The Chinese company Tencent, the firm behind League of Legends (LoL), generated 11 billion US dollars in revenue in the last quarter. Tencent is thus 7 times larger than the western gaming publisher Activision Blizzard (WoW, Overwatch, Call of Duty, Destiny). How does the company manage this?
What are these numbers? The Chinese tech giant Tencent has disclosed its numbers for Q2 2018. The figures are impressive:
- The revenue amounts to 11.135 billion US dollars, an increase of 30% compared to Q2 2017.
- The profit stands at 2.808 billion dollars.
- It has also managed to further increase user engagement, according to a statement.
For comparison: Activision Blizzard is one of the largest western gaming companies. They published games like Overwatch, World of Warcraft, Call of Duty, or Destiny 2.
Activision Blizzard achieved a revenue of 1.64 billion US dollars during the same period. Therefore, Tencent is 7 times larger than Activision Blizzard in terms of revenue.
Tencent was once “China’s answer to AOL”
How does Tencent do this? Tencent is known for utilizing “western concepts” and offering them in the closed Chinese market, where there is little competition.
The founder of Tencent, Huateng “Pony Ma” Ma, is considered to be the “King of Copycats.”
He has early on offered successful services from western companies in a Chinese version. Tencent became known as “China’s answer to AOL.” This concept has driven Tencent to new heights in recent years.
Everything is connected, no escape
Currently, Tencent’s offerings have become a microcosm of individual services that interconnect. From a western perspective, it’s as if Google, Facebook, Steam, Twitch, PayPal, and Activision are working together:
- Tencent has social platforms like WeChat, Qzone, or Weixin
- a messenger service QQ
- its own search engine “Soso”
- news feeds like QQ KanDian
- with WeGame as an alternative to Steam
- also its own version of the streaming service Twitch
- financial services similar to PayPal
- and an online advertising business as well
Since the Chinese market is vast, many of these services have large user numbers.
Mobile and apps are king
Closed system: All this leads to a kind of closed system into which Tencent integrates its own games.
Through its social media channels, Tencent can push its games. Honor of Kings is for example integrated into the popular Messenger app “We Chat.” Users can see when someone nearby is playing and can start a new match.
On the platforms, they also display ads from other companies through their own advertising business and players pay through their own payment app.
The concept works so well because so many Chinese people today own a smartphone. In 2016, China had 503 million mobile gamers, and by 2021 that number is expected to rise to 699 million. 95% of internet usage in China is mobile (via NPR).
Also, due to Tencent’s strong penetration of Chinese society through social media (via npr), they have large user numbers that continue to grow. And they spend their money from the Chinese market wisely.
What games are popular in China? The most popular mobile game in China and the most lucrative mobile game in the world is Honor of Kings. This has even made anti-addiction measures by the Chinese government necessary. The Communist Party believed that the youth of the country had become too addicted to the game.
Tencent developed this “mobile LoL” after Riot itself refused to release a mobile version of LoL.
Other popular mobile games include QQ Speed and PUBG Mobile. But PC games like League of Legends are still popular in China.
Tencent – powerful, rich, clever
Cleverly acquired in the West: Tencent uses the money from the Chinese market to acquire shares in successful gaming companies in the West.
For instance, Tencent owns Riot Games, the makers of LoL. Additionally, Tencent has a large stake in Epic, the developers of Fortnite. Here they are planning the China release of the shooter soon.
Western publishers seek proximity: Companies like Ubisoft, wishing to enter the Chinese market, are also striving for a partnership with Tencent. To them, Tencent is important for accessing the Chinese market. Furthermore, Tencent is known for granting a lot of freedom to the companies they acquire.
When Ubisoft faced a potential takeover by the French conglomerate Vivendi in March 2018, Tencent stepped in and bought shares (via Bloomberg).
Difficult situation: Without political contacts in China, it can be challenging for foreign companies to do business there. When the South Koreans from Bluehole wanted to bring their hit game PUBG to China, it suddenly came from government circles that battle royale did not match socialist values.
And this is despite the fact that some Chinese companies are already developing battle royale games.
When Bluehole entered a distribution partnership with Tencent, these concerns disappeared. Tencent is said to have excellent political contacts.
Plans for the future: Stronger in the West
What is Tencent’s focus for the future?
- Tencent wants to further develop the “Mini Programs,” special apps, to offer even more functions. This sounds like they want to strengthen their own microcosm.
- Tencent aims to bind customers even more tightly to their social networks and to increase the time consumers spend with their services.
- The company also intends to invest more in streaming, as well as in payment and cloud services. They see opportunities for large profits here and want to invest “aggressively.”
- And Tencent plans to bring some of the popular mobile games more strongly to the West, mainly thinking of PUBG Mobile, Arena of Valor, and mobile RPGs.
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