Shanda’s Strategy

WSJ writes:

In November 2005, Shanda dropped a bomb: It was changing the business model for its cash-cow “massive multiplayer online role-playing games” from collecting revenue through hourly or monthly fees to a “free-to-play” system.

Under the new model, users join for free but pay to enhance their online-game experience with special weapons and accessories, a little like luxury goods for the virtual world. The most basic new sword might cost two yuan (about 25 U.S. cents), for example, as might virtual flowers for a friend.

Lately, that business model, borrowed from South Korea’s hypercompetitive games market, has fared far better than expected. Shanda’s second-quarter net profit was 10 times as high as that of the first quarter. Online-game revenue, $46.8 million, was 21% more than in the first quarter, though 20% below the second quarter of 2005.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.