At his GDC Europe keynote on Monday, Tencent Games VP Bo Wang discussed how the billion-dollar revenue Chinese tech/game company has risen to the top of the pack, citing massive growth rates and key routes to success in Asia.
Wang noted than in the six months to the end of June 2010, the gigantic Chinese-headquartered firm, which deals with instant messaging, virtual currency, and video games as its major parts, had revenues of $1.3 billion U.S. dollars.
He then explained the expansion of the global online game market, noting that 70 percent of the worldwide market is in Asia, with almost 60 percent being in China. And he pointed out that the extremely casual game playing styles rule in Asia -- commenting that the most popular Chinese games are those that can be played in one hand while smoking or having a drink with the other hand.
Along the way, Wang was relatively dismissive of console gaming, as befits a company that's built its fortune largely on PC gaming. He noted of the console manufacturers:"They are not moving fast enough -- by nature the console itself is limited." He also commented that the PC's upgrade cycle -- while incremental -- is much faster than the console, re-iterating the versatility of the PC.
An important part of Tencent's success is the ability to test in detail the game before officially launching it. For example, the company's popular free-to-play FPS CrossFire had nine months worth of Beta before launching. Even post-launch, "optimizing your game" via many upgrades and expansions is vital to success.
Wang launched into an impassioned defense of free-to-play games, commenting that in the traditional retail space, where a game might cost 50 euros, "the pricing structure is fundamentally flawed." What about a gamer who only has 49 euros to spare? He quipped: "That 49 euros is good money -- you should take it."
And how about the gamer that wants a game at Christmas but can't afford it until the next February -- but can't find it any more in the shops when he returns? Or, indeed, what of a gamer wants to pay you 100 euros because he likes your game so much? In retail, he can only pay you for the price of the retail title. All of those things lead Tencent to have free-to-play as their main game model.
One great thing about microtransaction-based games, Wang noted, is that the top revenue for the title often comes years after it launches. For example, Nexon's MapleStory, which launched in 2000, beat its 400,000 simultaneous user record in South Korea this year -- bringing continued, long-term profits. Wang also showed that you need less people over time to work on this service model of gaming.
Ultimately, the profit margins of major Chinese game companies speak for themselves -- with Wang pointing out that the profit margin of China's top five online game publishers is a staggering 45 percent, compared to an alleged 3 percent for traditional console game publishers and 10-20 percent for many conventional product-based companies.
The State Of The Chinese Market
Wang then went into the Chinese market, citing fears from industry figures at last month's ChinaJoy that the market "slows down so much... people are seeing a cooling effect." But although things have slowed down compared to a super-hot 70 percent-plus growth rate in recent years, the annual growth rate for the Chinese game market is still 30 percent, meaning major opportunities.
The Tencent Games VP pointed to 420 million Internet users, but just 32 percent internet penetration -- lots of room to grow. And with 296 million online game users, and 95 million MMO users alongside 104 million casual game users, there's a major existing userbase to tap into.
Reeling off metrics, it was noted that the Chinese gamers have a much lower disposable income -- with 50 percent having a monthly salary of less than $200, and a staggering 90 percent of users are outside the major cities. So how do you attract these gamers?
Firstly, Chinese gamers want a lot of content -- TenCent tries to have 1,000 hours available at launch in its typical MMORPGs. And multiple in-game relationship circles matter a lot -- you need to encourage gamers to have fun by playing against each other in games. Anti-cheating and anti-hacking is also a must.
With Tencent having four of the seven top titles, and the biggest game in the Chinese market having 2.6 million simultaneous users right now, games are a massive part of their line-up. But the company also has the top instant messaging service in China right now, thanks to the 105 million user penguin-based QQ system.
The firm also has a top free email service, a massive web portal at QQ.com, and even a search engine - making them an overall giant in the business. Since the majority of the revenue for Tencent comes from the regular users -- and internet growth is rampant in China -- the firm is seeing gigantic growth rates. It's now extended its lead over former market leader Shanda and has become the top video game company in China by revenue, with over $600 million in the first quarter of 2010.
Wang cited Nexon's Dungeon Fighter Online, which is operated by Tencent and has 2.2 million simultaneous users in China, as well as CrossFire, another Korean license operated by Tencent in China (the shooter which now has 2.3 million simultaneous users in the territory) as well as a host of internally developed casual and other titles.
Overall, cross-marketing from all of Tencent's properties - whether it be IM, email, or portals -- seems to have catapulted the firm to the top of the pile in the Chinese market, and Wang concluded by noting that while they have some U.S. licensees and an American office, they are looking to expand further in the West.
Interestingly, in the Q&A, Wang singled out Blizzard's World Of Warcraft, commenting that although the title may have the highest quality of almost any on the China market, it's "not in the top 5 revenue-producing games", purely because it's not microtransaction-based. (Even in China, you can only play it hourly.) He indicated that, when you allow players to spend a great deal of money via microtransactions, the most core players will end up majorly increasing your revenue.