The video game industry is not as lucrative as many think. It is highly competitive, and to survive this gruelling competition, game developers need to emphasize on making their product unique and appealing to their target markets. But there are certain developers who have found the knack to survive this cutthroat competition before rising into fame. Tencent or Tencent Holdings Limited is an epitome of the same.
Founded in 1998, this Chinese Multinational Conglomerate has a market capitalization of US$540 billion, which is, in fact, bigger than Facebook. Their success didn’t come overnight. They continued to leverage the new technologies to roll out one of the best games in the industry. Tencent’s first stint with the video game industry was “QQ Speed”. QQ Speed was released in the year 2004 PC. The game quickly rose into fame and went on to become one of the most popular games in China. Unbeknownst to many, this was just the start of an empire.
It is TiMi Studios, a subsidiary of Tencent, that is handing Tencent a huge revenue from its video games. Since its inception, TiMi has released 17 games including the popular one QQ Speed. To understand how they grew from a small company to a tech giant that they have become, it is important to study their strategies and vision.
Understanding the dynamics of the marketplace
Many video game companies based out of China suffered from a lull when the government banned the sales of gaming consoles during the years of 2000 and 2015. However, Tencent and TiMi were smart enough to see this as an opportunity. They envisioned the substantial sales of PC Games and hence shifted making games for PC. The current VP of Tencent and President of TiMi studios, Colin Yao worked with a panel of developers to release QQ Speed in the year 2004, exclusively for PC. This online game ranked No.1 in domestic casual game portals as soon as it was released!
Early transition to mobile gaming
Just as how they prioritized PC gaming when Consoles were banned, Tencent(TiMi) was also the first company to see the potential behind Mobile gaming experience. When the smartphone ownership reached an all-time high in China, TiMi released their flagship game Honor of Kings, in 2015. This move has a major share of the company’s market capitalization to grow with a five-year compound annual growth rate of 40%. Consequently putting the company into the league of the top ten most valuable listed companies in the world in April 2017.
Wise software integrations
Tencent is known for its massive instant message servicing app WeChat. While Facebook couldn’t find a way to monetize from WhatsApp, Tencent was making millions from WeChat. The wise integration of WeChat and Honor of Kings helped in unlimited marketing. WeChat served as a distribution channel for Chinese consumers. This helped in increasing its active users. In 2017, Honor of Kings had around 200 million active users, MONTHLY. In just 2018, the game made $2 Billion in profits.
While the company that Tencent beat to claim the spot of a most valuable social networking company, Facebook, was generating 98% of its total revenue from advertising, Tencent’s revenue from advertising is just 18%. The monetization strategy of Tencent is different from their Western counterparts. Facebook works by first creating a product, and later on seeking an audience. But Tencent first builds a distribution platform before moving on to monetize its diverse applications. An example would be using WeChat as a game centre. If it wasn’t for WeChat, Honor of Kings wouldn’t have received a reception of this magnitude. Their main source of income is value-added services(more than 70% of its total revenue).
The domestic market
China is the biggest country in terms of population. So, Tencent solved domestic challenges to cater to their audience while banking on global opportunities. Their market presence is a result of logical decisions made at the right time. Just like they made PC games during the ban, the TiMi studios also found that simplicity and short games were the keys to mass appeal in China. This resulted in the success of the Honor of Kings. Also, they adhere to the strict guidelines imposed by the Chinese government. They’ve been producing more patriotic and controlled games for the home market while gaining global attention through smartphone games. This decision came after the Chinese government accused Tencent and their game, Honor of Kings games, of being addictive.
Entering the global market
Following the accusations on their game, Honor of Kings, Tencent is planning on releasing the game under the name of “Arena of Valor” in Europe, North, and South America. However, this is not their initial entry to the global market. Tencent’s entry to the global market is a classic example of market research. The company started buying stakes in overseas gaming companies in 2015. They also made large acquisitions of global gaming developers to increase their gaming revenue to $10 Billion in one year! Currently, Tencent is the world’s largest online gaming company.
Liaison for non-Chinese game developers
This is the most talked-about topic within Tencent’s success. The overseas gaming companies find Tencent as a liaison to access the video game industry in China. For instance, the popular action franchise, “Call of Duty” is published by an American company, Activision. For bringing this game to China, Activision sought partnership with Tencent. Not just Activision, companies such as EA, Sony, and Ubisoft rely on Tencent for their Chinese release. Rumours are that Nintendo is collaborating with Tencent to bring “Switch” to China. If that happens, Tencent’s lucrative revenue can see a further surge!
Diversity in operations & a dedicated R&D wing
The reason why Tencent was able to best many other companies is because of this diversity in operations. They are not a standalone gaming developer. They have larger footprints within the industry. Tencent has experimented with everything from Movies to Technology. It was Tencent who produced “Men in Black: International”, and they have a huge release in the form of “Top Gun: Maverick” in the coming years. WeChat is actually the face of Tencent with over 1 billion users. The company also invests in music, e-commerce, and comic books. Hence the gaming sector of Tencent, TiMi can bank on riskier bets. Also, TiMi will have a huge R&D backup from Tencent. This allows them to innovate their existing games or devise a new franchise, altogether!