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Rising Stars Impact Net Industry

The year 2003 was a time of revival for the Chinese Internet industry since the burst of the dotcom bubble in 2000. During this period, the netizen population grew steadily, revenues from online advertising, mobile message and online games maintained strong growth, and stock prices for the four Chinese Internet companies listed on the NASDAQ stock market in New York -- Ctrip.com, Netease.com Inc, Sina Corp and Sohu.com Inc -- continued to rise.

William Ding, who owns more than half the stocks of Netease, became the richest man in China, as the company's stock price almost tripled in the past year.


Analysts and investors are hoping this trend will continue and are looking for the next industry stars. Although it is still too early to say who will be the next Internet hero and what Internet applications will catch the eyes of investors and users, experts believe some companies and certain individuals will likely cause a stir in the industry.




Timothy Chen and his Shanda Networking Co Ltd are already a legend in China.


Chen founded Shanda in November 1999, but in three years' time, his company has become the biggest online game operator in China and Shanda's revenues last year were expected to exceed 1 billion yuan (US$120 million). Chen was also ranked the sixth richest man in China by Forbes magazine with a personal wealth of US$490 million.


Now that it has made a name for itself with online games, it is time for Shanda to further its development.


For 2004, initial public offering (IPO) and research and development (R&D) will be two key words for the Shanghai-based company.


Chen, who is chairman and chief executive officer of Shanda, said in January in Beijing that the IPO of his company on the NASDAQ has entered the silence period -- when any company vying to be listed is not allowed to reveal any information about the listing until it goes public.


Chen announced he will resign as CEO shortly, which is believed to be a move that will enable him to focus more on the company's strategies.


He declined to give more details, but according to earlier reports, Shanda has hired Goldman Sachs as its underwriter and is expected to raise as much as US$1 billion from the IPO.


"Shanda's move is natural for the company, as online gaming is a very attractive concept to investors and the reception for Internet companies on the NASDAQ is very good," said Michael Yin, a Shanghai-based Internet industry analyst.


For example, Chinese online travel service firm Ctrip.com issued American depository receipts (ADR) on the high-tech-laden NASDAQ on December 10 with an IPO price of US$18 and raised US$75.60 million from the listing.


Its stocks rose by 88 percent on the first day of trading.


R&D is another area that tops Chen's agenda.


Chen said his company will spend more than US$10 million this year on the R&D of new games.


"There is only one key word in the competition of the online game market in China this year and that is R&D," said Chen.


The Shanda boss revealed his company recently bought a US-based massive multiplayer online game engine firm -- Zona Inc, one of the top two in the world, according to Chen -- but he declined to disclose the amount of the deal.


With the acquisition, Shanda will incorporate game engine technology, a core component in the design and development of games.


Since US and European game developers are stronger in game designs and technologies compared to their competitors in South Korean and Japanese companies, and since there are few online games from the US operating in China now, Shanda has a big chance to lead its Chinese competitors in technology, Chen believes.


The company has 250 people engaged in research and development, or about 30 percent of its total workforce.


The number of online game operators in China already rose from about 50 in 2002 to more than 100 last year, but most of them rely on imported games from South Korea or primitive designs created by themselves.


The company will launch six to seven new games this year.


"The desire for in-house design and development is even stronger from Shanda than most of the other players in the market, after [Shanda] broke up with its former South Korean game providers," said Yin.


Shanda reaped significant profits with the import of a game named Mir from South Korean game developer ACTOZ and its partner Wemade in July 2001.


However, a dispute between Shanda and the two South Korean companies on distribution of income from 2002, which finally led to the termination of their cooperation, forced Shanda to develop its own games.




Similar to Shanda, this year will also be critical for Shenzhen Tencent Computer Systems Ltd, the biggest Chinese Internet company in terms of user population.


Although the user base of the biggest instant messaging service company continued to grow in the past year, it faces a lot of challenges in the new year.


According to Pony Ma, Tencent president and chief executive officer, more than 240 million people chatted with friends through its personal instant messaging tool QQ either via the Internet, mobile phones or pagers by the end of 2003 and more than five million people used QQ simultaneously in December, up from three million in September.


"When a company grows bigger and bigger, I believe there are still new gold mines ahead, but the problem is how to find it and promote it," said Ma in an interview in Beijing in January.


The Tencent CEO pointed out that, in spite of the huge user base of his company, many people may spend hours playing games but only a little time on chatting with others.


He decided to integrate more entertainment content with Tencent's instant messaging tool. The result was Sephiroth, an online role-playing game imported from South Korea, which ranked fifth most popular online game in the country.


The game is undergoing focus group testing and the final date for commercial launch has yet to be decided, the Tencent founder said.


Tencent's advantage of having a large QQ user base may easily win many game players, explained analyst Yin.


In less than three months, Tencent has already recruited more than 10,000 players to participate in testing. Tencent's strength in mobile payment, which allows users to pay online game fees along with their mobile phone bills, has helped increased its competitiveness, he added.


Tencent is the biggest service provider for China Mobile, the dominant mobile operator in the country. Its users send millions of mobile messages every month.


Tencent shared income from the messages with China Mobile and received an average monthly income of 30 million yuan (US$3.6 million) last year.


However, it is still a big challenge for Tencent to take a lead in the competition with over 100 online game operators, Yin pointed out.


Besides online games, another new business line for Tencent is its enterprise communications tool, RTX, which was launched last September.


Since most of its QQ users are individuals, especially young people or professionals in the information technology industry, Tencent has been trying to enter the high-end enterprise market, where Microsoft's MSN Messenger is strong.


According to a survey conducted by a third party consulting firm, RTX helps a business save 13 percent of its telephone bills and improves the efficiency of employees by 17 per cent.


An investment of 100 million yuan (US$12 million) over three years beginning in 2003 to promote RTX was undertaken by his company, said Ma.


As online games and RTX are two of Tencent's three important business strategies (the other being individual-targeted QQ), their success is crucial for China's biggest instant messaging service firm.


They do not only decide its future development, but also the attractiveness of its IPO.


The company is planning a listing on the NASDAQ this year and is expected to raise US$100-200 million from it.


(China Daily February 4, 2004)




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