NTES - XYQ and TX2 Update

My last post on XYQ can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/03/xyq-server-update.html

My last post on TX2 can be found here:
http://chinese-net-gaming-stock.blogspot.com/2008/03/new-tx2-status-update.html

There are two piece of amazing news tonight.

First, XYQ just blow away its old record. On today, 4/27/2008, it had a new PCU of 2.08 million. Its last PCU record occured on 4/6/2008 and with the old record of 1.67 million. The following is the link to the official announcement:
http://xyq.163.com/2008/4/28/99_188170.html

This is just amazing. XYQ is accelerating its growth. It blows away all my expectation.

There is also an important news on TX2, the most important game in NTES's upcoming game. The following is the semi-official announcement:
http://tx2.netease.com/viewthread.php?tid=315173&extra=page%3D1

TX2 had started small scaled closed beta from 2/29/2008. Now they are going to enter into large scale closed beta on 5/4/2008. In addition, they will enter "open beta" in June.

For most "free-to-play" games, open beta usually means commercial operation.

Thus, I will say TX2 will enter commercial operation either on June or July.

So far, from what I observes, TX2 had addressed most of my concerns. I am pretty certain that it will be a block buster for NTES.

Sohu interview

My last post relates to Sohu’s advertising market can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/03/statistics-from-dcci-on-chinas-online.html

This is old news. But it still might be valuable.

On 3/12/2008, Sohu’s CEO gave an interview. There are several interesting things that deserved to be written. The interview in Chinese can be found here:

http://it.sohu.com/20080312/n255666563.shtml

Highlight of the interview:

1. Sohu’s Olympics strategy just getting started. We haven’t really seen its fruit yet.

2. He hopes Sogou will really shine in 2009 and becomes the third legs of Sohu (besides advertising and games).

3. Olympics give Sohu a opportunity to grab internet users away from their competitors. Olympics is not an end by a start. That is why when a lot of people say that Sohu’s brand advertising will go down after Olympics, he feels it will be exactly the opposite.

4. Target of Sohu is when China’s internet population reaches 500 millions, Sohu will be China’s top 2 or 3 internet companies (not just China’s portals, but among all internet companies in China).

5. He is confident that by the next quarter (before the Olympics), Sohu will generate more revenue than Sina.

6. Except for online gameing (TLBB is in Vietnam now), there is no interests in expanding to overseas.

I am mostly impressed by what he said on number 5. The wall street analysts are expecting Sina to generate revenue of 81.9M and Sohu to generate a revenue of 76.1M (from Yahoo finance site). He is not going to know how Sina does this quarter or next quarter. But for him to make a claim like that, Sohu must be doing extremely well so far this quarter as well as having good visibility going into next quarter. There might be a little bravado on his part, but I don’t think he would make that claim if he doesn’t think there are excellent chances of that happening.

TD-SCDMA Cost comparison and potential problem areas

My last post on TD-SCDMA is as follows:

http://chinese-net-gaming-stock.blogspot.com/2008/04/other-related-td-scdma-news.html

The following is another comparison site by Netease Tech department.

http://tech.163.com/mobile/special/001127IM/td_scdma_useful.html

There are a lot of photos in this site. Not much new information from the last review by Netease. But it does have the cost structure in the table form. I will list the cost comparison between TD-SCDMA vs GSM in the following table:

	Type		TD-SCDMA	GSM
Monthly Fee	Monthly Fee		50/month	50/month
Phone	Voice	Local	Caller = .4/min, Called = Free	.4/min
		Roaming	Caller = .6/min, Called = .4/min	Caller = .6/min, Called = .4/min
		Long Distance	.07 per 6 second	.07 per 6 second
	Video	Local	Caller = .6/min, Called = Free	NA
		Roaming	Caller = .9/min, Called = .6/min	NA
		Long Distance	.1 per 6 second	NA
	Package Deal		$28 for 150 minutes	NA
			$58 for 350 minutes
			$88 for 600 minutes
CRBT	Domestic		.6/message	.6/message
	International		.8/message	.6/message
Internet	Internet Cost		$10 for 30MB	$5 for 10MB
			$50 for 200MB	$20 for 50MB
			$200 for 4GB	$100 for 800MB
			$300 per 8G	$200 for 2GB

From the above table, the better service (TD-SCDMA) actually cost less than the existing and inferior service (GSM) for services common to both. In addition, for services that are unique to TD-SCDMA, the cost is extremely reasonable.

Considering how Chinese youth regards their mobile phones as status symbols, I am certain there will be a lot of demand for this service. Also considering that this is a brand new service, I am also certain that the handset makers are probably going to be conservative in producing the mobile phones. Thus, I think the supply will be limited.

From the review so far, this technology seems to be more mature than I originally thought. But several problem areas may start to emerge. I will list them out below:

1. Lack of coverage. This is to be expected at this early stage of network deployment.

2. Good voice but unstable video. As video requires more resource for the network, lack of network coverage may contribute to this. But other factors that may point to the fundamental deficiency of the TD-SCDMA may be involved. If China Mobile build out the network, and this problem still exist, we may have a problem.

3. Unstable coverage while moving. If there are insufficient coverage, as the caller or the called moved around, it went in and out of areas that have coverage, the result is of course unstable coverage. But if may also point to problems that is more fundamental. This is another area to be looked at.

4. Power consumption issue. There are conflicting report on this. But we know only a handful of companies have build handsets for this standard so far. Most of these companies are domestic and not very sophisticated in designing handsets. In addition, there are usually significant power saving between the 1^st and 2^nd generation handset design by the same company. I don’t know if the standard itself caused the power consumption issue. But it is probably going to take 1 year until the second generation handsets start to arrive before we can say with any certainty about the cause of this issue.

5. Good voice and video service but unstable internet browsing experience. This actually could be a problem that is difficult to solve. Again, have to keep track of further review that come out to see if this is a problem.

6. Nobody to call because nobody have the 3G service yet. Well, this is the chicken and egg question. This is really to be expected.

7. Only 6 handset makers and very little handset selections. Again, this is the chicken and egg question. This is to be expected.

8. Very little new ingenious services that uses the extra bandwidth. Since this is the start of 3G, this is to be expected. But there are another factor involved. If Chinese government allows its mobile operators such as China Mobile to be both the competitor and regulator, like what happed with the WVAS area, then there won’t be any new ingenious service. At this point, China Mobile and China Unicom serve as monopoly in the area of WVAS. As a result, there is no inventiveness. The small WVAS have to resort to junk emails, or porns to stay alive. Unless China government changes the underlining structure, nothing is going to happen in this area.

9. People are waiting for the real 3G. It is possible that most people are waiting for the roll out of WCDMA and CDMA2000. This could be the big one. I don’t know about the psychic of average Chinese youth. Do they go after the latest fad or do they think TD-SCDMA is just a precursor to the real thing (WCDMA and CDMA2000).

In my mind, TD-SCDMA will either get 60% of the market share of China or 0%. Nothing in between. In pure free market condition, TD-SCDMA will not have a chance in hell when compared to the more established standards. The only way it can survive is if Chinese government give TD-SCDMA a 3 to 4 years head start by a proven operator (that is China Mobile). Yes, it will not be permitted by WTO. But I fully expect by the time WTO has furnished its verdict, it will be fate-accompli. If that is the case, I don’t think average Chinese youth will wait that long to use the 3G service. Therefore, TD-SCDMA will get the dominate share of China’s market.

We will probably have to wait for a few months for more reviews to see how the trial goes. But so far, everything look good so far. That may mean we may be seeing a short trial period and roll out can be as soon as this summer. If that is the case, we are most likely seeing demand far exceeds supplies.

Finally, a kick ass TD-SCDMA phone. It is made by Lenovo. See the following two links for the video demonstrations.

http://www.slashgear.com/lenovo-ideapad-u8-more-details-and-a-video-of-the-interface-0811094.php

http://www.engadget.com/2008/04/02/video-lenovos-ideapad-u8-mid-teases-with-intels-atom/

The name of the phone is Lenovo Ideapad U8. It is still in prototype. The phone is just awesome. If TD-SCDMA solved all its technical and roll-out issues, there is no way the average Chinese youth won’t go after this handset.

Other related TD-SCDMA news

My last post on the TD-SCDMA can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/04/negative-review-of-td-scdma.html

I am going to put some miscellaneous information about TD-SCDMA in this article.

From the following article:

http://www.thetelecom.co.uk/20080228/td-scdma-sales-in-china-level-off/

China Mobile Communications, China Telecom and China Network Communications purchased 969M of TD-SCDMA equipment in 4Q07. ZTE accounts for 45.8% of total, Datang with 27.2% and TD tech with 14.9% of total.

A iPhone clone that is more iPhone. http://www.mobilemag.com/content/100/340/C11524/

How about an iPhone clone that can provide 3G services and have better camera than the iPhone? You think an “iPhone” that is even better than a real iPhone can sell in China? Oh, yes!

From the following news: http://tech.sina.com.cn/t/2008-04-03/07202117436.shtml

China Mobile announced that they had already build 14119 base stations for TD-SCDMA. They said within the same 8 trial cities, they had build more infra-structure for TD-SCDMA in 300 days than they did for GSM in 10 years.

From the following site: http://shanghaiist.com/2008/04/01/china_rolls_out.php

One can see that the price of TD-SCDMA services are extremely competitive. If China Mobile keeps these prices and there are no show-stoppers in the trial, given how the young Chinese considering their mobile phones as status symbol, this thing is going to explode.

Finally, let me see how can SPRD take advantage of the coming roll-out of TD-SCDMA.

They have two chips that support TD-SCDMA. The first chip is SC8800D:

http://www.spreadtrum.com/chs/service.asp?name=mobile&product_name=mobile_SC8800D

It can support GSM, GPRS, and TD-SCDMA. It has a maximum download speed of 384kbps and upload speed of 128kbps. It uses a 100MHz ARM processor core.

The second chip is SC8800H:

http://www.spreadtrum.com/chs/service.asp?name=mobile&product_name=mobile_SC8800H

It can support GSM, GPRS, TD-SCDMA, and HSDPA. It has a maximum download speed of 1.6Mbps. It can support 5M pixel camera. It uses a 200MHz ARM processor core.

I believe the SC8800D is out on 2004 and the SC8800H is out on 2007. At this point, China Mobile’s trial is only for the 384kbps version. Thus, only the SC8800D will benefit. But the SC8800H will benefit as China Mobile rolls out the HSDPA version of TD-SCDMA in the future.

Negative review of TD-SCDMA

My last report on TD-SCDMA can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/04/evaluation-of-td-scdma-by-sina-tech.html

The review so far had been good. But I am sure there are negative report also. I found one and it can be found here:

http://tech.sina.com.cn/t/2008-04-07/09452121655.shtml

It is in a newspaper called People’s Net Market Paper. I will translate the main point below.

TD-SCDMA has excellent voice quality. It is even better than the existing GSM.

There is a lot of coverage issues. There are a lot of areas that only have one or two bars. Some places doesn’t even have any bars. The calls are very unstable in places where the coverage is bad. There are places that one can’t even make a call successfully.

The reviewer made a video phone call. The quality is good. But there seem to be delay once a while. The download speed is very good. The reviewer can get a download speed up to 200kB/second (the advertised top speed is 385kB/second).

When it is stationary, the reviewer can have excellent video phone or video/TV programming. The TV volume is loud and clear for the TV programs. But when moving, such as in the subway or on the bus, the speed degrades badly. In a lot of cases, the connection will break.

But there is a very serious battery issue. After only 20 minutes of phone calls and after downloading several short video clips, it already spent half of the battery.

Some customers complained about the instability of the calls. Some calls gets disconnected. It seems like the instability of phone calls are the biggest issue.

From this article, it is hard to tell what caused the instability of the call. If it is the coverage issue, it is to be expected. It can be easily solved by adding more base stations. Mobile operators such as China Mobile are doing that any way. This is really not the issue of the standard itself and can be solved easily by adding more base stations to provide better coverage.

But if the instability is caused by the underlining technical deficiencies of the standard itself, then we will have a big problem. This then become a fundamental problem that no amount of additional infrastructure build can remedy.

It is hard to tell which is the case at this point. But during this early stage, the lack of coverage is to be expected.

Another problem is the power consumption issues. There seems to be conflicting reports on whether this is the issue. Even if it is, it is not clear whether the issue is caused by the standard itself or caused by the deficiency of the handset design. If it is the handset design, it will be solved easily by the future design optimizations of the handset companies. But if it is the technical deficiencies of the standard itself, it could present a very big problem.

At this point, we will probably have to wait for a couple of months of trials to see whether there are patterns emerge.

Evaluation of TD-SCDMA by Sina Tech reporter

My last post on the TD-SCDMA can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/04/evaluation-of-td-scdma-by-sohu-tech.html

Netease and Sohu both have reports on the TD-SCDMA. Sina is of course not going to be left out. For Sina’s case, they did a video review:

http://video.sina.com.cn/tech/other/bn/2008-04-01/21153581.shtml

One can see TD-SCDMA in action in real time. Since this is only a 5 minutes review, this is not going to be a detailed review. But seeing a TD-SCDMA phone in action provides a lot of insight that a written review can’t.

In this video review, Sina’s tech reporter talked about the five advantages of TD-SCDMA phones over the existing 2G and 2.5G phones in China.

First, the phones are multi-standards. The caller can use TD-SCDMA or the existing 2G/2.5G services on the same phone.

Second, it provides high speed internet browsing. Compare to the existing 2G or 2.5G services, TD-SCDMA behave like a broadband service (borrowing the term used for ADSL or Cable Modem). The current version of TD-SCDMA can support up to 384kbps. Sina’s reporter of course went to www.sina.com.cn for demo in this review.

Third, it has video phone feature. In the demonstration, the quality seems very nice.

Fourth, much higher multi-media capability. Now, when one wants to watch TV programs, video clips, or sounds, one doesn’t have to wait forever to download the files. With real time streaming, one can watch these multimedia programs in real time. Again, the demonstration of watching a movie in real time is very nice. The quality of the movie seems to be very nice.

Fifth, the high speed allows for high quality JAVA applications. Sina’s reporter uses the example of keeping track of stocks and stock technical analysis (in real time) as an example.

Finally, the reporter also talked about the extremely competitive pricing of TD-SCDMA announced by China Mobile.

Overall, I will have to say this review gives a glowing report for TD-SCDMA.

On a related subject that I had been keeping track of, the subject of the intense China’s portal’s video/TV war, Sina also had another video report on the TD-SCDMA trial. That video is here: http://video.sina.com.cn/tech/t/bn/2008-04-01/12093579.shtml

There weren’t anything technical about this report. But one can see that Sina is really starting to behave like a CNN or a MSNBC. Sina has really transforming itself from a text based company to a video/TV/multimedia based company.

My last post on the subject of portal’s video war can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/sohu-video-tv-stations-opened.html

At this point, Sina seems to be doing the best job. But with Sohu’s Olympic initiative, it is going to be a war between the two.

Evaluation of TD-SCDMA by Sohu Tech reporter

My last post on the TD-SCDMA can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/04/td-scdma-reviewed-by-netease-tech-news.html

After Netease did a review for the new 3G service trial, Sohu will of course not going to be left out of this. A Sohu tech reporter did a three part reviews as well. I will give a brief translation.

On 4/1/2008, he did the first part of the review:

http://macropandabo.blog.sohu.com/83451568.html

This is the first day that TD-SCDMA can be tested. Most people this reporter called haven’t got the new features yet. Not much can be said in this report. The only thing is that this reporter think the quality of the voice call is excellent.

In the second report, it is probably later on in the same day, 4/1/2008, he talked about a little bit of more features:

http://macropandabo.blog.sohu.com/83530680.html

In this report, he talked about using the video phone feature. It seems like the quality is very good. He is even able to see the background of the other caller clearly. He also talked about the video phone feature when both caller and receiver are traveling with speed. He was on a bus traveling about 80km/hour (about 50 miles/hour) while the other caller is in the subway traveling about 80km/hour (50miles/hr), there are degradation to the voice and video quality of the call. But overall, it is acceptable.

Out of 20 video phone calls he made that day, one can’t receive the video image. But that is probably more to do with the problem with the mobile handset of the received caller.

He also talked about the battery issue. For that day, that reporter made 20 voice calls, 20 video calls, 10 short messages, and 10 minutes worth of WAP. Afterward, the battery is virtually out. The reporter felt it is very battery consuming.

The third report is based on his experience on the same day (4/1/2008) also.

http://macropandabo.blog.sohu.com/83618512.html

In this report, he talked about his experience on the fastest train in the world, Shanghai’s Pudong Airport Maglev (Magnetic Levitation) train. Some information about this train can be found here:

http://home.wangjianshuo.com/archives/20030809_pudong_airport_maglev_in_depth.htm

He arrived at the Shanghai airport and took the Maglev train. He made a video phone call while on the train. At the beginning, with the train stationary, the quality of the call is excellent. But as the train started moving and getting to about 50 km/hour (31 mile/hour), he started to notice the degradation of the quality of the call. When the speed of the train gets to 180 km/hour (112 miles/hour), the call is disconnected. The speed of the train gets faster until it reaches about 300 km/hour (186 miles/hour). At that speed, video phone is not possible. However, even at that speed, he is able to conduct voice call. There are degradation to the quality of the voice call at 300 km/hour, but the phone call is understandable and acceptable. That reporter believed that TD-SCDMA passed the speed test since it will not be possible for 2G phones to keep the link at this extreme speed.

Overall, he felt the quality of various services for the TD-SCDMA is excellent. But there are coverage issues. There are some problem inside the hotel, inside the subway and in Shanghai’s rotating tower.

Also, he already receive his first SMS junk mail. (Remember the issue with FMCN, I guess SMS junk mail is really bad if people already start to receive junk mail on the first day of a trial).

In summary, Sohu’s report seems to suggest two possible problems. First, he thinks there might be power consumption problem. Second, there might be coverage problem.

But from the amount of phone calls he made, I am not quite sure this is the problem. If I made the same amount of calls, it will probably drain the battery of my mobile phone also. In addition, usually the first generation handsets are electricity hogs. They are usually corrected in a few months. With better handset design (which is not an issue for the standard itself) and larger battery capacity, this doesn’t seem like a problem.

The second problem he mentioned, the coverage problem, is really to be expected. It is going to take China Mobile and China Unicom a few years to install tens of thousands of base stations all over the country. There will definitely be coverage problem at this early stage.

Interestingly, he didn’t mention the problem pointed out by Netease’s review, the instability of mobile internet browsing. That actually could be a bigger problem. We will just have to keep track of different reviews to see if unstable internet browsing is epidemic.

Finally, I think this review give me the impression that TD-SCDMA is more matured than I thought originally. It seems they had solved one of a supposed weakness, performance when one or both of callers are traveling at high speed.

As far, both reviews give me a lot of hope that speedy expansion of 3G is possible in China. Major expansion in months rather than in years seems more likely.

But we need to keep track of more reviews. There might just be some issues out there that nobody thought of that might come back to haunt us.

TD-SCDMA reviewed by Netease Tech News

My last post on China’s new 3G mobile phone (TD-SCDMA) can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/03/china-to-launch-trial-of-3g-mobile.html

On 3/26/2008, Netease Tech. department did a review on the new service. I believe it is the first such review. The article is as follows:

http://bbs.tech.163.com/bbs/tech02/67358158.html

My brief translation is as follows. The article had a lot of pictures. I would not copy the pictures here.

Starting April this year, China Mobile will provide TD-SCDMA trials on 9 cities in China.

The cost of the service is video phone of 0.6 RMB/minute and voice phone of 0.4 RMB/minute. The monthly service is 10 RMB/month for 30MB (?) of data, 50 RMB/month for 200MB of data, 200 RMB/month for 4G of data, and 300 RMB for 8G of data.

The SIM card for the TD-SCDMA is different than that of other standards. They are not inter-changeable.

First, Netease conducted voice phone calls. They found the voice quality very clear. As clear as the GSM network. There were no voice spike or fade or any other interruptions. For this test, they can only do the stationary voice calls. They will conduct the voice call when traveling in high speed in the future.

(My note. Phone call during high speed travel is one of the more problematic areas for cellular phones. Too bad Netease is not able to test this aspect.)

Next, Netease tested the video phone option. They found the image to be very clear. The video refresh rate is about 5 to 8 frame/seconds. It is less than regular TV (30 frame per second), but they found it acceptable for this purpose.

Next, they test the TD-SCDMA’s internet capability. At this point, they can support two capabilities, TD-CMWAP and TD-CMNET. At this point, the data rate supported by TD-CMWAP can be found by GPRS/EDGE. Therefore, it won’t be the selling point for TD-SCDMA. However, TD-CMNET is another story.

To use TD-CMNET over the existing 2G or 2.5G is almost like the difference of using ADSL (broadband) vs. 56k analog modem dial-up for desktop internet browsing.

Of course, Netease went to www.163.com for internet browsing test. They found it much faster than the existing GPRS/EDGE. It only take 3 to 4 second before the page start to load. The browsing afterward is extremely fast also.

At this point, the maximum data rate is 384kbps. They also heard that the next (half) generation TD-HSDPA 3.5G shall be here soon.

Next, Netease tested the TV viewing. It only takes 3 to 4 seconds before the TV program showing up. The quality is excellent. It has the about the same quality as the watching TV at home. The sound from the speaker phone is very good also.

In addition, one can use TD-SCDMA to perform remote control or remote surveillance functions. For example, to check the traffic condition of one’s travel destination. Or use TD-SCDMA phone to control the computer at home or home appliances.

They also watch an NBA game on the phone and found the quality excellent.

But they did found a few minor problem. They found, at the location where they done the test, the connection to the internet is not very stable. It disconnects a few times. They hope this is just a phenomenon during the trial.

In addition, they think the next generation TD-HSDPA shouldn’t be too far away. The license to operate TD-HSDPA had been recently granted to a few phone manufacturers. It shouldn’t be very long for this new service to come out.

Finally, they predict TD-SCDMA will be offered to the general public in June this year.

This concludes the review by Netease Tech department. From the review, it looks good. While I am certain there will be a lot of teething problems in the next two years, I believe Chinese users will tolerate them as long as they are not show stoppers. Except for the unstable internet connection, there doesn’t seem to be any show stoppers. We have to however, keep an eye on that as more reviews come in.

If TD-SCDMA can really get into commercial operation by June this year, it will really be great news to equipment manufactures such as SPRD and WVAS content providers such as SINA and KONG.

Sohu’s search monetization strategy

Just want to talk a little bit about how Sohu is going to monetize its search engine, Sogou.

My last post that is sogou related is here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/cnnic-2007-search-market-survey.html

It has a two prong strategies. First, it is going to use all of Sohu’s properties to sell Sogou. See the following web site:

http://www.sogou.com/fuwu/jingjia/tushi.html

If a company buy a key word on Sogou, it will not only be buying a presence on the search engine, sogou, it will also buying a presence in other Sohu properties such as emails, blogs, portal channels (news, sports, etc.), etc.

In addition, on 3/14/2008, it also start a service called Sogou 800. See the following web page:

http://www.sogou.com/fuwu/ppc.html

If a company become Sogou’s consumer and buy a key word, and when an internet user search on Sogou using that key word, that company information will of course be part of the search result. Nothing different here from other search engines.

But now, there will be a little green telephone sign next to the search result. The internet user can then click on that sign and give sogou his or her phone number. Sogou then will connect between that internet user with the customer service department of that small company. The first 10 minutes of phone service will be paid for by Sogou.

It is an interesting service. I have no idea how effective will this service promote Sogou.

But if it is effective, Sohu will incur some additional expenses in return for being a player in China’s search engine war. On the other hand, if it is not effective, Sohu won’t have to spend much.

It is what a hit game like TLBB can do for Sohu. Now, Sohu makes tons of cashes from that game. These extra money enable Sohu to spend a lot of money to promote her other services.

For Netease, I think it is dumb for them to get into search now. But for Sohu, I think they might still have a chance.

In addition to the above two strategies, their Olympics connection might give them a head up during Olympics. Search is a force of habit. If they can convert enough users to use Sogou during the Olympics, those users might just keep on using Sogou afterward.

Finally, Sogou might have a secret weapon in its disposal. It is just purely a guess on my part right now. If I have some more time, I will probably talk more about this “secret weapon” in the future.

Netease start to monetizing its search engine

My last post that is Yodao related is here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/cnnic-2007-search-market-survey.html

On 3/6/2008, Netease started to monetizing its new search engine, Yodao. See the following link:

http://a.yodao.com/login.s

From now until 3/30/2008, it also has a promotion where if a small company can get 100 dollars in promotion money when they put in 1 dollar. See the following:

http://a.yodao.com/campaign/200801/index.html

Yadao hadn’t done much and I don’t think it is even close in popularity to the top four search engine yet. When Sohu started its Sogou search engine, it waited for a long time before it started to monetize its search engine.

I doubt this will add anything of any significance to Netease’s revenue. I hope I am wrong, but it is just too late to get into search engines in China now. Baidu is just too good in technology, execution, management, and a tremendous head start. I have the feeling that Netease is just pumping money into a hopeless mis-adventure.

China to launch trial of 3G mobile phones

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

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

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

My last post on WVAS is here:

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

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

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

It was a tremendous technical break through for China.

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

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

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

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

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

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

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

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

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

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

FMCN’s comments on China Internet advertising business in 2009

My last post on online advertising business can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/03/statistics-from-dcci-on-chinas-online.html

On 3/19/2008, FMCN had a earning conference. In this call conference, they talked about the overall internet advertising business in 2009.

Companies such Sina or Sohu might know a sector of China’s internet advertising business, but for the overall China internet advertising business, there is nobody better than FMCN. FMCN’s customers are companies such as Sina and Sohu. Therefore, it give them a bird’s eye view of the overall industry.

Given how well FMCN had been growing and how capable is Mr. Jason Jiang been piloting the company, there is nobody better than predicting the future direction of China’s internet advertising sector.

From the earning call transcript:

http://seekingalpha.com/article/69120-focus-media-q4-2007-earnings-call-transcript?source=yahoo

In 2009, he expect the overall advertising industry to grow a very strong 15%. He is confident FMCN will grow 50% in 2009. The following is the quote on the internet sector:

“…..for the Internet mobile advertising we believe actually during the Olympic period, the benefit of advertising in this media will be highlighted and we expect both Internet advertising and mobile handset advertising will grow very strongly in 2009 as these forms of media get recognized by the advertisers and it will enter a very strong growth period after the 2008 Olympics.”

He actually down play the effect of Olympics on FMCN. There won’t be any price increase specifically for the Olympics.

The above is exactly how I felt about the affect of Olympics. There will be some pick up for online advertising revenue prior and during the Olympics. But somehow, I felt the effect is being exaggerated.

But I think the real effect of the Olympics is to serve as the demonstration platform for all the new products (video, P2P, internet TV, blog, and other web 2.0 services) that companies such as Sina and Sohu had been working on. These new products are much more suitable for advertising than the old text-based products.

China Mobile taking action to stop the mobile spamming

My last post on China’s mobile industry can be found here:

http://chinese-net-gaming-stock.blogspot.com/2008/03/fmcn-apologized-for-mobile-spamming.html

From the FMCN mess, China Mobile also apologized.

http://it.sohu.com/20080320/n255805285.shtml

http://tech.sina.com.cn/t/2008-03-19/17482087916.shtml

In addition, it provides some additional information that I think is very interesting for the whole Mobile Value Added Service (MVAS) industry.

http://tech.sina.com.cn/t/2008-03-20/09342089505.shtml

I will translate in the following.

In Guangdong province, the number of customer complains had went down from 1378 cases in 2006 down to 1022 cases, or a decrease of 27%.

In the coming year, the government will emphasize on three areas for enforcement. First, IVR; second, SMS spamming; and third, un-solicited voice emails.

I think most of the SP had been nailed by SMS spamming. Therefore, I think companies like SINA, KONG, HRAY, and LTON had learned their lessons.

I am not familiar with illegal IVR and un-solicited voice emails and how much the above mentioned companies’ involvement in these two areas. Even though I don’t think the above four companies are involved, but it is something needs to keep track of.

FMCN apologized for mobile spamming

My last post on China’s mobile industry can be found here:

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

http://it.sohu.com/20080320/n255804036.shtml

http://it.sohu.com/20080320/n255806286.shtml

http://english.people.com.cn/90001/90776/90882/6377632.html

There was a major scandal that involves FMCN. It was kind of confusing for a couple of days. But after the dust settles, I think I got a pretty good handle.

First some background information:

On 3/15/2008, China’s state-owned flag ship TV station, CCTV, had a show that documents that 7 MVAS (Mobile Value Added Services) companies had conducted SMS spamming. The SMS spamming involves sending unwanted SMS messages to un-suspecting customers.

There are two issues involved, first, was FMCN involved in actually doing SMS spamming? And if so, how did FMCN obtained the mobile phone number of these customers?

On 3/18/2008, China Mobile apologize and said it had block off these 7 companies.

On 3/19/2008, FMCN CEO apologize for doing SMS spamming. Also on 3/19/2008 (China time), during the earning call conference, FMCN announced the stoppage of all business activities involved in that part of wireless business.

On 3/72006, they purchased Dotad Wireless and convert into a subsidiary of FMCN and called it Focus Media wireless. It has three parts of business, one is to help companies send SMS messages to its members. The second is the new type of mobile business that FMCN talks extensively in it earning conference and they had already signed up big companies such as MSN and KONG. The third type of business is the SMS advertising business and SMS spamming will be within this business.

After the CCTV reporting, FMCN did an internal auditing and found that its subsidiary did committed SMS spamming. As a result, FMCN will completely get out of all SMS advertising business. The other two wireless business categories are not affected. Based on this, they predict they will make 54 to 55.8 million in 2008 (from 47m in 2007). The full affect of getting out of SMS advertising business will start to be felt in the 2^nd quarter of 2008.

In addition, they said all companies employees that caught doing this will be fired. They also explained that they obtained the users’ phone number by monitoring when these users browsing on their WAP site. That is legal. The outside Chinese legal experts quoted on various news reports all agreed that this is fine for FMCN to collect these user information because these are public domain information if users willing to give out their phone numbers on these WAP sites.

It took me a while to figure all these out. There are several conclusions to be made.

First, FMCN is just growing too fast. Jason Jiang is probably the most capable executive I had followed. But the pace he is buying companies is just way too fast. The company needs time to integrate. Promoting Dr. Tan Zhi to CEO is an excellent idea. Now it frees Jason for better monitoring of its other far flung subsidiaries. In the earning conference, FMCN talked about getting into the area of digital TV advertising business. I am sure they will probably buy some companies in that area. But I hope they would stop buying any more companies for couple of more years to allow time for better integration and better monitoring. As they focuses on integration and less on acquisition, that shall improve the margin for the next few years.

Second, the company made a correct choice. It came clean and basically just chopped off one of its arm. It is a clean break and it completely stopped the growing story dead on its track. By completely getting out of this business, it becomes immune to whatever China Mobile can do to it.

Third, the Wall Street’s reaction is completely irrational. Even after FMCN completely getting out of the SMS advertising business, it will make 900m to 930m (about 80% year over year) in 2008. It completely trashes the analysts’ estimate of 836m.

Now, lets make it even more extreme; lets assume the worst of the worst, lets assume they will completely getting out of all wireless business. Wireless is expected to be account for 6% of total business in 2008. Without wireless, FMCN expects to make 846 to 874m, or about 70% year over year.

As of now, FMCN share price is $36 and a trailing PE of 32 and forward PE of 17.
All that for an 80% growing company! Are you kidding me?

XYQ Server Update

My last update on XYQ can be found here:

http://chinese-net-gaming-stock.blogspot.com/2007/09/quick-update-on-xy3-and-xyq.html

NTES had been very good at publishing new Peak Concurrent User (PCU) records whenever one occurs. In 2006, XYQ had 9 PCU records. In 2007, it only has two. The first PCU record in 2007 occurs on 3/4/2007 and it had a PCU = 1500k. It takes another 9 months to have another record. On 12/2/2007 it had a PCU = 1520k. This new record is only 20k more than the one happened 9 months ago.

From the above data, I started to think that this game had peaked and we will start to see the long term slow decline for XYQ. But it looks like I was wrong.

On 3/2/2008, XYQ not just get a new record, they absolutely crashed the old record. Its new PCU record is an amazing 1660k (an increase of 9.2%)!

But is this new PCU indicates that there is something fundamentally changed? Let’s see how the server count says.

The following is the server count table:

Month	Saturday/Sunday	4Q2007	1Q2008
1	1
	2	1254	1385
	3	1318	1340
	4
2	1	1498	1469
	2
	3	1338	1397
	4	1383	1489
3	1	1519*	1561**
	2	1325	1443
Holiday	5	978	1117
	6	965	1268
Total		11578	12469

* On 12/2/2007, Official PCU = 1520k while my calculated PCU (based on my server count) = 1519k

** On 3/2/2008, Official PCU = 1660k while my calculated PCU (based on my server count) = 1561k

The first column is the month. There are three months in each quarter. In addition, there is a one week national holiday in both 4Q 2007 and 1Q 2008. I used 2 days out of the 7 day national holiday.

The second column is the order of weekends. There are usually 4 weekends per month. The number in the third and fourth column represents the PCU for that particular weekend.

From the last row, one can see ACU increased from 4Q07 to 1Q08 by (12469 – 11578)/11578 = +7.7%

Note that on 3/3/2008, I used my calculated PCU of 1561 instead of the real official PCU of 1660. If you want to use the real number of 1660, then the accumulated total will be 12566 instead of 12469. In that case, the increase from quarter to quarter will be (12566 – 11578)/11578 = +8.5%

The strength of the growth is very impressive.

Now, lets try to relate ACU with the revenue. Let me use the following table:

	4Q2006	1Q2007	2Q2007	3Q2007	4Q2007
PCU	1335	1500	1470	1440	1520
PCU %		12.3%	-2%	-2%	5.6%
ACU	444	510	491	517	515
ACU %		14.9%	-3.7%	5.3%	-0.3%
Revenue	40.5	45.3	46.2	48.8	50.7
Rev. %		11.9%	2%	5.6%	3.9%

The second row of the table is the Peak Concurrent User number. The third row is the quarter to quarter increase/decrease for the PCU. The fourth row is the Average Concurrent User. The fifth row is the QoQ increase/decrease for the ACU. The sixth row is the revenue from XYQ. The seventh row is the QoQ increase/decrease for the XYQ revenue.

For 1Q 2008, my server count suggested an increase of 7.7% for the ACU. My guess for the revenue will be an increase of 8%. This will give me a revenue of 50.7 * 1.08 = 54.8 millions for 1Q2008.

This result surprises me. An over-the-hill title is not supposed to have a QoQ ACU increase of 7.7% and PCU increase of 9.2%

It is possible that XYQ may still have one or two more years of growth to go. But whether this indicates a fundamental shift or just a blip, we will have to see how 2Q2008 come out.

Market in China keeps on surprising me. A six year old title like XY2 is still growing. A four years old title like XYQ explodes like a new title. Yet a new title like XY3, even with a pretty good head start, is showing signs of aging. If the 1Q2008 earning conference call confirmed my server count estimates, I would certainly eager to hear Ntes’s management’s explanations.

Finally, Ntes had stopped most of its marketing campaign for all its games during the first quarter. I just can’t say enough about how disappointed in Ntes’s management in pinching pennies. There are so many good titles out there in China. A new title like XY3 got to have marketing help. XY3 can still achieve very popular status if Ntes is willing to spend some money to market it.