“Welcome to this super cute game!
Protect the carrots from monsters!”
This is the lead of the second edition of the Chinese mobile game Carrot Fantasy II: Ice World. As cheesy as it sounds, this tower defense game is making big waves in China with its fun journey of tower discovery and carrots with special abilities. The game registered more than 200,000 downloads on each of the first two days of its launch and more than 1 million in the first week, according to figures from China’s independent Android app store and mobile search engine Wandoujia’s App Index.
But making it to the top of charts is not the best measure of a mobile game’s success in China’s free-to-download mobile internet ecosystem, where users play for free but have to pay for upgrades and premium content. “The freemium model has a lot to do in terms of how to create good content with in-app purchases and engaging users over a period of time. This is what everyone is trying to figure out,” explains Tyler Cotton, lead author of Wandoujia’s China App Index.
Online games have huge strategic value for internet companies in China as one of their major revenue sources. It’s one of the largest markets in the world with over 490 million users and worth RMB 83 billion ($13.7 billion) in revenues.
“Games are an important part of the internet economy because entertainment is the best way to make money,” says Will Tao, Analysis Director at iResearch. Due to its universal content, online games are powerful drivers of internet traffic. They have the potential of bringing in new users, enlarging the user base and fostering interaction between users.
A case in point is Tencent Holdings, China’s largest internet company by revenue, which recently incorporated mobile games into its social messaging mobile app WeChat (known as Weixin within China) as a strategy to monetize its 355 million monthly active users. “WeChat is a whole new distribution channel that is social in nature,” says Zhang Kaifu, Assistant Professor of Marketing at the Cheung Kong Graduate School of Business (CKGSB). It’s able to create the same model of internet traffic that attracted game developers when Facebook opened to mobile gaming.
WeChat enjoys an advantageous position as a subsidiary of Tencent Games, China’s largest online game community and a global game developer and operator. Barclays estimates that in the year 2014 WeChat will bring Tencent RMB 2.95 billion in revenues, with mobile games expected to make up 73% of that.
Alibaba Group, China’s leading e-commerce platform, also announced the launch of a mobile gaming platform as part of their broader strategy to push into the mobile sector. “Online gaming is [a] service with the highest stickiness. And if you get more users, there’s a better chance you can offer more services,” explains Tao.
From PC to Mobile: A New Online Gaming Era
China’s mobile games market, though very fragmented, is considered one of the fastest growing in the world, with an expected 100% growth of RMB 17.85 billion ($2.8 billion) this year alone. It’s quickly stealing market share from traditional PCs as users shift to smartphones and tablets to discover new and engaging content. Nearly 460 million people (75% of the country’s netizens) are going online through mobile devices instead of desktop computers, according to figures from iResearch.
The growing popularity of app stores facilitated this transition four years ago. According to iResearch’s 2011-2012 China’s Mobile Gaming Report, app stores have changed the entire structure of the mobile gaming industry. They’ve made the industry more open as they provide developers with critical services like a distribution channel and payment tools.
“It’s good for us because as game developers we don’t necessarily want to run all these supporting services, it’s not our core competence. Our core competence is making fun and innovative games,” says entertainment entrepreneur and CEO of Argine Consulting Alexander Rivan Ronalds.
Creating engaging content remains the major challenge. “With app stores we can all publish our games and be out there. The challenge is creating products for mobile that we are able to monetize,” he adds.
Attracted by the size and quality of Tencent’s user base the UK-based King Digital Entertainment picked WeChat as the distribution platform for the Chinese version of its popular mobile game Candy Crush Saga. “Tencent has the largest mobile social network in China and is a great partner to work with. I look forward to working together to make Candy Crush Saga as popular in China as in the rest of the world,” King Digital Entertainment CEO, Ricardo Zacconi, said in an official statement. It’s a win-win: the international popularity of Candy Crush might boost Tencent’s position as the main integrated mobile services platform, increase market share and help it stay ahead of Alibaba.
[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]