Staying on top in the Chinese game market, the Tencent way

During his keynote talk on the first day of GDC Europe Tencent Games’ vice president Bo Wang talked about how Tencent reached the top of the Chinese online games market. While Tencent is best known as a leading provider of Internet and mobile & telecommunications value-added services in China, Wang spoke of the massive potential for growth in the Chinse market and how his gaming department had already generated $1.3 billion U.S. dollars in the first six months of 2010. Tencent currently has two of the top three online game titles in China.

Why online is going to be big(ger)

Wang explained the growth of the online game market as something that originated in 1998 in Korea, when “people didn’t have a lot of money to spend, but did have a lot of time.” This combination, Wang argued, is the origin of the play style that the Asian market has become known for.

Wang also criticised the speed at which big western publishers such as Sony and Microsoft are moving toward the online space with more and more community features. “In our view, they’re not moving fast enough.” Wang’s main argument against these console manufacturers was not only that they are not moving fast enough, but that the traditional game pricing scheme is flawed. “The user of online games no longer has any pressure anymore. The idea is that the basic service is free.” In general, Wang praised the PC as a more accessible platform in combination with online games as a much larger and profitable market. ” We eliminate the marketing expenses, we don’t need to pay retailers, or a 10 euro royalty per disc at Microsoft or Sony,” Wang explained. “We can use that money to deliver the best experience to the gamer and in the end we’re all going to profit.”

Wang used the example of Nexon’s Maplestory to address the power of a more continous and long-term investment that online games can offer. Running for over a decade since its original release in 2000, the casual online game broke their PCU in Korea this summer with a number above 400.000 simultaneous users. “That’s 1% of Korea’s population,” Wang noted.

The Chinese market

Wang also shared Sharing his knowledge from the Chinese market. In 2009, China accounted for 40% of the online game market. He also noted that at ChinaJoy last month, figures showed the annual growth rate for the Chinese game market to slow down to 30 percent. While people were feeling a small cooling effect, Wang still sees major opportunities.

While the disposable income and game penetration rates have always been low, Wang considers the value of even 50 cents per user. “That’s the way of thinking while doing business in China,” he suggests. He continued to address the fact that the Chinese market has several things in common, but is generally very diversified, with many new possibilities for catering to younger players. “Particularly for the younger generation, it’s becoming a life-style,” Wang explained. “The hardcore gamer typically are more mature, over thirty [years old].” He also warned the audience for the very scattered population distribution of their online gaming market. ”You attack Beijing and Shanghai, that accounts for a very small percentage of the market.”

Wang also addressed how the Chinese are a different kind of players, with very different requirements. He gave the following examples:

- The Chinese hunger for replayability. “A typical MMORPG requires at least 1000 hours of content in Open Beta,” he remarked.
- Community Setting. “Help the gamer to have more fun,” Wang explained. For the Chinese, multiple in-game relationship circles matter a lot. Social ties such as girlfriend/boyfriend, master/apprentice and clans are an important matter. The game must also be made sustainable as sustainable as possible. “This requires a steady amount of developers to create new content,” Wang added. “But that’s not enough, you need to encourage the gamers to play against each other.”

- Easy to Enjoy. The entry level has to be very low as always. The Chinese need to be attracted and engaged from the beginning. “Gamers are reluctant to master complicated play controls.”

- Fair-play, systematic anti-hacking and anti-bots are a must. You have to block all that hacking. “Unfortunately, the Chinese are very creative, so you need to constantly find solutions,” Wang admitted. “We have seen so many games fail, just because of the hacking”

The One-Stop for Online Life Services

Wang ended his talk with a detailed explanation of Tencent’s current strategy to not only dominate the Chinse online game market, but what Wang calls ‘Online Life Services’ as a whole. “Tencent tries to be the one-stop shop for all the online population in China, particularly for young Chinese who access the Internet for the first time,” he explained.

Tencent categorizes their offer in four groups: communication, information, entertainment and commerce. The first involves their role as the number one e-mail provider in China and the largest instant messaging system in the world. As for information, Tencent owns the number one search portal in China as well. ”We’re also making our own search engine,” Wang added. “Hopefully, we can catch up in that business too.”

The third part is entertainment. Or in Tencent’s case, a full fledged focus on online gaming. Even though they are currently offering other services with video distribution and streaming, games remain the biggest part in Tencent.

The final category, that of commerce, is something Wang says Tencent uses to invest in the future. “The Chinese economy is less developed,” Wang explained. “In the long run, we definitely see China catch up with the western world. We want to be well positioned when our market takes off.”

Wang continued to explain the uniqueness of the Tencent model. “The majority of Google and such their revenue comes from business. Our revenue comes from the user, which we see as a competitive advantage. We continue to have a sustainable revenue stream and in the business world, we have plenty of room for future business opportunities.”

According to Wang, Tencent also has the largest gamer community. Their tactic is to introduce potential gamers with casual games first. “We try to build a portfolio that enables us to retain any kind of gamer,” Wang explained. “The portfolio is quite diversified, we have the racing, dancing, shooting, action and rpg. This attracts different kinds of people.”

Gaming has become the the biggest business for Tencent. Wang’s gaming department account for over 50% of the entire Tencent revenue stream. He also noted his expectations for a strong performance this year as well. Tencent gaming is divided in two parties handling in-house development and licensing. “We have partners from Korea and US, but not from Europe yet,” Wang hinted. “We know the tricks and the challenges and also we can do publishing and have the instant contact with our user.”

Wang cited a recent success with their license for Nexon’s Dungeon Fighter Online in china, which now has 2.2 simultaneous users (140+ registered accounts) in China and their license for the Korean first person shooter CrossFire with 2.3 million simultaneous users (130+ registered accounts).

Both games demonstrated Tencent’s strategy to innovate instead of attacking the established traditional MMO market in China. “We don’t go into crowded markets of traditional MMOs, but have introduced action games and other genres into the market,” Wang explained. The combination of Tencent’s other activities in instant messaging, e-mail and web portals has definitely contributed in the growth of their gaming department and strong position in the Chinese game market. Wang also concluded by mentioning Tencent’s first office in the US and their ongoing interest in finding more partners and expanding their licensing activities in both the U.S. and Europe.

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