On Shanda's New Revenue Model (SNDA)

Yesterday Shanda Interactive (ticker: SNDA) announced plans to adopt a free-to-play and pay-for in-game value-added services revenue model for two of its MMORPGs The Legend of Mir II and Magical Land. Under the new model gamers will play for free but also have the option to purchase certain in-game items and premium features. CEO Tianqiao Chen was quoted as saying ''after several years of operating our casual games under the similar revenue model and after extensive research into the Chinese online games market, we believe that adopting the Avatar-based revenue model for more games will benefit the company in the long run, however, it might have a negative impact on the short-term revenues of our MMORPGs.'' Investors showed their disappointment. Along with Shanda, other Chinese online game operators NetEase (ticker: NTES) and The9 (ticker: NCTY) fell during yesterday's trading on the assumption that this move will force other companies to adopt a similar model. What are the implications of Shanda's adopting this new revenue model? Goldman Sachs commented on this very issue in a recent report to clients (see here). China blogger Bill Bishop had this to say.

Comments

[wild:]

SNDA is the most stupid firm among those Chinese companies listed in the US. I remember one of the greatest investors in the world once mentioned that the strength of a company can be shown by whether it can hold onto or improve its price on products. Using my products for free? What a great idea. It is just like American automakers, selling junks for a penny thenn lowering price again and again. It is just a proof to the weakness of a company's product and how hard it is for the company to get customers. Look at Toyota and Honda, they give the least rebate on sales and maintain strong position on pricing. Toyota even claimed to raise price to let GM and Ford feel better. But, customers dump the cheap American cars for Japanese super-qualifty no matter what the price difference is. If SNDA is really the king, how about raise your price and still see players puring in? NTES is the only one of the three who has the patience and calibre to build something nice on its own. Apparently, What NTES is doing is not enough. No need to mention the other two, crappy firms without a determination on developing their own products. SNDA is wasting cash on sina and the stupid boxes. It tries to be the king distributor of entertainment content in China. That has put the firm into direct competition with state-owned companies who own and operate TV and cable networks. What consumers need is great content. They do not care about the channel and format. Is that a fact that a great storyline can make book, movie and game become hits? SNDA is avoiding doing the hard work to creat long-term value but tather doing some cheap tricks any firm can do with that much cash.

Just give a hint, Sina and Sohu have consistently raised their price on adverstisement in the past and are expected to do so in the future. If SNDA is right, GOOG should let people post ads through it for free. SNDA is really an expert hype-creator like many other Chinese firms, having too less to compete but too much to say to the press.

2005 Nov 29 11:56 PM