Cisco Places Gaming Bet

Takes a 9.7% stake in Shanda, a Chinese operator whose arsenal includes massively multiplayer games

Craig Matsumoto, Editor-in-Chief, Light Reading

February 15, 2006

3 Min Read
Cisco Places Gaming Bet

Massively multiplayer online role-playing games (MMORPGs!) aren't just cool -- they're a good investment. At least, that's what Cisco Systems Inc. (Nasdaq: CSCO) is betting.

An SEC filing yesterday shows the router giant took a 9.7 percent stake in Shanda Interactive Entertainment Ltd. (Nasdaq: SNDA) , a Chinese operator of online games including MMORPGs. That translates to 13,855,499 shares, most of them acquired during the course of 2005, according to the filing.

News of Cisco's investment sent Shanda shares up 92 cents (6%) to $16.16 by early afternoon today.

Separately, Cisco filed documents indicating it has divested its stakes in BearingPoint Inc. (NYSE: BE) and Lumera Corp. Cisco had held at least a 5 percent stake in each company. (See Cisco Invests in Lumera.)

Founded in 1999, Shanda grew to revenues of 1.3 billion Renminbi(US$161 million) for 2004, with profits of 609 million Renminbi ($75.6 million). The company's biggest seller is the game Legend of Mir II, which it licenses. It's also developed its own MMORPG called Woool and has a license to operate Dungeons & Dragons online in China.

MMORPGs are becoming a serious telecom business, and they represent 90 percent of all online gaming in China, writes analyst James Crawshaw in a recent Light Reading Insider report, "Online Gaming: Invasion of the MMORPGs."

The United States had about 6.7 million online gamers in 2005, as estimated by CIBC World Markets -- that's a 46 percent jump from 2004 figures, while the number of broadband subscribers in general grew 26 percent, to 37.1 million. Even bigger numbers can be found in China, where 26.4 million of the 117.3 million Internet subscribers are playing online games, according to CIBC.

Telecom's interest comes from the fact that games -- battle-oriented MMORPGs in particular -- require some of the most stringent quality of service (QOS) imaginable, as players must face one another in real-time combat. Many games also include microphones and headsets so players can exchange banalities during the action.

All this would seem to play well with the idea of traffic engineering, which would ensure that applications get delivered with appropriate security and QOS. Cisco has made acquisitions in this area, including P-Cube, as has Juniper Networks Inc. (NYSE: JNPR), which has pegged traffic management as the theme for its entire business. Startups including Allot Ltd. (Nasdaq: ALLT), Bridgewater Systems Corp. (Toronto: BWC), CacheLogic , Caspian Networks Inc. , Corvil Ltd. , Ellacoya Networks Inc. , and Tazz Networks Inc. are all working on variations of the theme.

(See Cisco Plucks P-Cube for $200M, Juniper Takes Two: Peribit & Redline, Allot's 5-Gbit/s Gamble, Bridgewater Systems , CacheLogic Upgrades P2P , Cisco QOS Defect Deflates Corvil, Caspian Adds P2P Punch, Ellacoya Stands Alone, and Virgin Mobile Uses Telcordia OSS.)

Carriers are hot on games as well. Crawshaw notes that service providers can use games as bait for attracting new broadband subscribers. Verizon Communications Inc. (NYSE: VZ), for example, "estimates that the desire for a better online gaming experience drives about 20 percent of its broadband purchases," he writes.

The game operators themselves could end up being a nice business for carriers, too. "As the number of users of MMORPGs grows, their management is becoming increasingly complex, forcing the game companies to outsource the supporting computing and network infrastructure required to deliver a consistently satisfying gaming experience," Crawshaw writes, noting that AT&T Inc. (NYSE: T) claims online gaming is "one of the fastest-growing segments of its Web-hosting business."

— Craig Matsumoto, Senior Editor, Light Reading

The report, Online Gaming: Invasion of the MMORPGs, is available as part of an annual subscription (12 monthly issues) to Light Reading Insider, priced at $1,350. Individual reports are available for $900. For more information, or to subscribe, please visit:

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About the Author(s)

Craig Matsumoto

Editor-in-Chief, Light Reading

Yes, THAT Craig Matsumoto – who used to be at Light Reading from 2002 until 2013 and then went away and did other stuff and now HE'S BACK! As Editor-in-Chief. Go Craig!!

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