Ding Lei though among richest, not equivalent to resurgence of China's cyber economy

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Last updated at: (Beijing Time) Tuesday, October 21, 2003

Ding Lei though among richest, not equivalent to resurgence of China's cyber economy

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Among the "100 Richest on China's Mainland" publicized on October 16, former Internet heroes Ding Lei and Zhang Chaoyang had their names on the list again after three years' disappearance. Ding Lei, the founder of NetEase even topped the list with a fortune of 7.5 billion yuan and became the first richest out from the Internet industry in China. Now the cyber hero has come back, but does this mean an overall resurgence of China's cyber economy?

Ding Lei's top status on the list owes to his possession of 58.5 percent stocks of NetEase. On October 15, NetEase, whose original price was 2.8 US dollars per share and 0.53 US dollars at the historical lowest, ended at Nasdaq stock market with a price of 68.20 US dollars per share. However, the stock market can both make one rich and turn one to a penniless pauper. In the year 2000 when there were only 50 allowed on the list of the richest in China's mainland, cyber heroes Ding Lei, Zhang Chaoyang and Wang Zhidong ranked 20, 37 and 42 respectively. After that, as Internet stocks perished at Nasdaq, the three names disappeared altogether from the list of the year 2001.

Nobody can promise that the stock market will not change again. Internet companies can boost the investors' confidence only by excellent performance achieved through concrete businesses. The flourish of China's short messages and cyber games gives Internet companies hope and makes them to stand out at Nasdaq stock market. However some foreign media concerned recently pointed out that the several thousand times increase of the share price of NetEase, Sina and Sohu, China's three portal websites at Nasdaq couldn't make sure the real performance of the companies and couldn't rule out the element of institutional speculation. They also foresaw a possible decrease of the share price of the three websites soon.

Originally, Internet economy was regarded as attraction economy, namely to attract users' attention through the content of the web and to make profit through net advertising. However, as the Internet bubble broke up, insiders realized that this operation model is unreliable and must be replaced by a more explicit and more direct one. In China, cyber games and short message services have become the key for turning round the crisis. Nevertheless, insiders pointed out that the two services can ensure though the profit indispensable for the survival of Internet companies, they can not make themselves the source of more profits in a short span of time.

What makes NetEase feel most proud is that it has first grasped among China's portal websites the cyber game service, a burgeoning business. However, in NetEase's financial report, there is no specific number showing the profits gained from the cyber game service. In that report, revenue is divided into advertising and non-advertising such as e-business. Although there are specific numbers showing the profits of the two main categories, there is no indication of the respective proportion of short message service, cyber games and e-business under the non-advertising category. Sina and Sohu are the same case. This cannot but make people suspect the real profit-making ability of some companies. Although there is an urgent call from among insiders for a publicized proportion of profits generated by concrete businesses, the three major gate websites have so far provided no specific figures for non-advertising businesses in their financial reports.

In addition, short message and cyber game services involve great risks. First, there are many loopholes in themselves. Second, these businesses mainly depend on one or two superior telecommunication companies. Should there be changes in the distribution mechanism and the industry policy, the whole industry will be affected. For instance, the nation's strict control over Internet bars has greatly affected the revenue of cyber game service and this risk is more obvious in short message service. Not long ago, in order to normalize the abnormal behaviors of some SP (service provider) partners, China Mobile decided to suspend the business for fee-collection in behalf of the short message businesses owned by these service providers from August 1, 2003. This action made the service providers including the three major gate websites suffer a great deal and also makes people doubt whether short message service is able to serve as a core for the prosperity of Internet economy?

Although insiders are reluctant to admit it, the attraction economy already denied remains to be the main source of revenue for Internet companies and the resurgence of Internet advertising becomes the pillar in the recent increase of profits of major gate websites. NetEase's latest financial report showed that its total income in the second quarter was 136 million yuan, up 15.5 percent over that in the first quarter while advertising income totaled 20.8 million, up 73.6 percent, far higher than the aggregate growth rate of 15.5 percent. The income of e-business and other services reached 115 million yuan, a 9.0 percent increase. From this we can see, although non-advertising sector outdid advertising sector in terms of total income, its growth rate lagged far behind the advertising, which, contrary to the expectation of Internet companies, takes up the main credit for the resurgence of Internet economy. This caters to the development of the world's Internet economy. Yahoo, the world famous gate website recently disclosed that its profits in the third financial quarter more than doubled and the income increased 43 percent which owes mainly to the all-around recovery of cyber advertising businesses.

Experts pointed out that, after the cyber bubbles, it is very difficult for Internet companies to believe in the cyber advertising as a source of revenue. However, within a short term, China's cyber economy still has to look for better points for profit growth. It will take a long process for an all-around recovery of China's Internet economy.

This is an article from Economy Information Daily, October 17, 2003, written by Zhang Song; translated by PD Online staff member Gao Lanrong.

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