Personally, one of my favorite ways to take advantage of the booming Internet industry in China has been by investing in Chinese online gaming companies. That's because the Chinese view online games as an attractive form of entertainment, especially if the game is personalized, customizable, interactive and is based on Chinese culture and tradition.
One of the companies that have fulfilled these online gaming needs best is Perfect World(NASDAQ: PWRD) -- which we recently sold in China Strategy for a 70% gain. This company is the leading online game developer and operator in China, producing the widely popular massively multiplayer online role-playing games (MMORPGs) like Perfect World,Legend of Martial Arts, Perfect World II, Zhu Xian and last year's launch of Chi Bi.
Perfect World's online games are extremely popular in China because they're based on popular media, like books, movies or TV shows. And much of their success is from not only basing games off popular Chinese stories, but also then taking these stories and creating the online game in house.
Another company that has benefited from China's booming online gaming industry isChangyou.com (NASDAQ: CYOU) -- which we recently sold in Asia Edge for a 34% gain in just four months. This company was formed in 2007 when Sohu.com spun of its gaming division after finding great success with its Tian Lone Ba Bu online game, which was based off a best-selling Chinese novel that has also been developed for TV and movies.
Since the spin-off, Changyou grew into one of the leading online game developers and operators in China. The company's main success came from offering its games for free to the public and then charging for virtual tools.
While both Perfect World's and Changyou's business models proved to be successful in the past couple years, new developments in China's online gaming industry create a lot of uncertainty in the sector right now. Last week, China's press and copyright officials banned foreign investors from operating online games, tightening the control over the domestic online gaming business. And that was the very trend that helped my China Strategy andAsia Edge subscribers profit from in the past year.
While we've still yet to see how these new rules will play out and be enforced, overall, it doesn't bode well for Chinese online gaming companies, even domestic companies like Perfect World and Changyou. Given this, we'll probably be avoiding recommendations in China's online gaming sector until there's more clarity on these rules.
With that said, though, I still think there are plenty of ways to benefit from China's booming Internet industry. Let's discuss one of my favorite companies along these lines now -- China's Google.
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