Pearl Research's Instablog Pearl Research, a business intelligence and consulting firm, specializes in the technology, internet, and games industry with a focus on emerging markets and platforms. Based in San Francisco and China, Pearl Research publishes in-depth market research reports and provides consulting services. We operate RedlineChina.com (http://www.RedlineChina.com/), a news site covering Chinese technology news. Pearl Research’s client base covers technology companies, investment banks, hedge funds, private equity funds, government agencies, and SMEs. Our consulting services help businesses take advantage of market opportunities. Typical engagements include: Market opportunity assessment; Competitive analysis; Benchmarking and best practices; Market entry or market expansion plans; Identification and tie-ups with potential local partners; and Investor tours of Asia Pacific. Our focus includes primary research on emerging markets and trends, go-to-market and differentiation strategies, consumer purchasing behaviors, competitive analysis, and management strategies. Coverage areas include: * Games (online, console, casual) * Web 2.0 (social networking, blogging, video sharing) * Consumer studies for both the US and Asia Pacific * Wireless * Digital music * Search engine analysis * Interactive entertainment and games reports covering the US, Europe, Latin America, and Asia Pacific For more information, visit PearlResearch.com (http://www.pearlresearch.com/) or RedlineChina.com (http://www.redlinechina.com/) or call 415-738-7660. Pearl Research http://seekingalpha.com Selling Virtual Items in China: Tencent's Social Networking Site Qzone http://seekingalpha.com/instablog/403043-pearl-research/40559-selling-virtual-items-in-china-tencent-s-social-networking-site-qzone?source=feed 40559 (0700.HK) has accomplished through its online games, social networking, instant messaging and advertising services. Publicly traded on the Hong Kong stock exchange, Tencent earned $1 billion dollars in revenues, $729 million in net income with a profit margin of 70% in fiscal year 2008.

Even more striking is the success of the company’s social networking site, Qzone, with 200 million members in China. Similar to Facebook, Tencent’ Qzone offers the user the ability to create or share profiles, games, blogs, photos and gifts. While Tencent’s Qzone product offerings sound generic as the numerous, dime-a-dozen worldwide social networking sites, the way it monetizes separates it from the pack.

While Qzone access is free and the sites does offer some sample templates and gifts, most users will have to pay to fully take advantage of even basic services. For example, users initially limited to an inbox size of only 50 messages. After becoming a paying member, users will be capped to 200 inbox messages. In addition to advertising, the site makes money off selling virtual items, using a coin system called “Q” coins. Users use real money to purchase Q coins. A sample of what can be purchased is listed below. None of these items cost more than 21 Q coins which is less than ($3). 0 - 1.2 Q Coins for a gift 2.3 – 5.2 Q Coins for animated accessories 4 Q Coins for decorative picture 4.2 – 6 Q Coins for backgrounds 5.2 Q Coins for music player skins 5.2 Q Coins for dock skins 5.2 Q Coins for animated flash introductions 21 Q Coins for a complete web layout

One issue with virtual goods is that while $1 or $2 might not seem like a lot of money, avid users often end up spending more than they intended, resulting in buyer’s remorse. Many prospective paid users might be deterred from purchases of digital goods by their high individual cost along with their limited digital shelf life. Qzone smartly entices them by offering the “Yellow Diamond” (10 RMB per month or $1.50) subscription that opens up many services and goods at a much lower cost than purchasing them individually. With a 10 RMB ($1.50) per month subscription, users can unlock most of the graphical add-ons for use on their profiles and the subscription makes certain gifts free. This plan offers the user far more value than individually purchasing the graphical add-ons and gifts, which are priced from a range 1 to 6 RMB each ($0.15 to $0.88). The subscription also avoids the hassle of tracking the virtual items’ expiration dates.


Even by Chinese standards, the monthly subscription is considered inexpensive. This strategic move by Tencent to offer a subscription contributes to the social networking site’s monetization. Monetization on Qzone is aided by Tencent’s own popular Q Coin online payment system. Q Coins cards can be purchased from convenience stores and brick-and-mortar locations in a prepaid card form or charged to a customer’s cell phone. This makes billing and payment convenient for the Chinese consumer, many of whom do not own a credit card. China’s credit card industry is still in its infancy and with the core audience still relatively young, the Q Coins payment system effectively breaks down a payment barrier. In conclusion,

Tencent’s savvy use of a subscription service, its sales of virtual goods and a convenient payment system contributes to the monetization success of the Qzone networking site. While some of the Tencent’s success might be unique to China alone, lessons from this Chinese company can be considered in markets around the world.

Disclosure: No positions]]> Sat, 19 Dec 2009 15:02:03 -0500 (0700.HK) has accomplished through its online games, social networking, instant messaging and advertising services. Publicly traded on the Hong Kong stock exchange, Tencent earned $1 billion dollars in revenues, $729 million in net income with a profit margin of 70% in fiscal year 2008.

Even more striking is the success of the company’s social networking site, Qzone, with 200 million members in China. Similar to Facebook, Tencent’ Qzone offers the user the ability to create or share profiles, games, blogs, photos and gifts. While Tencent’s Qzone product offerings sound generic as the numerous, dime-a-dozen worldwide social networking sites, the way it monetizes separates it from the pack.

While Qzone access is free and the sites does offer some sample templates and gifts, most users will have to pay to fully take advantage of even basic services. For example, users initially limited to an inbox size of only 50 messages. After becoming a paying member, users will be capped to 200 inbox messages. In addition to advertising, the site makes money off selling virtual items, using a coin system called “Q” coins. Users use real money to purchase Q coins. A sample of what can be purchased is listed below. None of these items cost more than 21 Q coins which is less than ($3). 0 - 1.2 Q Coins for a gift 2.3 – 5.2 Q Coins for animated accessories 4 Q Coins for decorative picture 4.2 – 6 Q Coins for backgrounds 5.2 Q Coins for music player skins 5.2 Q Coins for dock skins 5.2 Q Coins for animated flash introductions 21 Q Coins for a complete web layout

One issue with virtual goods is that while $1 or $2 might not seem like a lot of money, avid users often end up spending more than they intended, resulting in buyer’s remorse. Many prospective paid users might be deterred from purchases of digital goods by their high individual cost along with their limited digital shelf life. Qzone smartly entices them by offering the “Yellow Diamond” (10 RMB per month or $1.50) subscription that opens up many services and goods at a much lower cost than purchasing them individually. With a 10 RMB ($1.50) per month subscription, users can unlock most of the graphical add-ons for use on their profiles and the subscription makes certain gifts free. This plan offers the user far more value than individually purchasing the graphical add-ons and gifts, which are priced from a range 1 to 6 RMB each ($0.15 to $0.88). The subscription also avoids the hassle of tracking the virtual items’ expiration dates.


Even by Chinese standards, the monthly subscription is considered inexpensive. This strategic move by Tencent to offer a subscription contributes to the social networking site’s monetization. Monetization on Qzone is aided by Tencent’s own popular Q Coin online payment system. Q Coins cards can be purchased from convenience stores and brick-and-mortar locations in a prepaid card form or charged to a customer’s cell phone. This makes billing and payment convenient for the Chinese consumer, many of whom do not own a credit card. China’s credit card industry is still in its infancy and with the core audience still relatively young, the Q Coins payment system effectively breaks down a payment barrier. In conclusion,

Tencent’s savvy use of a subscription service, its sales of virtual goods and a convenient payment system contributes to the monetization success of the Qzone networking site. While some of the Tencent’s success might be unique to China alone, lessons from this Chinese company can be considered in markets around the world.

Disclosure: No positions]]> china Chinese Online Games Market Soars to $2.8 Billion in 2008 http://seekingalpha.com/instablog/403043-pearl-research/2028-chinese-online-games-market-soars-to-2-8-billion-in-2008?source=feed 2028 China’s online games market raked in an impressive $2.8 billion in 2008, up 63% according to Pearl Research’s latest estimates. Online games, which consisted of massively multiplayer online games such as Blizzard’s World of Warcraft and quick and easy-to-play casual games are one of the most popular past times for Chinese Internet users.

  Online gaming continues to be the top revenue generator among the digital media companies in China, even surpassing those of search engines and portals. The top two gaming companies, Shanda (SNDA) and Netease (NTES), generated $522 million and $436 million in revenues respectively in 2008. Their online gaming revenues exceed those of  search engine company Baidu (BIDU) with $469 million and media firm Sina with $ $369.6 million in revenues.

  Approximately 70% of China’s 298 million Internet users are under the age of 30.  This group is most likely to seek out online entertainment, including games, music, and chatting, which Pearl Research believes will drive revenues for the online gaming market. Nearly 65% of online users in Pearl Research’s surveys played online games.

  We believed that online game revenues in 2008 were driven by compelling and diverse game content, free-to-play games, and rising demand for leisure and technology products.

 Game operators in China experienced strong revenue growth in 2008. Six game operators, Tencent, Changyou (CYOU), The9 (NASDAQ: NCTY), Netease (NASDAQ: NTES), Shanda (NASDAQ:SNDA) and Giant (NYSE: GA) crossed the $200 million revenue mark.

 China’s most popular online game, Netease’s “Fantasy Westward Journey” ac... 1.8 million peak concurrent users, followed by Giant’s “Zhengtu On... with 1.5 million users, Tencent’s “Dungeon and Fighter” at 1.2 million users, and Blizzard’s “World of Warcraft” at 1 million.

Media company Sohu (NASDAQ:SOHU) also scored a major hit with its TianLong Babu game, based on a famous Chinese novel. The title generated approximately $200 million for Sohu in 2008 and resulted in the spinoff of its gaming unit, Changyou (NASDAQ: CYOU) in April 2009.

Trends to track in 2009 include the growth of social networking sites in China, with over 55 million users, and their cross-pollination with games. One overall concern is the lack of diversification with many game operators relying on a single title for the bulk of revenues. In addition, a glut  of content with more than 200 games on the market, makes releasing a breakout hit increasingly difficult.

Many Chinese game operators continue to be optimistic in 2009, stating that the worldwide economic downturn has had little effect on their business. Games constitute a small-ticket item and users have not cut back as much on this type of discretionary spe...

 

 

 

]]> Mon, 27 Apr 2009 19:07:46 -0400 China’s online games market raked in an impressive $2.8 billion in 2008, up 63% according to Pearl Research’s latest estimates. Online games, which consisted of massively multiplayer online games such as Blizzard’s World of Warcraft and quick and easy-to-play casual games are one of the most popular past times for Chinese Internet users.

  Online gaming continues to be the top revenue generator among the digital media companies in China, even surpassing those of search engines and portals. The top two gaming companies, Shanda (SNDA) and Netease (NTES), generated $522 million and $436 million in revenues respectively in 2008. Their online gaming revenues exceed those of  search engine company Baidu (BIDU) with $469 million and media firm Sina with $ $369.6 million in revenues.

  Approximately 70% of China’s 298 million Internet users are under the age of 30.  This group is most likely to seek out online entertainment, including games, music, and chatting, which Pearl Research believes will drive revenues for the online gaming market. Nearly 65% of online users in Pearl Research’s surveys played online games.

  We believed that online game revenues in 2008 were driven by compelling and diverse game content, free-to-play games, and rising demand for leisure and technology products.

 Game operators in China experienced strong revenue growth in 2008. Six game operators, Tencent, Changyou (CYOU), The9 (NASDAQ: NCTY), Netease (NASDAQ: NTES), Shanda (NASDAQ:SNDA) and Giant (NYSE: GA) crossed the $200 million revenue mark.

 China’s most popular online game, Netease’s “Fantasy Westward Journey” ac... 1.8 million peak concurrent users, followed by Giant’s “Zhengtu On... with 1.5 million users, Tencent’s “Dungeon and Fighter” at 1.2 million users, and Blizzard’s “World of Warcraft” at 1 million.

Media company Sohu (NASDAQ:SOHU) also scored a major hit with its TianLong Babu game, based on a famous Chinese novel. The title generated approximately $200 million for Sohu in 2008 and resulted in the spinoff of its gaming unit, Changyou (NASDAQ: CYOU) in April 2009.

Trends to track in 2009 include the growth of social networking sites in China, with over 55 million users, and their cross-pollination with games. One overall concern is the lack of diversification with many game operators relying on a single title for the bulk of revenues. In addition, a glut  of content with more than 200 games on the market, makes releasing a breakout hit increasingly difficult.

Many Chinese game operators continue to be optimistic in 2009, stating that the worldwide economic downturn has had little effect on their business. Games constitute a small-ticket item and users have not cut back as much on this type of discretionary spe...

 

 

 

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