G asked me about the newly announced cooperation between Sina and NCsoft on Lineage. To be honest, I am not an online game fun. I am talking about this topic from the outsider’s point of view.

Internet Cafes are Popular

In the year of 2002, millions of net cafe emerges throughout China. Whenever you go, you will find the Internet Cafe – in “second-tier” cties like Luoyang, even in Daocheng.

The core business of the Internet Cafes, however, is not the Internet access. By my rough estimation, about 1/2 of the so called Internet Cafe does not provide Internet service. They provide online games to game players.

Online games including some games that don’t need a server. Examples are CS (Counter Strike) and Q3. People with one computer can directly connects to other’s computer on a peer to peer mode to play the game. This sort of games does not need a server so the it is cheap to play. I heard it is about 2-5 RMB per hour.

Online game – Legend

Legend from Korea company AtoZ is absolutely the biggest winner of online game. It granted the permission of server operation to a Chinese company called Shenda (shenda.com). It license the Internet Cafe to run the Legend clients. The Internet Cafes don’t charge the player directly, but the hours they spend on the computers greatly increases such bring more money to the cafes. It is said that a license for Legend will greatly help the business of the Internet Cafe.

Meanwhile, Shenda also sells “value-card” to players to get access to the game. The “value-card” is very profitable since some players will send 1,000 RMB per month on the value card. The Internet Cafe business owner will also get a small margine to sell the value-card.

Besides the income for computer-hours, and value-card, the drinks, and foods served by the Internet cafe also make a large portion of the profit for Intetnet cafes due to the large number of visitors and the long time they spend in the cafe.

The value chain continues

Currently, there are even some people who make a living by playing the online games. The virtual goods in the online games are labelled with value in real money and they can always get a good price in the market. Some goods in Legend can be sold at 1000 RMB to 5000 RMB. According to Sina’s special report (Chinese site), someone sold 5 “magic books” at 5000 RMB each – that is 25,000 RMB. Very nice deal, isn’t it?

To get more goods in the virtual world, they work very hard – actually, they are not players – they are professionals to get more goods in the virtual world and sell them out in the real world. I cannot understand the reason why people are willing to buy the goods but it really happens in the young generation in China.

Money. Money!

At least up to now, online game means money in China. The value chain, as I described, include

• The game provider, like AtoZ or NCSoft
• The operator, like Shenda or Sina
• The Internet cafe – millions of them
• The gurus in the game field – who sell their goods
• The players – who seem to have unlimited budget on games

The chain will allocate the money from millions of players among the game provider, the operator, the Internet cafe and other people like those who sell goods.

Lineage means profit to Sina

As you can see, the launch of the new game Lineage will put Sina to the position of the operator and it will definitely be the powerhouse for the profit of Sina.