The Credit Card & E-Commerce in Chinese Online Game Market

Abstract:

Title – A case study of the virtual money in MMOG: the impact of Cncard on Chinese EPS & online game industry
Purpose –This paper examines Junnet.net’s strategy of introducing a common used prepaid card – Cncard. It will demonstrate the impact of Cncard on the Chinese electronic payment system and online game industry.
Design/Methodology/Approach – The paper takes the form of a case study.
Findings – To do online business in China, firms need to consider the payment problem because current e-payment system is not reliable and widely applicable. In this paper, Junnet.net, a Chinese online payment company specialized in online game industry, introduced a collective prepaid card Cncard to solve EPS problem. The findings show that Cncard has satisfied consumer needs and implemented the electronic payment system in China especially in the online game industry. In addition, Cncard as a common use prepaid card for online game has also influenced the power structure in the Chinese online game industry and favoured Junnet.net.
Originality/Value – This research shows that electronic payment system can be a significant barrier as well as an opportunity for the e-commerce firms in China. Therefore, e-commerce firms need to consider and manage their strategies about electronic online payment in order to satisfy customers as well as gain a favourable power position in the e-commerce industry.

Table of Contents

Contents Page

Introduction -------------------------------------------------------------------------------------5
Literature Review ------------------------------------------------------------------------------8
- Chinese Electronic Payment System (EPS) --------------------------------------------9
- Chinese Massive Multiplayer Online Game (MMOG) Industry-------------------11
Research Questions --------------------------------------------------------------------------14
Research Methodology-----------------------------------------------------------------------17 - The Case Study Method------------------------------------------------------------------18 - Reasons to Select Case Study-----------------------------------------------------------18 - Research Approach and Data Collection Method-----------------------------------19 - Challenges on Case Study & Methods to Overcome--------------------------------20
Discussion of Findings -----------------------------------------------------------------------21
Part I the Electronic Payment System in China----------------------------------------22
- Current online payment market in China---------------------------------------------22
- Usage of Cncard to Implement EPS – the Virtual Money--------------------------23
- EPS Challenges on Cncard & How Cncard Response-----------------------------24
Part II Massive Multi-players Online Game Industry in China---------------------27
- MMOG & Game Operators in China--------------------------------------------------27
- Game Developers in MMOG-----------------------------------------------------------28
- Online Game Players--------------------------------------------------------------------29
- Distributors in MMOG------------------------------------------------------------------30 Recommendation ----------------------------------------------------------------------------34 -Junnet.net Company & Cncard---------------------------------------------------------35 -MMOG industry---------------------------------------------------------------------------36 -E-commerce Companies in China------------------------------------------------------38
Conclusion--------------------------------------------------------------------------------------39
References--------------------------------------------------------------------------------------42
Appendix----------------------------------------------------------------------------------------49
-Appendix 1: Essay Structure Chart-----------------------------------------------------49 -Appendix 2: Organisation Chart--------------------------------------------------------51 -Appendix 3: Interview Questions -------------------------------------------------------53 -Appendix 4: Interview Questions Mind Map------------------------------------------55 -Appendix 5: Interviewee Answers Mind Map-----------------------------------------57 -Appendix 6: Research Ethics Checklist------------------------------------------------59

PART ONE
INTRODUCTION

Introduction

Chinese e-commerce has developed significantly in the last decade. Online game one of the main products for internet usage is also growing swiftly. With the development of internet usage and e-commerce in China, the lack of development and security in the online payment system become a more significant problem. Chinese online game industry has the gross revenue of 12 billion RMB in 2007 with the average growth rate of 50% per year according to Chinese Netguide Report 2007. Junnet.net, the largest Chinese online game payment company, has the reputation for its advance e-payment system and capability in developing distribution channels. It takes about 15% of the total market share in the online game payment market and 40% in game prepaid card market. In 2006, it introduced a new prepaid card named Cncard. Cncard is a special type of prepaid cards which enables users to make payment to many different games by using the same card. In this research, Junnet.net and Cncard will be analysed to demonstrate the impact of Cncard on both Chinese electronic payment system (EPS) and online game industry.

First, previous academic papers on Chinese EPS and online game industry will be reviewed. The problem for EPS is that current Chinese EPS is still at the initial start up stage and quick improvement is impossible for three main reasons, legal, technology and social interaction. However, academic research also found that payment and service issue are critical for users to select a game. Therefore, the research questions will analyse two main areas. The first one is about the impact of Cncard on EPS and the second is about the impact of Cncard on the online game industry. Then, the reasons to select the research method of case study will be analysed. In this part, limitations for case study and the methods to manage these limitations will also be discussed. After that, findings for both EPS and online game industry are demonstrated. Finally, it will recommend the strategic implications for Junnet.net, online game industry and e-commerce related business in China.

PART TWO
LITERATURE REVIEW

Literature Review

- Chinese Electronic Payment System (EPS)

The problem of Chinese EPS is that current online payment system is still at the initial start up stage and short-term improvement is impossible. Jonathan (2005) finds two important features showing that EPS in China is still in the early stage. First, only limited number of users uses EPS for online shopping. Most of the online shoppers choose to order online and make pay through bank branches. Second, EPS rarely facilitates users for online payment. Users are complaining about the complexity and difficulties to use online payment system as well as questioning the reliability of the system. Lim et al (2005) also find that established entities, trust, security and simplicity are all significant factors for the success of EPS and Chinese EPS is weak in all these aspects at the moment. Ou et al (2007) compare the internet sales volume between China and the US and find a significant difference. It is concluded that under-developed payment systems is one of the main reasons affecting development of Chinese online shopping. Kang (2005) finds that Chinese online shopping is still based on debit card system and credit cards only take 3% in all the payment methods. He also argues that one crucial reason caused the under-development of EPS is ‘the insufficient of credibility system and a lack of trust between buyers and sellers in a business environment’. (P24, 2005) Consumers do not trust online payment in China. However the quick improvement is also impossible due to legal, technology and social interaction barriers.

First, the imperfection of the legal and regulation system is the most important barrier. Kang (2005) points out that ‘current regulation in China protects more merchant’s interest than customers and the creditor’s right protection is uncompleted’. (P25, 2005) MacInnes (2006) argues that lack of enforcement reduced entry barriers to fraudulent business and increased level of crimes and technology fraud. Slack legal enforcement reduces potential losses for the fraudulent businesses. In other words, it encourages opportunistic behaviour of firms. Ou (2007) argues that the contradictory regulatory is also a significant barrier for the development of EPS. Many ministries have power over the development of e-commerce & EPS, but the overlapping authority of state agencies caused ambiguity in enacting laws and deferred the development of EPS.

Second, technology infrastructure is essential to improve EPS security. He et al (2006) research company managers’ attitude towards using B2B online payment system and find that weak technology infrastructure is a major barrier preventing companies from using EPS. Aoki (2005) tested ‘The Pay Word Scheme’ a post-paid card and argued that even when firms are implementing post-paid card scheme, complex and costly technology infrastructure are still problematic. Post-paid card is not an alternative of credit card or an effective implementation of Chinese EPS.

Third, development of EPS requires efforts from every party involved from consumer, bank, Internet Company, government to regulatory organisations. Feng (2005) argues that the specific solutions to reduce credit card fraud is for investigators and police authorities to work together to devise fraud and develop prevention mechanisms. This involves government agencies, privileged stores, cardholders as well as credit card companies. Zhang and Li (2006) argue that the development of seller reputation measurement mechanism could increase buyers’ usage of online payment methods. The improvement of online payment system requires the efforts from both e-commerce sellers and buyers themselves. Vastine (2007) argues that the culture bias towards saving in China also limited the credit card usage. Consumers have the preference for cash payment and debit card. However, Vastine (2007) also mentions the future EPS development is hard to predict, but a convenient and reliable EPS could change consumer preferences and encourage the usage of EPS. Therefore, close interaction among all social parties is required for the development of EPS.

To sum up, EPS is under-developed in China with a number of significant factors limited its development. In the short term, this situation cannot be easily solved and alternative implementation payment methods is required to satisfy consumer needs for internet shopping and online payment.

- Chinese Massive Multiplayer Online Game (MMOG) Industry

Massive Multiplayer Online Game (MMOG) Industry
Chinese online game industry keeps on expanding in a significant speed about 50% increase in gross revenue each year based on 2007 Chinese official internet development report. A number of researchers suggest that although Chinese MMOG market is expanding quickly, it is still at the initial start up with little innovation. Ren (2005) finds that 52% of the games in China are developed by South Korea and only 27% of the games are developed by Chinese firms. Chinese official online game annual report also shows that over 60% of the online game market share is taken by a US developed game and games developed in China take less than 15% of the market share. (Netguide, 2007）MacInnes (2005) compares Chinese online game industry with Korean online game industry and concludes that China’s MMOG still initiated little innovation in game development. Zhang & Wang (2005) also conclude that the online game industry is lack of policy approbation and legal protection to regulate both firms and consumer behaviour, for example the lack of strict legal protection on patent right. Ren (2005) points out although China MMOG industry is in the initial start up stage; it has the capacity to be competitive in national markets. These factors include telecommunication infrastructures, rapid growth of the online gamers and the raising of the domestic online game companies.

MMOG Game Operator
Game operators are the most powerful players in Chinese MMOG industry, but they have limited level of innovation. A number of studies have analysed game operators in China and suggest they need to develop the capacity in game innovation. Ren (2005) analyses the strategy of SNDA, the largest online game operator in China, and argues that SNDA should take cooperative approach both in China and abroad to develop the game innovation capacity. Yan & Choi (2002) find that game operators are important in influencing the security and reliability of a game. So game operators need to identify potential security issues and find methods to control these issues. Strom (2007) states that the value chain in MMOG industry is becoming more complex and suggests that game operators should have clear strategy throughout the whole value chain to develop their capabilities and gain long-term competitive advantages.

MMOG Consumer Behaviour
Online game consumer behaviour has been researched thoroughly by many academics. Although academics find different motivations from online game players, one finding is highly consistent which is online game service is a significant factor influencing the choice of game players. Dick (2005) argues that ‘game players tend to underestimate their maximum tolerance of network latency’, and network latency is a key reason for players to shift from one game to another. Hsu and Lu (2005) find that ease of use could significantly influence the preference of game players. Luo et al (2006) also conclude that service is one of the important factor influencing players to select a game. Customer service and call centre support have significant impact on consumer perception of a game. In reality, game operators usually ignore these factors.

Online Game Industry Distributors
Hardly any research analyses the online game distribution channel. Only few researches mention a little in their papers about the importance of the distribution channel. MacInnes (2005) in the paper Virtual Worlds in Asia mentions that it is important to develop online real time payment systems to facilitate online payment and the purchase of game point cards. However, he did not deeply discuss the distribution industry, for example how the online payment system can be improved or the opportunities and problems relate to this payment method. Strom (2007) also points out the complexity of networks of suppliers throughout the MMOG industry value chain and the importance to manage the relationship between product and service in MMOG. However, there is no analysis about how to manage suppliers and online payment in MMOG. Therefore, in this research Junnet.net will be analysed to demonstrate the impact of the prepaid card – Cncard on the Chinese EPS and MMOG industry.

PART THREE
RESEARCH QUESTIONS

Research Questions

In this essay, two main questions will be discussed using the case of Junnet.net and its prepaid card - Cncard. First, it will focus on the impact of Cncard on EPS. Second, it will analyse the impact of Cncard on the MMOG. Finally, it will recommend future strategy for Junnet.net, MMOG industry and e-commerce firms in China. This research is significant for a number of reasons. First, it is necessary for both China and overseas companies in e-commerce, online payment or distribution to understand current Chinese payment market and manage strategies according. Second, the effects of Cncard - a collected prepaid card have powerful influence on both upstream suppliers and downstream retailers. It changes the power structure in the whole MMOG industry and shows that prepaid card is influential for online business. Therefore, managers should consider payment issue when they manage strategies.

In the first research question, it will analyse the impact of prepaid card – Cncard on EPS. Due to underdeveloped EPS, there is a significant demand for prepaid card and mobile payment. To start with, the current Chinese payment market will be discussed. Then, it will discuss the usage of Cncard in implementing the online payment. Finally, the impact and influence of Cncard on the EPS will be discussed from three main aspects, legal, technology and social interaction. The reason to discuss this question is to show the impact of Cncard on the EPS and how it solved or avoid three main barriers for long-term development.

Second question will focus on the MMOG industry and analyse the impact of Cncard on this industry. From the literature review of the MMOG, it can be seen there are two significant problems. First, MMOG in China is lack of innovation especially in game development. Second, distribution channel is significant in influencing players’ preferences. In the discussion, these questions will be accessed from four main aspects: overall online game industry, game operators, game players and game distributors. First two parts aim to answer the question on how Cncard could support innovation. Last two parts will answer the question on how Cncard could implement MMOG distribution. In each part, the discussion will focus on the development trends and the influence of Cncard to that group.

PART FOUR
RESEARCH METHODOLOGY

Research Methodology

- The Case Study Method

Case studies are rich, empirical descriptions of particular instances of a phenomenon that are typically based on a variety of data sources. (Yin, 1994) Case study is also a research strategy which focuses on understanding the dynamics present within single settings. (Eisenhardt, 1989) This paper will analyse the phenomenon of widely used prepaid card in online payment due to the underdeveloped EPS in China. The research aims to demonstrate the dynamics of the EPS and MMOG opportunities and challenges in China. In addition, it will show the functions and impact of prepaid card on MMOG and EPS. This research will analyse a single case - Junnet.net a Chinese e-payment company in MMOG industry and focus on a special prepaid card – Cncard. Yin (1984) states case study can employ multiple levels of analysis. In this case, it will include two level of analysis, the impact of Cncard on EPS and MMOG in China.

- Reasons to Select Case Study

Because research questions are significant and there is no previous research offers a feasible answer, Eisenhardt (2007) suggests case study should be used in this situation. As shown from the literature review, the under-developed EPS limited the potential of e-commerce and MMOG industry. So it is important to analyse and understand the limitations and barriers for development. In addition, there is no built-up theory in analysing this phenomenon or predict the future outcome. Hence, the case study research is the best option. This research is a descriptive case study to describe a special phenomenon, discover key influential factors and predict certain outcomes. (Yin, 2002) This research describes the special phenomenon of the widely used prepaid card and will predict and recommend the future of prepaid card. In this research, single case is selected to provide a thorough and deep understanding about EPS in MMOG industry. Yin (1994) states single case is selected to reveal extreme exemplars or opportunities for unusual research access. Eisenhardt (2007) also states single-case typically explore a significant phenomenon under rare or extreme circumstances. This research is particularly suitable for illuminating and extending current researches in EPS and MMOG industry.

- Research Approach and Data Collection Method

This research takes the critical realism approach. Saunders (2007, P105) summarised critical realism as ‘we can identify what we don’t see through the practical and theoretical processes of the social sciences’. So when data are interpreted, it is believed that there is a social reality and all the data are part of that reality. Data are critically interpreted attempting to show the overall objective view of the facts. This case study used multiple data collection method, and collected both qualitative and quantitative data. Multiple data collection includes both primary and secondary data. For example, primary data include interviews with CEOs, CTO and COO and secondary data include industry reports and company documentary. Both qualitative data such as CEO perceptions and quantitative data such as company financial report are used to reduce research bias.

- Challenges on Case Study & Methods to Overcome

In case study research, one of the main challenges is to reduce research bias. Eisenhardt (2007) argue that interview data although provided rich empirical data, also can be biased due to the managers’ impression. A key to limit this bias is ‘to use numerous and highly knowledgeable informants who view the focal phenomena from diverse perspectives.’ (Eisenhardt, 2007, P.3) In this research, 6 top chief executives in Junnet.net are asked the same semi-structured interview questions to get the comparable information. Then data are analysed to identify consistency and reduce informant’s individual perception bias. Leonard-Barton (1990) suggested another key approach to reduce bias. It is to combine retrospective and real-time cases. Retrospective cases focus on recent focal events and real-time cases focus on longitudinal data collection. In this research, most data collected are retrospective such as interviews focus on current strategies for the company. But real-time longitudinal data are also used, such as industry report and growth trend, to implement data analysis.

PART FIVE
DISCUSSION OF FINDINGS

Discussion of Findings

Part I the Electronic Payment System in China
- Current online payment market in China
As discussed above, Chinese EPS is in the initial start up stage and there are three main types of payments: bank card, mobile payment and prepaid card. The major payment method is still bank card. In MMOG industry, the COO of Junnet.net said 40% of players make their payments by bank card. The game operators would like to use this method because bank card can help game operators directly link to final users. Convenient is one advantage of bank card. It allows users to make payment at any time for any amount. However, the disadvantages are not only the EPS security problems which included account and identity safety, but also customer service problem. Payments for online games always involve large numbers of small transactions and very specific enquiries for a particular game. Game players require customer service for the payment issues, but banks do not have such big customer service group to offer this support. Therefore, banks are less willing to serve this market.

Mobile payment is another alternative for game payment. One of the COOs said mobile payment takes slightly less than 20% of market share in game payment. The advantage of mobile payment is its flexibility. Users can choose when to pay and how much to pay. However, the problems linked with mobile payment are the same as the problems with bank card. Users do not trust companies and not sure whether company will charge the right amount. Also the customer service is still an issue for mobile payment. There is almost no customer service in telecommunication industry to solve issues such as payment or technology fraud.

Therefore, prepaid card is widely used as the online payment method. It takes more than 40% of the market share. The advantages of prepaid card are that it is safe and easy to purchase. Compared to credit card, which might have a huge potential losses and difficult to apply especially for young people before 18, prepaid card is more reliable and convenient. The full amount, which might lose if fraud occurred, is the face value of the prepaid card from 1RMB to maximum 100 RMB. In addition, young people are the major players for online games. The 2007 Chinese internet game official report found that 19% of the total online game players are high school students aged from 16 to 18. Hence, prepaid card is their only option. In addition, the well designed prepaid cards have the collection value for some game players. This can be seen as one of the fringe benefits to purchase prepaid card. The disadvantage is that prepaid card is only for one time usage and need to be purchased and replaced regularly. Based on the analysis, it can be seen that prepaid card is designed for a special group of consumers for their special needs. The major consumers are young persons who do not own credit cards, or people playing online game but do not trust online payment and bank card.

- Usage of Cncard to Implement EPS – the Virtual Money
Cncard is a special prepaid card developed by Junnet.net mainly to make payment for online games. The difference between Cncard and usual prepaid card is that Cncard can make payment for different games, but usual prepaid card is only make payment for a specific game. Junnet.net developed a unique system which enabled Cncard users to make pay for all the online games. The advantage of Cncard is safe and convenient. Users have their own accounts and personal data are protected. In the Junnet.net system, users still need to register and set up an account. Every time, users buy the prepaid card and pay into their accounts, they automatically own a virtual bank account. Then, they could use these credits to pay any games registered with the company. In other words, Cncard is the virtual money in the online game industry.

Because Cncard account is a debit account, the potential losses are limited. In addition, Junnet.net is responsible for all the technology frauds. It has a good customer service department to protect or recover any potential losses. The CTO in the company said that ‘we developed reliable monitor process to protect Hack attack or technology fraud’. There are a number of attacks happened in the 2007, but system enabled the company to find the places where these attacks happened and recovered later. For the identity safety, Cncard has developed the identity safety protection. Junnet.net used its resource in technology, distribution and relationship with game operators developed the virtual money for online game. It solved the security and trust problem of EPS and also differentiated itself from other prepaid cards. Users choose Cncard for the convenience as well as company reputation and reliability.

- EPS Challenges on Cncard & How Cncard Response
As discussed above, three main barriers influenced the development of credit card and EPS. In this section, it will discuss how Cncard solved or avoided these problems for the long-term development.

Legal & regulation problem
Because the imperfection of the legal and regulation in the Chinese EPS, consumers are lack of legal protection and businesses are lack of the legal restrictions. Cncard also faces this problem. Junnet.net solved this problem by building up reputation and customer relationship. One of the CEOs said ‘Junnet.net will build up the reputation of Cncard to gain consumer trusts’. Rather than earning short term opportunistic profits, the CEO said the long term development and consumer loyalty are the most valuable aspects of Cncard. In order to achieve this, the company always maintain a high level of ethical behaviour and tightly control the technology fraud. From consumer perspective, Cncard is trustworthy for its reputation. In addition, the CTO said Junnet.net is setting up the Cncard online community for users to exchange opinions and interact with other Cncard users. They aim to build up relationship between Cncard and game players to gain customer loyalty.

Cncard, as the virtual money in the game industry, starts to attract attentions from legal and regulation organisations. In the 21st People Representative Meeting, one representative suggested to ban the virtual money on the internet. This suggestion has been rejected, but there is an implication that public start to concern about this industry. CEO of the company said that government will not ban virtual money because it plays a key role in e-commerce development. However, government will enforce relevant laws to regulate this industry in the near future. Therefore, one way for Cncard to gain long-term development is to formalize and standardize. As the largest developer in this industry, Junnet.net has the capacity to expand in online payment industry. If those regulations are enforced, companies which are less standard will be closed. Then Junnet.net would be more competitive in the long term. The COO of the company also mentioned, they will operate the company in a regulated and standard way which could benefit them in the long term.

Technology infrastructure
Technology is a significant barrier for the usage of online payment. On issue is the uncompleted banking system and technology infrastructure. Another issue is the significant cost for small businesses to implement e-payment technology. For Cncard, this is a significant opportunity. Because Cncard, as a type of prepaid card, has the advantages of limited financial losses and secured identity. Junnet.net has a completed system to track and manage all issued cards. The company has taken strict monitor system to track the condition of every issued card. This helped the company to ensure that every Cncard sold to consumers is valid. Company would manage all the frauds from production and issue to usage and monitor. This enables the company to reduce frauds to the minimum level. Small businesses, which also need B2B online payment, are more cost effective to use Junnet.net online payment rather than implementing their EPS. This is also one future development opportunity for Cncard.

Social interaction
Prepaid card, especially Cncard, requires less security protection during the whole usage process than credit card, because the card is just for one time usage. After users put in the pin number, the card is useless. There is no need to protect pin number after usage. Users only need to buy the card and put in the numbers. Compared to the credit cards, prepaid card requires much less security protection. Also the parties involved would take less responsibility in terms of managing prepaid cards. The interaction process is also straight forward. Cncard has the minimum parties involved in this transaction with only users and company to minimise the level of risk in finance and identity security.

To sum up, prepaid card for instance Cncard is important to implement the current Chinese EPS and online payment. Because prepaid card only can be used once, it is safer for most consumers than credit cards. Particularly Cncard, which is building up its reputation, would gain consumer trust and loyalty. Cncard successful managed the legal, technology and social interaction problems. Therefore, Cncard has the capacity and opportunity to develop in the current market. Although in the long term, the prepaid card will probably be replaced by bank card, Junnet.net also has the opportunity to diversify into a new market. For instance, as suggested before it could develop in B2B online payment market to help small businesses doing payment and transactions.

Part II Massive Multi-players Online Game Industry in China

- MMOG & Game Operators in China
The development of the MMOG industry in China is significant. There used to be 8 largest game operators in 2004, but in 2007 the MMOG industry report shows that now there are 20 mid-size game operators. Some of the largest game operators such as SNDA are starting to develop home entertainment game and introduce some free internet games. This strategic change shows that competition in MMOG industry is becoming more intensive and requires a strategic change. One of the reasons why there are 20 mid-sized companies is that players have different preferences and hard to stick to one online game for a long period of time. The official report Netguide 2007 for MMOG shows that on average game players stick with a game for 6 months. Another point account for the increasing of the midsized operators is the increasing number of the high skilled labours in China. The number of software engineers is increasing and human resource is not a significant limitation in MMOG industry. Then competition starts to focus on getting final users. At the same time, the number of players using prepaid card is also decreasing. It is not cost efficient for operators to have their own distribution channels for prepaid card.

Cncard, which is a widely used prepaid card, offers the opportunity to help operators distribute their prepaid cards. Because the power of the game operators is shifting to users and game industry is no longer monopolized by few individual players, it is not economical for game operators to control a whole distribution channel. Instead, the e-payment specialized company such as Junnet.net could get benefit from this trend. Junnet.net has the resources and developed distribution channels which enable itself to gain economic of scale in a large size operation. As discussed above, prepaid card is still a major method for players to pay online games. Therefore, to use a wholesaler is a best option for game operators.

- Game Developers in MMOG
Because the barriers and costs to develop online games are reducing, the number of game developers in China is increasing. Although most of the game developers are part of the large game operation companies such as SNDA and the 9th City, the size of the game developers is still small. Compared to South Koran and the US, just as Storm (2007) showed, game developers in China are just in the start up stage. However, the number of the game developers is increasing in a significant speed. Based on the interview with the CEO of Junnet.net, there are now 20 middle sized game companies in China with over 50 small sized game developers. But the Chinese game market is already very competitive. Players prefer games from the US or South Korean partly because of the reputation and partly because the high quality of the games. Hence, how to get player is the key task for all the game operators and developers.

Cncard could also play an active role in this process. Cncard could pay for over 98% of the online games and it accesses large numbers of users. When game developer joined the Cncard payment system, they could easily get access to users. Cncard is an important channel for small and medium sized game developers to get large number of consumers. Because most game developers do not have the technology and resource to develop their own distribution channel, cooperate with Junnet.net could give them significant advantages in introducing the games to the users. Therefore, Cncard could add value to all game developers.

- Online Game Players
In the 2007 Netguide Internet Game Report, it finds that 44% of players prefer bank payment for online game and 35% of players prefer pre-paid cards. It also finds that on average players play a game for about 6 months. Most consumers are loyal to a game, but not to a particular payment card. However, safety and identity problem do concerns users. When any online payment fraud occurs, users cannot easily find a way to complain or recover their losses.

Junnet.net introduces Cncard to solve this problem. Not only players can ensure their financial and identity safety, but also they can have reliable support and customer service. Users could use Cncard to pay all the games and could always contact Junnet.net when any fraud occurred. Users could trust Cncard and be loyal to Junnet.net. In addition, as users always make payments through their Cncard account, they can accumulate their points and get special offers and promotion for the amount they purchasing.

- Distributors in MMOG

Junnet.net
Previously Junnet.net only helped other companies to sell company specific game prepaid cards, so it cannot build up its own name and reputation. The impact of Cncard on the Junnet.net is that Cncard changed the cash flow in the company. In the past, Junnet.net needed to pay the game operators first and gave downstream retailers the product before they get payment. Now, it could get the payment first from game operators and pay to the retailers within 7 day credits. Junnet.net is becoming powerful, as it controls large numbers of users and players. The changes in cash flow not only give company more flexibility, but also reduce its bad debts.

Cncard puts all game payment onto one card. Game operators when joined this card, they could easily access large number of players. For the small companies, this is a significant opportunities and small firms are keen to join. However, when the small companies become medium to large sized company, they start to have their own distribution channels said by one of the CEO in Junnet.net. No company is really successful in developing their own distribution channel. One of the reasons is diseconomy of scale. Because each card sold out by Junnet.net only make a very small margin usually about £0.01. The game operators cannot make a profit. Another reason is that retailers cannot sell only one game card, as users have different preferences. Game operators cannot dominate retailers. The opportunity for Cncard occurred as Junnet.net could have its own store and get agency only to sell Cncard. Users can use Cncard to pay all online games, so the unique limitation for game operators is not a problem.

Junnet.net Competitors
There are two main groups of competitors for Junnet.net. First group is the game operators. Game operators want to gain the profits from distribution, therefore most game operators also issue their company specific prepaid cards. However, game operators are not successful in distribution, for a number of reasons which include large size of the Chinese market, high cost of the geographic coverage, the reducing number of prepaid cards, the increasing level of security and technology requirements. It is increasingly difficult for game operators to gain profits in the distribution. Cncard has the reputation, good technology and customer service to support its brand. Also game developers cannot force one agency to only sell their own game cards. User preferences changes all the time and Junnet.net could own or build up unique selling point for Cncard – the virtual money in game industry.

Second group of competitors are the small distribution companies. Although Junnet.net is the largest company in the e-payment market and takes over 40% of the prepaid card market share, there are over 500 small companies in this market. They are less formal, much smaller and only able to support small number of users usually about 500, as suggested by the CTO. However, they do take the rest 60% of the market. One of the main reasons is that prepaid card is the commodity product and makes no difference for users to purchase either from a reputable company or small firms. But the costs for small firms to expand are significant. The costs are mainly from customer service and fraud prevention technology. Also it is a problem to access other markets geographically. Therefore small retailers only serve local market for limited number of users. The introduction of Cncard has made a difference. With the increasing popularity of Cncard, users start to be loyal with Cncard for its reliability, security and reputation. This will make the smaller agencies less attractive. Cncard differentiates itself from the commodity product and become a brand with image and identity. This put the marketing requirements for Junnet.net. For Junnet.net involved in distribution and marketing for over 10 years with very good understanding about the users and market, marketing is one of the competitive advantages of Junnet.net. It could take the advantage to implement the development of Cncard.

Junnet.net Downstream Agencies and Small Retailers
In the past, game agencies and retailers need to purchase and stock large quantity of different types of prepaid cards. Not only because users have different preferences for different types of online games, but also because user preference is changing all the time. There is always a risk for retailers to over stock less popular games and run out of stock of the more popular games. Cncard reduced this risk for retailers. Cncard can pay for all the games, so retailers do not need to purchase all different prepaid cards expect Cncard. Retailers are easier to predict the total amount of the sales, so they can purchase Cncard based on this prediction to manage stock. This could help them reduce the amount of money locked in the stock and give them flexibility to manage their cash flow.

PART SIX
RECOMMENDATIONS

Recommendations

- Junnet.net Company & Cncard
Cncard is a successful strategy which combined all company resources to gain the power in MMOG industry, which did not favour distribution channel previously. However, in the long term Cncard must seek expansion and growth strategy in order to develop in a shrinking market. Junnet.net could benefit from using its well developed distribution channel and technology to gain economic of scale and to be more cost effective. Cncard has solved three main development barriers in EPS, so Junnet.net has the potential to get better return in a large scale operation. More importantly, Cncard is the ‘virtual money’ in MMOG and only works if it can make payment to all the online games and cover large number of users. Therefore, it is important for Junnet.net to expand size and user coverage. One possible method can be M&A with small retailers. Junnet.net could expand by taking extra small retailers, but also it could expand its coverage by setting up more agencies in metropolis city and provincial cities as well as grade cities. Junnet.net could open its own image store or agency only to sell Cncard.

From the financial perspective, Junnet.net is in a low profit margin industry. This is due to the characteristics of the e-payment industry. E-payment market is making money by getting large number of small amount transactions. This module could work in the short term, especially with the efficient technology monitor system. In the long term, it is recommended that the company should consider shifting into an industry with higher profit margin. One of the opportunities for Junnet.net is to move to the market of B2B online payment. Many small companies in China are unable to implement a whole system of online payment in the company. Junnet.net, which is good at EPS and gained the experience in working with both large and small companies, has the advantages to develop B2B e-payment service in China.

- MMOG industry
Because of the limited innovation and EPS problems in MMOG, it is recommended that firms in MMOG industry should take the integration strategy with their indirect competitors. From the innovation perspective in the MMOG industry, one of the key issues is that Chinese MMOG industry is still at the initial stage. Even though the industry has the growth rate of about 50% per year; the innovation is still very limited. All big firms in the MMOG are good at operation not development. But the largest profit margin is the game development not game operation. If the game operators and Junnet.net could take a cooperate approach instead of competing with each other, this could benefit both of them. Game operators could use the resources which used to put into developing channels to invest in developing new games. Junnet.net could use the extra profits they gained in distribution channels to further develop its user database and help the game operators develop new games.

The innovative solution of Cncard already gives many small companies the opportunity to access large amount of users in a short period of time. It could further benefit the whole MMOG industry by focusing on analysing the user database and transform them into useful information for the game developers. Integration approach in MMOG also could benefit players. The needs and wants of the players will be better understood and the game developers could develop the games according to player preferences. As a result, whole Chinese MMOG industry could use the money more efficient for innovation.

From the online payment and distribution perspective, an integrated approach is also recommended. Users could benefit from the integrated approach. They could have better security and customer service by having the distributors and game operators to work together. For the market, the integrated approach means less regulated small e-payment companies will have less opportunity to survive in the market and the whole market will be more standardized and regulated. However, at the moment game operators would like to compete with distribution firms to get the extra profits in distribution. This is very difficult to success. Not only because the game operators are lack of economic of scale in distribution and e-payment, but also because game operators cannot manage the retailers very well. For Cncard, this is possible. As Cncard is the virtual money in the MMOG and retailers could only stock Cncard. Therefore, all the parties could benefit from integration and improve the competitiveness of the MMOG industry.

Firms should not take a short term perspective. They should not only focus on the short term profits and then compete with downstream or upstream players in the online game value chain. Instead, the cooperation and integration approach, which could improve the competitiveness of the whole MMOG industry, should be taken. Firms in Chinese MMOG industry should compete with world game developers to seek long term profits and development opportunity.

- E-commerce Companies in China
Based on the discussion above, it can be seen that Chinese EPS is under-developed and quick improvement is hard to achieve. Hence, e-commerce and e-payment related companies are recommended to consider the strategic issues of managing EPS before entering the market. For small and medium firms, it is costly to implement their own e-payment system. It would be more cost effective to work with e-payment specialist companies and use their distribution channel and online payment systems. However, it is also suggested that e-commerce firms need to consider the power structure and potential influence from online firms. In the case of Junnet.net, the issue of Cncard caused a significant power shift in the MMOG industry. Online payment companies have the competitive advantages in technology and user access. Therefore, for e-commerce firms which plan to work with e-payment firms, e-commerce managers need to consider potential opportunities and threats before making the decision.

PART SEVEN
CONCLUSION

Conclusion

In conclusion, this research used the case of Cncard, a prepaid card in the MMOG industry, to demonstrate the current Chinese EPS condition and the innovative solutions used to implement the problem on EPS. In addition, impact of Cncard in the MMOG industry is also analysed. This research demonstrated how Junnet.net gained competitive advantages in a very unfavourable market environment. In the special market environment, Junnet.net issued Cncard in a shrinking prepaid card market with strong power influence from both game operators and downstream retailers. The company solved all the disadvantages by combining its capabilities in technology, distribution channels, coverage of players and connections with small firms. This research showed the impact of the prepaid card for Junnet.net and also indicated the importance of EPS in China.

This research has the value for both overseas and Chinese firms plan to enter Chinese e-commerce market. It shows the importance for companies to consider the problem of the Chinese EPS imperfection when developing e-commerce business. Ignorance could lead to serious problems such as the difficult for big firms to get B2B e-payment connection with small firms.

Finally, future development strategies for both Junnet.net and MMOG industry are given based on all the findings. From the EPS perspective, it is recommended that Junnet.net should develop in B2B online payment market in the long-term for its experience and capacitates in the EPS industry. For the MMOG industry, it is recommended that the cooperation approach should be taken by all the parties in this industry to gain economic of scale and improve the competitiveness of the MMOG industry. This could benefit all firms in the industry by giving them better returns with a long term development opportunity.

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