Current State of China¡¯s Online Gaming Industry and the Obstacles in Development
... billion U.S. dollars in 2003. By estimate, the volume of total output of this industry in China will reach 6.65 billion U.S. dollars in 2005 (see Figure 2). Online gaming market estimate has also shown that China has the highest potential of growth in the Asia-Pacific region. The most optimistic remark on China¡¯s growth from IDC says that China will probably become the largest online gaming market in 2007 with availability of broadband and wireless networks acting as the key to growth. 2. VALUE CHAIN OF ONLINE GAMING INDUSTRY AND THE POSOTION OF CHINESE FIRMS As we know, the whole value chain of online games industry can be divided into the following categories: game developers, game operators, marketing channels, ISPs and peripheral services. The main chain of the online game industry is as follows: online game players, online game operators, online game developers and ISPs; and the supporting chain of the online game industry is: internet Caf¨¦s, online game sellers, peripheral products for online games, mediums and publication industries, computer software industry, etc (see Figure 3). In terms of the main value chain, the Chinese firms mainly concentrate on the marketing of online games, while the hi-end of the value chain, i.e. the development of online games is under the control of foreign companies especially at the hand of Korean companies. 3. THE MAIN OBSTACLES THAT KEEP ONLINE GAMING INDUSTRY IN CHINA FROM DEVELOPING FURTHER 3.1 Main Obstacles from the Perspective of End-Users of Online Games Although the internet infrastructure construction has made great progress in recent years, connect speed is still the first factor that influences end-users in choosing what games they play. The fact that 69.4% of the Chinese online game players think that connect speed is the main factor on their game choosing demonstrates that the broadband service in China is not so satisfactory. Cost is the second factor that affects online game players (39.3%). Besides, difficult level, story design and visual design are roughly equal with about 30-40% players deem them as factors that influence them on choosing games respectively (See figure 4). 3.2 Lack of Support from Government with Unclear Industry Policies Apart from the negative attitude from the public who tend to think that online gaming industry might be a potential threat that keep their children away from studying, the government also shows a vague attitude toward this industry. For example, it¡¯s not an easy thing to get licensing of setting up Internet Caf¨¦ in China. Another fact that can not be ignored is that the internet accession fee is still high compared to the income of the internet game player ( Most of the game players are young students who still rely on their parents). There are still other problems such as piracy problem, monopoly problem in telecommunication industry, etc. [3] 3.3 Weak Domestic Online Gamers at the Lower- end of Value Chain At present, the Chinese online gaming market is still dominated by Korean companies. The domestic online game developers are facing stiff competition from Korea, Japan and other countries. Most of the Chinese online game developers lack capital and comprehensive abilities of developing and operating in this industry. Some companies are very slow in renewing their games and the R&D activities are at a lower level compared to the above mentioned advanced countries. 4. CASE STUDY¡ªSHANDA CORPORATION, AN OBSTACLE REMOVER IN CHINA¡¯S ONLINE GAMING MARKET Shanda is the largest operator of online games in China. This Corporation offers a portfolio of online games that are licensed from third parties and that are developed in-house. The games that Shanda offers include The Legend of Mir II, which is the most popular online game in China according to users surveyed by International Data Corporation (¡°IDC¡±), The World of Legend, which is Shanda¡¯s leading in-house developed game, and BNB, which was the highest ranked casual game in IDC¡¯s survey of the top ten most popular online games in China in 2003. Shanda is headquartered in Shanghai, China. 4.1 Shanda¡¯s IPO Strategy In May 2004, Shanda Interactive Entertainment filed with US regulators for an initial public offering valued at up to 200 million US dollars. According to a preliminary prospectus filed with the U.S. Securities and Exchange Commission, Goldman Sachs underwrote most of the IPO for Shanghai-based Shanda. Other groups like Piper Jaffray and the Hong Kong and Shanghai Banking Corporation or HSBC also took part. Shanda said it has applied to list its American depository shares on the Nasdaq stock market under the trading symbol ¡°SNDA¡±. The IPO of Shanda brought this company both fame and wealth. And this had made Shanda a pioneer among Chinese online gamers. Also, Tianqiao Chen, the CEO of Shanda Corporation has become the richest person in China according to the shares he holds and the most recent market price of SNDA on NASDAQ. 4.2 Shanda¡¯s M&A Strategy In August, 2004, Shanda acquired Hangzhou Bianfeng Software Technology Co., Ltd. Bianfeng is a leading developer and operator of chess and board games in China. Currently, Bianfeng offers over 50 different games, which attracted over 200, 000 peak concurrent users in July 2004. The acquisition is based on the fact that board games are deep rooted in Chinese culture and have a large and loyal users especially among mature age groups. The acquisition of Bianfeng adds another important segment to Shanda¡¯s casual games platform and greatly broadens Shanda¡¯s user base demographics. [4] 4.3 Shanda¡¯s Marketing Strategy The focus of Shanda¡¯s marketing strategy is the so-called ¡°experience marketing¡± style. This style means that Shanda Corporation attaches great importance in finding their customers¡¯ feelings and preferences in playing their online games. For example, the data ba...