But if they can put ads on Sohu without any string attached while there may be many hidden restrictions to put ads on Sina, Ntes, and others, it is pretty clear which internet company they will pick.

The longer this confusion lasts, the better it is for Sohu.

Now it is clear that Beijing Olympics Committee is on Sohu’s side, will that be the final nail on the coffin as far as Sina and Ntes are concerned? Not by a long shot.

First, Sina and Ntes will benefit from the Olympics indirectly just by be the 1^st and 3^rd largest portal in China.

In addition, both of them have powerful friends in the government also. It is one thing that Beijing Olympics Committee gives verbal prohibition, it is quite another matter for the above agency to actually stop what Sina or Ntes will do.

More importantly, if Sina is successful to make the alliance permanent as well as able to share advertisement, Sina will create an entity that is virtually invincible.

Sina (and Ntes) might take its licks from Sohu prior and during the Olympics. But what is Sohu going to do afterward. Sohu definitely can’t compete with a real alliance like the one Sina is proposing.

In a nutshell, I think Sohu is going to win the Olympics battle, but will she lose China’s internet war? Only time will tell.

Battle of the Olympics, part3 - Sohu

This is part 3 of a 4 part report. The previous, part 2, is here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/battle-of-olympics-part2-sina.html

Now that Sina announced its Olympics strategy, not to be outdone, Sohu announced its Olympic strategy the next working date (9/10/2007):

See the following article for more details,

http://2008.sohu.com/20070910/n252064832.shtml

Back to this particular news conference, there are a lot of articles on this. I will give a short summary for each of them.

First, the CEO of Sohu talks:

http://2008.sohu.com/20070910/n252069598.shtml

Sohu’s Olympics team will consist of 703 reporters. Of which 300 will be reporting inside the Olympics. It is the only internet company that is allowed inside the Olympics village.

Next, the CFO of Sohu talks:

http://2008.sohu.com/20070910/n252063423.shtml

The Executive of Sohu talks:

http://2008.sohu.com/20070910/n252065346.shtml

In addition to sports related, Sohu will have 48 Olympics related products that is not sports-related. It will cover 16 categories. Example includes Olympics spirits, environment protection for the Olympics, technology used by the Olympics, etc.

Next, it is vice CEO of Sohu:

http://2008.sohu.com/20070910/n252063717.shtml

Sohu is like regular army while others have to conduct gorilla warfare. Therefore, Sohu’s reporting will be comprehensive while others can only provide niche reporting. Sohu’s coverage will cover everything Olympics related, not just sports.

Vice Department head for the Sports Department of Sohu:

http://2008.sohu.com/20070911/n252070070.shtml

Some exclusive right:

- Interview with Olympics winners: Only CCTV and Sohu have this right.

- Interview with Olympics athletes: Others might be able to interview certain athletes because they have sponsoring deal with that particular sports. Sohu can interview pretty much any athletes.

- Station in Olympics village. Other reporters stays in the Olympics Reporter village. But as the official Olympics Internet website developer, Sohu is able to station in the Olympics village. It gives Sohu more opportunity to report Olympics Village related news.

http://2008.sohu.com/20070910/n252069118.shtml

The above Sohu article declare that Sohu will not monopolize the reporting of Olympics. An example will be NBC is the official TV for the Olympics. But ABC or CBS won’t accuse NBC as monopolize the TV.

But probably the most important people are not Sohu’s big shots. The most significant speakers are the big shots from government officials. The government big shots in the press conference are the vice-chairman of the Beijing Olympics Committee, the director for the department of marketing and business of the Beijing Olympics Committee, the director of International Business of CCTV, and the director of Internet of CCTV.

It is not even what they said but their presence speaks volumes of which side they are on.

The director for the department of marketing and business of the Beijing Olympics Committee talks:

http://2008.sohu.com/20070910/n252064596.shtml

http://2008.sohu.com/20070910/n252068885.shtml

http://2008.sohu.com/20070910/n252063989.shtml

http://2008.sohu.com/20070910/n252069108.shtml

She said other internet companies have no right to promote Olympics or to conduct Olympics related business. Beijing Olympics Committee will protect Sohu’s right and prohibit other internet companies’ “hidden marketing” of Olympics. Use of any Olympics slogan or signs is prohibited.

For example, Beijing Olympics Committee found Sina conduct an activity called “Olympics Pilot Selection Online Poll” before. It was not allowed.

Video:

http://s.sohu.com/20070911/n252069824.shtml

From the video, many Chinese Olympic officials participated in this announcement. Two heavy hitters from the Beijing Olympics Committee gave speeches.

The vice-chairman of the Beijing Olympics Committee gave a speech:

http://s.sohu.com/20070910/n252062666.shtml

The director of the department of business and marketing of the Beijing Olympics Committee gave a speech:

http://s.sohu.com/20070910/n252062912.shtml

Next, I will talk about my thought on this subject.

Quick Update on XY3, XYQ, WOW, and TLBB

The previous article is here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/quck-update-on-wow-tlbb-and-xy3.html

Sohu’s TLBB is doing fine. Not much to say here except they are going to add 6 new servers going into this weekend.

NCTY’s WOW had clam down a little from last Friday. But the server count is still very strong. The Burning Crusade will definitely create higher PCU records and keep the franchise going for a few more years.

NTES’s XYQ’s new expansion pact will be out on 9/25/2007. It is unofficial yet. But I am certain it will be out around the end of September. It shall give XYQ a boost going into the fall season.

NTES’s XY3 went commercial today. NTES had stop most marketing activities for about two weeks prior to today. The promotion starts again today. NTES’s marketing had always been different, in an undesirable way, than other companies.

They are going to add 2 more servers this weekend.

As far as server count, there is definitely a significant drop in the number of users. But that is to be expected as all the free-loaders went on to other freebies.

For the first three days, the game is basically free for the players. After that, players are basically play for half price through this weekend. We shall expect another big drop on this Saturday with another smaller drop after this week.

But so far, I am not seeing what happened to DT occurring here. It is still early and the next three weeks could determine whether XY3 has legs for the long haul.

Battle of the Olympics, part2 - Sina

This is part 2 of a four part series. Part 1 can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/battle-of-olympics-part1-background.html

On 9/7/2007, Sina announced its Olympic strategy:

http://tech.sina.com.cn/i/2007-09-06/10001722377.shtml

The following articles summarize what Sina planned to do:

http://tech.sina.com.cn/i/2007-09-07/02091724277.shtml

Sina would get at least 15 reporters’ card that enable these reporters to report during the Olympics. Sina would also have a 450 reporters team to report Olympics. These reporters will be able to speak Chinese, English, German, French, Spanish, and Arabic.

Sina again announced that all websites will have equal access to Olympics news. In addition, all Olympic sponsoring companies can put their Olympic logos on Sina.

Finally, Sina would have three “secret weapons” that are to be announced later.

http://tech.sina.com.cn/i/2007-09-07/01521724260.shtml

From the above article, Sina would like to extend the cooperation agreement with Tencent, NTES and others after the Olympic also. They want to make it permanent.

Sina just signed sponsor deal with China’s Tennis Association, China’s Volleyball Association and China’s Watersports Association. They would get first hand news. But Sina promised these news would be shared with its partners (that means Sohu is excluded).

But does this mean if Sina can exclude Sohu from these news, Sohu can also excludes the alliance and Sina, Ntes, and others from the Olympic news since Sohu is the only Olympic internet sponsor?

Sina also talks about the alliance deal. So far, the alliance consists of 40 internet companies, 16 newspapers, and 9 TV stations.

At this point the alliance only relates to the sharing of information. But Sina wants to expand the charter of the alliance to include the sharing of the advertising revenue amoung the core group. Sina also wants to make it a permanent arrangement, well after the Olympics.

Sina may have start this alliance out of its weakness against Sohu. But it seems Sina is going for Sohu’s jugular.

Is Sina trying to form a monopoly?

Sohu needs to be extremely careful. She is in a rock and a hard place. She would not be interested in being part of the alliance before the Olympics. At this point, it seems Sohu is holding all the cards prior to the Olympics. But she can’t be excluded from the alliance after the Olympics. But this alliance was created to fight Sohu for the Olympics, why would the alliance accept Sohu after the Olympics.

In the long term, Sohu is not going to be able to compete with the combine might of Sina, Ntes, and Tencent.

On the other hand, a permanent alliance sounds great on paper. But the devil is in the details. If the alliance is going to share information, and Sina is going to provide a 450 person reporting team, why shall other companies hire more reporters when they can get the report from Sina for free?

If they want to share ad. revenues, Sina probably preferred to break the percentage based on the current ad. revenue for each company right now. Sina is the biggest advertising earner right now. But for a company like Tencent, they want to grow their advertising revenue, why shall they want to lock down their ad. when they feel they can grow faster on their own.

And even if Sina can pull it out and form a real alliance, is that even legal? Is this alliance really a monopoly?

Next I am going to talk about the Sohu press conference.

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.