How to interpret NetEases third quarter game revenue reaching RMB 218 billion in 2023, with a year-on-year growth of 165%, and what trends are worth paying attention to?

The New Rising Star of China’s Internet Industry

So they say, “old ginger is spicier,” and 21.8 billion is quite impressive.

The internet industry has been on a downturn these past few years, and there’s no need to avoid the topic, it’s plain to see.

When it comes to big shots in the internet industry, the first names that come to mind are definitely the “Two Horses,” “One East,” “Zhang, Li, Huang, and Ma.”

But to be honest, despite their past glories, these individuals are still considered as apprentices or even grand apprentices in terms of seniority.

The true pioneer of China’s internet generation is the founder of Sohu, NetEase, and Sina, the three internet giants that rose to prominence at the beginning of this century. They were known as the “Three Musketeers” of Zhongguancun, the birthplace of the Chinese internet.

Looking back now, the “Old King” of Sina seems to have disappeared without a trace, the “Old Zhang” of NetEase is busy cultivating while playing games, unconcerned with worldly affairs.

Only the “Old Huang” of Sohu, the social man of the internet, has remained true to the world, continuing to play the role of the chief old workhorse of the pig pen.

Back then, I wondered why this elder brother, who had once sat on the throne of the wealthiest, was at this age and still wanting to buy a yacht and sunbathe by the beach – something that is more suitable for relaxation.

Moreover, even though their family is engaged in gaming, e-commerce, and live streaming, and they do whatever is popular at the time, it’s honestly still limited to a level higher than second-tier, never reaching the level of the top players. At the time, I really felt sorry for him.

Now, let’s look at this year – wait for it.

Their revenue has skyrocketed, defying the global internet industry’s downward trend.

Including the person himself, Lei Ge (Sudden Thunder) has climbed up the ranks on the Hurun List and is now sitting in the sixth position, surpassing the once-unrivaled Ma Lao Shi (Teacher Jack Ma).

This can be seen as a miracle, worthy of congratulation. Like a solid iron tree that has blossomed, it is a joyous occasion, showing that one becomes stronger in old age and finds happiness in the later years.

But personally, I think it is most fitting to say congratulations to Lei Ge (Thunder Brother) for having this young child, who is undoubtedly the “egg.”

I took a glance at their Q3 financial report this afternoon. While he casually mentioned that the popularity of the “egg” has been maintained, from a subjective view of the game’s spending population, it is indeed popular.

This year is a year of explosive growth in global blockbuster games. Almost all game companies know that times are tough, so they bring out their trump cards like The Elder Scrolls III: Blood Moon, Zelda II, Diablo IV, just to name a few. The reason is simple – to make enough money to survive the winter.

In a market filled with top-notch games, “egg,” a Q-version party game, managed to stand out and make a profit, showing the strength of our domestic mobile games. It should be considered a miracle in the industry and should even receive a small golden figure of Thunder Brother in the Game Hall of Fame.

It’s only when the tide recedes that we can see Thunder Brother’s undergarments. Calling him the number one money maker in the gaming industry is not an exaggeration. After all, he experienced the 2000 internet bubble and still succeeded while others suffered. He can celebrate Chinese New Year with the vast number of game users giving him red envelope money.

In the future, Perfect World, Mihayou, and Giant Penguin Lily will all bow down and make way, greeting the new emperor.

However, I personally don’t think that a high-quality project like this has an equally high-quality revenue model.

I have previously written about some issues related to the protection of minors in the “egg” game, so if you’re interested, you can scroll back.

In recent years, Thunder Brother’s company has tried almost every type of game product. Some sank without making a splash, while others had their moment in the spotlight but failed to score.

Only this “egg” with its juvenile attitude, dominating the esports and second-dimensional world, managed to surprise everyone.

Speaking of which, the profitability of Genshin Impact has been widely discussed, but did you believe that at one point this year, the “egg” even surpassed it?

The “egg” has truly become a demon in China’s gaming circle – deceiving others while pretending to be weak and taking on all challenges.

Now, you may ask, isn’t the game industry all about imitation and micro-innovation? Why hasn’t anyone imitated the new “egg” and made their own micro-innovations? Isn’t it foolish to leave money on the table?

As someone who has spent thousands of dollars in the “egg” game, I have something to say.

Is there any technical difficulty that can’t be copied? No.

Although the production can be considered excellent, it still can’t compare to a proper triple-A game. In terms of gameplay, it’s just a party game with an old-fashioned mix of elements. It doesn’t have a unified overall gameplay, but rather a combination of various competitive modules. Any big company that wants to imitate it can easily surpass it in terms of technology.

The “egg” wins because of the “good” users it screens.

It primarily targets young users, children who are willing to spend money but not earn money, and whose parents don’t care about money.

When I encounter ten people in the “egg” game, seven of them are children, two are female college students, and at most, there’s one person like me – a middle-aged man who is still a child at heart.

Children have no self-control; they spend their lucky money without hesitation. As long as the operations team provides some temptation, there’s no worry about making money.

And here’s the tricky part.

After I spent more than a thousand yuan, I was contacted by a dedicated customer service who asked me to add them on WeChat. I thought, “A big and serious company like this shouldn’t need to employ these tactics like those browser games from back then,” but I added them to see what would happen.

I later found out that not only did the official account keep pushing various activities to me, but there was also a separate VIP recharge channel with additional benefits, including rebates and instant payment via QR code.

I thought this was unnecessary, why can’t I just make in-game purchases?

But upon reflection, oh, I understand. By doing it this way, they can bypass Apple’s revenue sharing, and it also makes it more convenient for those users who shouldn’t be making purchases in the first place.

So why can’t I succeed in business on that scale? They pay great attention to every detail; there’s no room for dissatisfaction.

Another factor is the game lobby design of the “egg,” which is genuinely touching.

When I used to play competitive games, matchmaking was done on the page, and you could only see your teammates' appearances once you were in the game. But everyone would be too busy in the game, and there wasn’t time to appreciate each other’s skins.

In the “egg” game lobby, it’s like a fashion exhibition hall, reminiscent of Milan Fashion Week, where you can see who is dressed luxuriously or shabbily in front of everyone’s gaze.

Even child players, who lack self-control, still have a sense of comparison.

If they feel their own appearance is shabby, they must find ways to buy fashionable clothes by spending money.

Wearing nice clothes in the game also leads to a so-called fashion competition, where the amount of money you spend on skins is numerically represented, constantly reminding you that you should spend more.

What’s interesting is that I noticed the better I dressed, the higher the probability of matching with characters wearing rare skins, making me feel inferior in front of my teammates. I even suspected that users who spent a certain amount would be matched with AI matches that wear rare skins, giving users a sense of inferiority and more motivation to spend.

This design has been applied in other games in the past. I can’t say for sure if the “egg” is following the same pattern, but it does leave a similar impression.

Furthermore, the “egg” game is indeed fortunate, as it coincided with the double declines, and the children who couldn’t attend training classes were left idle at home, with their parents giving them pocket money, which they all spent to support Thunder Brother, impressing the Hurun List.

Among the news I saw last month was one about a child spending 40,000 yuan on the “egg” game in a few days.

I also once read a news article about a child being scammed out of a six-figure sum in the “egg” game. Yes, wherever there are a lot of child players, scammers are bound to increase.

I asked the children in the game if their parents knew about their in-game purchases, and they said, “Hehe.”

So personally, I feel that if a game can rise to prominence during a downturn, it is definitely a positive thing.

But when we delve into the details, if the reason behind this success is relying on a minefield that most game companies dare not tread in order to make money, then it’s not a respectable achievement.

In the past few years, people still remember how strict the regulations on preventing addiction to online games were.

Since then, most serious companies have implemented restrictions on the age of their users, game time, and spending limits.

These rule-abiding companies were mostly the leading players in China’s gaming industry.

If the second-tier companies relied on hiding behind the big players to make money, they would eventually face the thunderbolts of regulation sooner or later.

Otherwise, if this way of making profits becomes the norm, who will focus on exploring gameplay innovations and developing new games?

Since business is driven by profit, all companies would naturally target the young age group, where making money is simple. Then, no one would bother investing in 3A games or expanding into the international market.

In fact, in the past two to three years, after stricter regulations were implemented in China’s gaming industry, big players woke up and realized that the domestic market had reached its saturation point.

This is why there are games like Black Myth: Wukong, which aim to break into the triple-A market, and many companies have started self-developing or investing in open-world games. Some studios have even tried independent games on platforms like Steam.

This direction is the right one to follow, rather than confining oneself to the fixed user pool in China and seeking self-entertainment.

However, some individual companies are indeed good at keeping a low profile and quietly making money by focusing on the children’s market.

It’s like a fast-food restaurant where most people are working hard to have a hot meal, and yet some clever ones come in, push away all the kids' meals on the table, and leave a void in their hearts.

Does filling your stomach mean there is no emptiness in your soul?

This Netease game, for instance, had a falling out with Blizzard before, resulting in them leaving Battle.net and my several thousand yuan spent on Hearthstone going to waste. But I never compared or complained.

After all, I am an adult, a rational consumer who is willing to face the consequences of my choices.

But if, and I say “if,” the major part of a company’s revenue comes from the young generation using their parents' hard-earned money, it leaves an uncomfortable feeling.

Because no game company has ever become great by focusing on the children’s market alone.

I also understand that it’s tough for companies in this harsh winter, and they need to gather firewood to survive.

But they shouldn’t turn to parents and snatch firewood from them to keep themselves warm. This is not only a problem of business principles but also a question of moral standards.

Every industry requires competition to progress, and that competition should be in terms of pushing the limits of technology, not setting a lower bar for target audiences.

I am not specifically targeting any particular company with these comments; this applies to all industries.

NetEase mobile game “Nishuishan” launches micro-payment model

Actually, it’s quite normal. Playing games has gradually become a way for modern people to relax and pass time. Many people find their true selves in the game and release their emotions.

Moreover, in the third quarter of this year, NetEase’s multiple mobile games have shown outstanding performance and set new records. “Nishuishan,” the largest-scale mobile game ever developed by NetEase, was launched on June 30th and set a new record by reaching over 50 million users in the 45-day public test period.

In order to meet the demand for small micro-payments from players, the mobile game “Nishuishan” launched the “game circle price war” and sold over 100 million pieces of the “six yuan game skin,” creating the first large-scale micro-payment ecosystem for MMO games. This provides valuable experience for the transformation of the traditional MMO game payment model.

NetEase Games: Termination of contract with Blizzard has no impact, plenty of excellent games.

NetEase has always had impressive games, and looking at this season’s revenue, it seems that losing the distribution of Blizzard games in China has not had much impact on NetEase’s game earnings, right?

Before, everyone on the forums were saying that the termination of the contract between NetEase and Blizzard was a mistake, criticizing both Blizzard and NetEase, and it left me quite confused.

Returning to the topic of NetEase’s impressive games, there is “Onmyoji,” “Identity V,” “Rules of Survival,” “Egg Party,” and so on… Although it seems that not many people mention NetEase’s games, they are all phenomenally popular when mentioned!

In recent years, “Genshin Impact” has become incredibly popular, but wasn’t it surpassed by “Egg Party” by a significant margin?

Economic downturn, game revenues are growing

During the economic downturn, game revenues are actually increasing. Everyone is lying down playing games. Nowadays, it is the era of the internet, life is fast-paced, and work pressure is high. Who doesn’t take a break to play some games and relax?

NetEase’s game revenue has increased in the third quarter. No wonder my friends around me are all playing games like “Nishuihan” and “Extreme Peak”. Nishuihan has always had good performance and high game experience scores. I have played it a few times with my friends, and the atmosphere is great. NetEase’s popular games also include “Fantasy Westward Journey” and “Egg Party”. With strength, there will be more and more players, so it’s worth paying attention to.

In a time of fierce competition, games can be a sanctuary for young people.

Netease’s Diversification in Game Development Strategy

I feel that Netease’s revenue growth in the gaming sector is mainly due to continuous progress in research and development and innovation. The company keeps releasing new games and improves upon previous shortcomings by introducing new gameplay mechanics, reducing the grind factor, and the level of pay-to-win. Many games have also started to introduce monthly cards, and the effects are quite noticeable.

Previously, people liked to call Netease a “piggery,” but it was more of a teasing nickname. Many people still have a strong love for Netease games. Perhaps people become deeply engrossed in playing a certain small game and only later discover that it was invested in or developed by Netease.

Netease Games is not just working in isolation anymore. They have begun to transform into an investment company, supporting small studios and college student teams. As long as these entities have their own unique characteristics, Netease will invest in or acquire them. It is only natural to reap such achievements.

Aesthetics and Vitality in Gaming

I want to talk about something worth paying attention to, and that is aesthetics.

Music has aesthetics, literature has aesthetics, and I believe that games also have aesthetics.

Tetris is concise, versatile, and perfectly balanced.

Minesweeper seems random, but it is actually carefully planned, creating tension and excitement.

These simple games each have their own appealing style, which is why they have remained popular and bestselling for so long.

Previously, I thought that the mobile gaming industry in China was dead. However, after seeing the data for NetEase Games' third quarter, I believe that there is still a glimmer of hope.

In a world full of clone games and plagiarizing superheroes, honest and innovative developers can still find success and sustain themselves.

This shows that aesthetics still exist in the gaming industry. Not only do the developers recognize it, but the audience also holds onto their own aesthetic standards.

They understand that entertainment should not be numbing. They know what kind of entertainment can truly achieve the goal of education through play.

Growth in the Gaming Market and Increase in User Satisfaction

This phenomenon actually indicates that more and more people are playing games, and moreover, the new games launched by NetEase are also decent, which may have attracted some new users and generated some profits.

According to Ding Sanshi, flagship product “Fantasy Westward Journey” continued to perform well among the user base in the third quarter. Among the new mobile games, “Peak Speed”, “Cold Ash” mobile game, and “All-Star Street Basketball Party” have also made significant contributions to the performance.

These classic old games as well as newly released games have performed decently in the market, which is why they have achieved the current results. Moreover, some of these games are indeed relaxing and stress-relieving, relieving part of the stress and anxiety faced by contemporary people.

NetEase Games' Diverse Innovations Drive Continuous Revenue Growth

Among the long-standing domestic game companies, NetEase Games has a commendable ability to update its games.

Back when I was in college, every time I ate in the cafeteria, there were many people playing “Onmyoji”.

After starting work, even though I’m not fond of playing games, I still played “Identity V” for a period of time and couldn’t put it down.

There was also the mobile game “Nishuihan”, which people in my various chat groups often discussed.

Since “Egg Party” is so popular, I’m also planning on giving it a try.

Overall, I feel that NetEase Games' growth in revenue is mainly due to its impressive innovation capabilities and the diverse development of various games.

Not only “Egg Party”, but also the launch of niche products like “Top Speed” and “All-Star Streetball Party” have shown good performance.

Characteristics and Strategies of NetEase

The characteristics of NetEase are conservative, steady, and focused, giving a bit of an old Blizzard feel.

In terms of product strategy, NetEase adopts both offensive and defensive measures. It stabilizes its core market with the popular Westward Journey series, while seeking breakthroughs in various niche areas with games like Onmyoji, Chu Liu Xiang, and Nishui Han.

NetEase makes numerous attempts in all aspects, covering traditional genres, anime-style games, asymmetric confrontations, survival games, and strategy games, without missing out on mainstream genres.

Recently, there have been rumors of a bold transformation in the new version of Nishui Han, with the adoption of a better-balanced seasonal system that emphasizes fairness. This reflects NetEase’s enterprising spirit and its pursuit of breakthroughs with solid financial support.

If the financial situation becomes tight, such actions may be deemed impulsive and ultimately fail. Material conditions determine consciousness.

NetEase’s financial reports have occasionally brought pleasant surprises in recent years, which may be related to this aspect.

It’s reasonable and understandable that occasional critical successes occur after numerous average releases. However, it is impossible to predict in advance which products will achieve critical successes.

The biggest feature of NetEase is that it may not seem to have many highlights, but it also has few weaknesses. It is a formidable opponent that no company can afford to take lightly.

In fact, miHoYo is also feeling increasingly like this, relying on Genshin Impact for defense and Honkai Impact for offense. Perhaps all companies gradually seek stability and transformation as they grow larger.

First, establish an unbeatable position, and then wait for the opportunity to seek victory and breakthrough.

Tencent is also the same, relying on League of Legends, CrossFire, Honor of Kings, and Peacekeeper Elite as its core games. It seized the opportunity of mobile gaming and overcame bottlenecks, experiencing rapid growth. However, it gradually encountered new bottlenecks.

Genshin Impact’s annual revenue of 65 billion RMB in three years is truly impressive, leading to the neglect of other giants by netizens who consider them outdated. In reality, it’s not that bad, just with a significantly slower growth rate.

It is rare for NetEase, with its massive scale, to achieve such growth rates from time to time.

Based on NetEase’s technological genes, the inherent emphasis on product quality, and its strategy of seeking stability and transformation, the outlook for NetEase’s future performance is quite promising.

There are no empty slogans or a disregard for product quality in favor of so-called platform advantages.

NetEase’s approach to combat is to continuously deliver solid games with occasional critical successes. It doesn’t take impulsive risks or cling to old ways. Capcom also follows a similar approach.

It patiently waits for opportunities in battle, and once it identifies the main direction to attack, it dares to concentrate its forces and fight a big battle.

NetEase is like China’s version of Blizzard, and it even more closely resembles the essence of Blizzard than the current remnants of Blizzard.