Background
Chen Tianqiao was born in born 1973 in Xinchang County, Zhejiang.
天桥 陈
Chen Tianqiao was born in born 1973 in Xinchang County, Zhejiang.
Chen was 27 at the time, with a business degree from the prestigious Fudan University and prior work experience at a state-owned property firm.
Originally from Zhejiang Province, Chen founded Shanda with his wife and his younger brother in Shanghai in 1999, focusing on online cartoons. Nevertheless, the original business idea did not work out; Chen then decided to use the firm’s remaining funds to obtain the license to operate ‘The Legend of Mir II’ in China from the Korean game developer Wemade Entertainment. The game was launched in November 2001.
To work around the problem of rampant software piracy in China, Chen formulated the free-play strategy and sold players access to the online game rather than the game itself. Shanda offered the game’s software to players free of charge but designed a prepaid system using stored-value cards where players could buy time (by hours) on Shanda servers. Hence, the game’s software on Shanda servers was secured against counterfeiting. The prepaid cards were distributed through internet cafes, where most of the gamers gained access to internet PCs. This ingenious payment system enabled Shanda to receive payment despite the inadequate online credit infrastructure in China. Shanda was profitable within two months.
Chen re-invested the profit in a call center facility, which, since May 2002, has provided round-the-clock service to support Shanda’s game users seven days a week. Shanda also acquired majority ownership of a mobile phone game development firm in Shenzhen in January 2003. Shanda received US$40 million funding from a private equity firm in March 2003 and continued to strengthen its online games portfolios through acquisitions. It systematically built an extensive infrastructure to improve the gaming experience, including messaging services and an online payment system. Between 2001 and 2003, Shanda’s revenues increased 130-fold; it was listed on NASDAQ in May 2004.
By the end of 2004, Shanda was attracting some 2 million concurrent users for its games during peak hours. Despite its leadership position in the Chinese online games market, Shanda moved towards a free-entry strategy in late 2005, which resulted in losses of US$69 million in the fourth quarter of 2005 and a sharp fall in share prices for six months. Under this new strategy, gamers could enjoy Shanda’s online games without any charge but they were required to pay for virtual goods such as ammunition, weapons and costumes for their avatars in the online world. Hence, players could design the online avatars with unique identities. The strategy eventually reaped financial benefits after 12 months and Shanda’s share prices gradually recovered.
Though industry analysts forecast that the Chinese online games industry would con- tinue to grow very fast throughout the 2000s, Chen wanted Shanda to expand its target markets and continue its rapid growth. His dream was for Shanda to become a successful global firm, with market capitalization comparable to Disney. To achieve this, Chen not only undertook equity investment in game development firms with the capital raised in the stock market, he also diversified Shanda’s portfolio. In 2005, Shanda acquired 19.5 percent of Sina (the Chinese internet portal and online news giant) and signed a partner- ship agreement with the California-based Universal Music Group, which allowed Shanda users to download music from the internet. Shanda further launched, in 2005, a handheld gaming device and a set-top box to allow television viewers to connect to the internet.