China’s Virtual World War

Written By Daniel Allen on June 26, 2007 at 8:53 pm | In technology, user generated content, experiential, virtual worlds, connecting, China

3D startups prepare to compete for Chinese subscribers.

Trend Description

Having passionately embraced blogging, bulletin boards (BBS) and MMORPG games, China’s burgeoning net population will soon have an array of virtual worlds and 3D social networks in which to work and play. According to analysts, by the end of 2011, 80 percent of global internet users will be involved in some kind of web-based virtual activity – applying that statistic to current figures that would give China a virtual population bigger than that of real-world Mexico.

Driven by increased broadband penetration and rising incomes, online entertainment in China is a huge and rapidly growing industry. Revenue from online gaming alone totaled RMB 6.5 billion (US$840 million) last year, according to market researcher IDC. As MMORPG culture is already deeply embedded among Chinese netizens, and many players are accustomed to “repatriating” currency earned online to real life, 3D startups are expecting virtual “culture shock” to be minimal, especially when it comes to cyber-money transactions.

Case Studies

Entropia

Overseas competition for domestic startups will arrive on the mainland soon in the form of Entropia, already a large and globally-established virtual world. Reportedly beating Second Life to the punch, Entropia will have the backing of the Beijing Municipal Government, and will be developed by Gothenburg-based company MindArk, supported by Beijing-based online entertainment company Cyber Recreation Development Corp (CRD). David Liu, CEO of CRD, envisions an “Entropia utopia”, bringing 10,000 work-at-home, pollution-free job opportunities to China.

With a stronger gaming emphasis than SL or HiPiHi, Entropia is likely to retain its mix of MMORPG and real cash economy in China. Although it currently has a total online population of around 500,000, a virtual population explosion is clearly anticipated as the new Chinese partnership permits up to 7 million concurrent users. The highly ambitious long-term objective is to attract 150 million users from all over the world, and to generate over US$1 billion annually in e-commerce. Last year Entropia had a turnover of over US$360 million.

Image source: Entropia

HiPiHi

HiPiHi, a Beijing-based startup founded in 2005, is bidding to be “the second company worldwide after Second Life (SL) to offer a totally interactive, immersive and open-ended experience for users to create, inhabit and govern a new world of their own design.” Currently in beta testing mode with 10,000 users, HiPiHi is the brainchild of Hui Xu and Xinhua Lu, both net entrepreneurs with significant web experience.

It’s clear that the market is taking HiPiHi seriously. According to Hui Xu, the company is about to close a round of investment involving companies and individuals from the US, Japan and Singapore for slightly less than US$10 million. Substantial Series A funding was undertaken by the Guangcai Investment Group, and there may be further rounds in the future.

Commenting on the monetization of HiPiHi, Hui explains, “Business models similar to those employed by 2D sites can also be applied in 3D. “Land” for advertising will be sold, and a range of branded products will be incorporated within the world. We have been approached by the marketing departments of many foreign and Chinese companies looking to become involved. Subscription to HiPiHi will be free, although there will be products/services for sale within the world. We haven’t yet decided whether there will be a HiPiHi currency as in SL yet – a lot depends on market regulations – but there will certainly be trading.”

Image source: HiPiHi

Cyworld

Although Entropia and HiPiHi share much in common with SL in terms of general features - 3D; avatars; in-world economy; user-generated content - China’s main competitors may come from closer to home. South Korea’s Cyworld launched in China in June 2005, and it’s subscriber base has grown at a rate of 15,000 per day. According to Cyworld owner SK Telecom, the Cyworld China community now numbers over three million. In South Korea, Cyworld has about 19 million subscribers, close to 40 percent of the population.

Cyworld’s virtual economy centers on a currency called the “dotori”, Korean for acorn. Chinese members can buy dotori with international or Chinese credit cards. Subscribers can purchase furnishings for their “minihomes”, or buy their avatars special clothes or logos. They can buy gifts such as get-well-soon cards, and virtual flowers to appear in “minirooms” for convalescing. Cyworld earns an estimated US$300,000 a day selling acorns. Cyworld also sells 200 million songs each year for about 50 cents each, making it second to Apple’s iTunes for global online music sales.

Image source: Cyworld

Trend Impact

Sam Flemming, “dotcom veteran” and CEO and founder of CIC data, a Shanghai-based net research company, predicts a healthy future for aspiring 3D worlds in China, saying “I think, for now, they appeal to different, but still similar audiences. Blogging and BBS, especially BBS with its anonymity, provide a virtual platform for self expression and communication within a community. Blogging and BBS have a closer link to offline reality, as the topics of discussions often link to offline experiences and opinions. Virtual worlds offer a more extreme platform, which as they become more prolific and easier to access, will certainly find a market.”

Ken Brady is Director of International Strategies at Centric, a US-based new media agency heavily involved in the Chinese market. Commenting on the scale of anticipated short-term developments, Brady says, “Consider the size of QQ, now at over half a billion registered users. China’s the number two market now, with Blizzard and Shanda Entertainment just two of the major players. HiPiHi will launch this autumn, Entropia Universe is moving in soon, and Shanda has announced plans to create another Chinese virtual world. There are, of course, more out there, and many more coming. It’s a busy time in China’s 3D netscape.”