Breaking the rules

Shi Yuzhu has a fondness for tracksuits. He wears them in almost all occasions, even when he rang the Wall Street New York Stock Exchange (NYSE) bell celebrating the initial public offering of his company in New York last November.

"Tracksuits help me relax," says the chairman and CEO of Shanghai-based online gaming firm Giant Interactive. "I might be the first CEO ringing the bell at the NYSE without wearing a Western suit."

In fact, the NYSE issued a special permit to Shi for his informal attire and that might have proved to be the right decision. Giant Interactive is now the most valuable Chinese online gaming operator listed in the United States, larger than its major rivals Shanda Interactive Entertainment and NetEase.com, both listed on NASDAQ.

Giant Interactive, which Shi founded three years ago, is a newcomer to the Chinese online gaming industry. But ZT Online, a MMORPG (massive multiplayer online role-playing game), developed and operated by the company, has grown into the most popular and profitable online game in China. The number of the peak concurrent players hit 1.53 million early in March. And it made 46-year-old Shi the 24th richest in China in 2007 with a fortune of $2.2 billion, according to Forbes magazine's China edition.

Shi's success is, in a large part, due to his unconventional marketing tactics and management style, which are quite different from textbook examples of how to market and do business in China. He always goes his own way while ignoring critics. It's a trait that makes him one of the most admired and also controversial business figures in the country.

Pioneers in China's online gaming industry such as Shanda founder Chen Tianqiao made their fortunes by signing licensing agreements with foreign developers to operate their online games in China. That has proved a mature business model as the licensing structure helped Chinese companies save money on costly research and development. Developing their own games could be very risky as developers could lose their money unless the games are a big hit.

That is why doubts abounded when Shi decided to move from the healthcare sector to the online gaming market and spent 20 million yuan in developing the homegrown game ZT Online.

Yet Shi shrugged off the doubts and buried himself in playing games.

He could be best described as the chief gaming officer. The chain-smoking business maverick plays games for more than 10 hours, sometimes 15, daily. While playing, he also participates in two MSN chat groups, one community for players and the other for Giant's developers.

"I sleep very little," says Shi, adding his main responsibility is to collect players' feedback and communicate with developers to improve ZT Online. That is a departure from other industry executives such as Shanda's Chen, who seldom play games.

And Shi is even fond of collecting curses. "The more players curse, the more they like our games."

His logic is that if a gamer really doesn't like a game, he will not curse in the chatrooms but instead just switches to another one.

Long hours hooked to the computers and the "gamers first" ideology ensure Shi better understands players' preferences, mindsets and even consuming behaviors. That made ZT Online an instant success.

In the long term, foreign games can lose their glitter as they are "less culturally related" to players, says Shi. For instance, in role-playing games some Westerners may enjoy playing corpses or zombies while it's a taboo for Chinese.

When Shi officially launched ZT Online, he adopted a "free-to-play" model that attracted many of players. Gamers still pay for game points that provide shortcuts to gain skills and experience.

Shanda announced a similar "free-to-play" model some months before the official launch of ZT Online. Some industry observers say Shanda did so after a Giant Interactive executive accidentally revealed the plan to Shanda officials.

And when marketing ZT Online, Shi took many by surprise. He chose the second- and third-tier cities as the battlefield. "Most gaming firms focus on major cities, but in fact second- and third-tier cities are a gold mine," he says. "If you want to post posters in the Internet cafes in big cities, you will be charged (by the owners). But in smaller cities, it can be free and you receive a warm welcome from the owners."

In large cities consumers tend to play more games at home, while Internet cafes are the preferred sites for most in smaller cities and rural areas.

Shi now has a 2,500-strong marketing team, which regularly checks whether ZT Online's posters are posted on the walls of the Internet cafes across the country and sell prepaid cards to players to enable them to gain points required to play games. That is quite different from other companies' practices of promoting games mainly in cyberspace.

By the end of last year Giant's nationwide distribution network reached over 116,500 retail outlets, including Internet cafes, software stores, supermarkets, bookstores, newspaper stands and convenience stores throughout China.

Shi's marketing is not limited to the distribution network.

In December 2006, Giant Interactive started placing ads during prime time on CCTV, becoming the first online gaming operator to do so since the regulators issued a ban on TV ads promoting online gaming in 2004 to address concerns about addiction to online games.

Shi skillfully exploited a gray area as its ads focused only on the corporate image instead of a specific game. Despite some disputes over the ads, the three-month blitz helped Giant Interactive establish a profile in the market in a short time while its rivals were sitting idle.

The intensive marketing paid off with ZT Online becoming a well-known game in a short time.

And the brisk sales of prepaid cards and game points facilitated Shi's cash flow, which enabled him to invest more on an increased number of aggressive marketing campaigns. "We plan to increase the headcount of our marketing team to 20,000 within three years," Shi says.

Women's games

On March 28, Giant Interactive launched the open beta testing of its second homegrown game, Giant Online. At 8:18 pm that day, its peak concurrent users reached 237,686.

"When a game reaches peak concurrent users of more than 200,000 during open beta tests, it is often considered a successful launch and the chances of the game failing later in its life cycle is lower," Citi Investment Research analyst Alicia Yap was quoted as saying by Associated Press in a "note to clients" on March 31.

Again, Shi is now changing the marketing rules to make Giant Online, which features wars, a new cash cow. And the approach seems even more controversial.

"When playing games I heard a lot of complaints that there are too few female players," says Shi. "In ZT Online, female players account for only 30 percent. In most games, the percentage is as low as 20 percent, which makes the cyberspace kind of unbalanced."

The Giant Interactive developers then designed 14 roles for the game, including female commanders, dancers, spies and doctors. In the male-dominated gaming space, female players could have some difficulty in increasing their levels by fighting. However, in the new female-friendly Giant Interactive, "they have the privilege to increase their levels by dancing, fishing and even swimming", Shi says.

Apparently Shi is not banking on female players instantly spending huge sums, though. He is also hiring a number of attractive female players to play in Internet cafes. "We are giving them virtual golden coins worth 6,000 yuan per year, which are equal to 500 yuan in the real world, to encourage them to play and stay in the games," he says.

His ultimate goal is to make the game more fun and lure more male players, especially first time gamers.

"In fact in China's cyberspace many male players are very willing to pay the bills for their female counterparts", he says.

(China Daily 04/28/2008 page12)