Shanda: The art of getting paid
- Source: Global Times
- [18:39 June 22 2009]
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Creating the most lucrative online business in China
By Sherman So and J. Christopher Westland
Editor’s note:
This article has been adapted from Red Wired: China’s Internet Revolution co-authored by Sherman So and J. Christopher Westland. The to-be-published book is aimed at helping readers gain a firsthand understanding of how the Chinese combine successful components from their Western counterparts with innovation to accommodate the unique characteristics of the Chinese market.
With 70 percent of the Internet population younger than 30-years-old 1, the most lucrative part of China’s Internet business is online games. But to unlock such treasures, someone had to figure out how to get paid first.
Early in the new millennium, credit cards were scarce in China, as were forms of electronic payment. Most transactions were done in cash. So how could an online gaming company efficiently collect small sums from millions of users scattered all over the country?
The problem was eventually solved by Shanda’s founder, Chen Tianqiao. Prepaid cards, each with an access code and password, are sold from corner stores in China. Chen also created a computer program, called e-sale system, to allow for the virtual sale of prepaid cards in Internet cafés, the main venue for online gaming in China.
His idea unlocked the treasure chest for online games in China. Millions of teenagers and young adults have become bewitched by them as a result, spending their weekends in endless virtual battles. In 2008, total online game revenue reached $2.69 billion in China, compared with $1.93 billion in online advertising revenue, according to IDC.
Chen’s story began in 1999, when the Internet boom reached its peak. Together with his wife, Luo Qianqian and his brother, Chen Danian, they founded Shanda Networking in Shanghai in December 1999.
The company’s goal was to develop a Chinese-language online community around cartoons, which teenagers loved. An early player in China’s Internet industry, CDC Corporation (formerly known as China.com), invested $3 million in the startup in 2000.
But as the dotcom bubble burst the following year, the little startup was cash strapped. Most of the seed money for Shanda had been spent; revenue from online advertising never materialized. With about 100 staff, it was running at a monthly loss and CDC Corporation was preparing to pull the plug on its new investment.
1 According to survey of China Internet Network Information Center