In the Bill Graham Civic Auditorium, on an unseasonably sunny September day in San Francisco, Tim Cook told the world that “iOS 10 is the world’s most advanced operating system.”
That may be true for Westerners who are Apple aficionados. But from a broader global perspective, Apple’s latest innovations to iOS – from ReplayKit Live, where you can stream your mobile game sessions, to the “secret browser,” where you access apps inside iMessage (along with stickers and confetti), to Maps, where you can find your parked car – merely follow in the footsteps of Tencent’s WeChat, a Chinese social network, marketplace, messaging app, and OS – all rolled into one.
Nowhere is WeChat’s dominance over Apple more obvious than in how WeChat and Tencent, WeChat’s holding company, figure into the mobile gaming market. And yet, Tencent and Apple exemplify the interconnected and evolving roles Western and Eastern mobile gaming companies often have with one another. Sometimes they play strategic partners, sometimes they act as dueling technology platforms.
Right before Tim Cook announced that “Super Mario Run” is coming to iOS, and legendary game designer Shigeru Miyamoto joined him onstage, Cook noted that the App Store hosts over 500,000 mobile games. That means gaming is easily the App Store’s top app genre.
And for the first time ever, mobile games have a larger market share than PC games, according to The Global Games Market Report. From the U.S., to Europe, to APAC countries, the $36.9 billion mobile gaming market is up 21.3 percent globally, raking in 85 percent of all app revenue worldwide. In fact, APAC leads the industry, generating nearly half of all global revenue, and a nearly a quarter of that is from China alone.
It’s largely due to the mega-tech companies in APAC countries. Today, China’s Tencent competes as not only a mobile game developer, but also as the dominant platform, OS and distribution channel for some of the most interactive, social, and immersive mobile games in the world.
Despite the many partnerships Apple announced with its latest OS, nowhere during the keynote did CEO Tim Cook recognize Pony Ma’s eminent company. Though, this does make sense.
Tencent and Apple could be seen as rivals, since iOS 10 is in many ways copying the functionalities of Tencent’s prized subsidiary, WeChat. And what looks like The Next Big Thing from Apple is, in fact, what many Chinese users have had in some form since WeChat launched in 2011.
Leveling the playing field
Apple’s latest operating system is acting as a launchpad for more immersive mobile games in the West, helping mobile game developers compete on the global stage.
As Apple seeks to deepen their relationship with the mobile gaming community, iOS 10’s newest feature for players is ReplayKit Live, which enables gamers to broadcast, share, and edit mobile game sessions. While there have already been alternatives like this on the market, especially in APAC regions, ReplayKit Live creates a seamless iOS experience in the hopes of building more loyalty around mobile gaming content – a priority for all game developers.
One gaming studio in particular, Glu Mobile, has envisioned a more immersive and interactive mobile games world for some time. After launching blockbuster games like “Kim Kardashian: Hollywood” and other celebrity titles, CEO and Chairman of Glu Mobile, Niccolo de Masi, predicted that “the worlds of entertainment, celebrity, and mobile gaming are converging.”
Now, with ReplayKit Live, players of “Kim Kardashian: Hollywood” can broadcast and record their sessions, navigating the highs and lows of celebrity life, all while fellow players and viewers follow along, like any episodic or narrative form of entertainment. Players can go beyond the person-to-screen experience and build larger, online communities. For apps available on the App Store, iOS 10 is playing a pivotal role in transforming the West’s mobile gaming market into a more interactive and immersive category.
However, recent innovations to make iOS games more social and experiential won’t be the only cause for the inevitable uptick in the global gaming market. International powerhouses in mobile gaming are partnering as a means to enter new markets and carve out a place for mobile gaming as a major form of entertainment.
As if playing a game of chess, Niccolo de Masi is thinking strategically about the state of the industry, how legacy practices are changing – in the West and in the East – and how one player, in particular, is dominating the board: Tencent.
Tencent’s long shadow
“As a global leader in personal computer and mobile games, Tencent has a two hundred billion dollar market cap. And back in late June, they bought Supercell, the Finnish mobile games development company, for $8.6 billion,” Niccolo says.
For many of those in the West, Tencent may not be all that familiar. With massive subsidiary companies across media, entertainment, internet, and mobile, Tencent is a tech superpower in the East, casting a long shadow on some of the West’s most influential giants like Facebook, Apple, Google, and Amazon.
“Tencent is hands down the biggest gaming company in the world,” says Niccolo. The CEO who helped orchestrate the “Kimpact” doesn’t say this with envy, however. Tencent’s success is crucial to Glu Mobile’s success; the company also owns 20% of Glu Mobile, along with other mobile games studios like Miniclip and Pocket Gems.
“As our biggest shareholder, we view Tencent as a partner and not a competitor,” Niccolo continues. For Western studios like Glu Mobile, partnerships with Asian companies are critical to have if one wishes to enter into APAC markets.
As reported in the gaming press, APAC continues to dominate the worldwide gaming market, accounting for 47% of all mobile games sold. China alone is responsible for one-quarter of all global gaming revenues. Niccolo attributes China’s dominance in the mobile gaming market almost entirely to WeChat, known as the “everything app”, with its 762 million monthly active users. WeChat is Tencent’s not-so-secret weapon in its mobile games arsenal, as the largest and most powerful distribution platform in the world.
“In the U.S., we don’t have the same type of distribution power as Tencent. Nobody does,” Niccolo says. “That’s the obvious and missing ingredient for mobile games in the West; games don’t have any power outside of the Apple and Google ecosystems.
“In the U.S., you’ll see how there are more ‘pure play’ business models. This means a company invests its resources in only one line of business, like mobile games available on the App Store or Google Play Store,” Niccolo explains. “This is also why you don’t see companies like Facebook, Unity, or Yahoo are getting into buying gaming companies. In China or Asia, Tencent or other gaming companies would use messaging apps and social networks as added distribution channels.”
And as Tencent goes to show, ‘pure play’ is fast becoming a thing of the past. The mobile gaming market with the most powerful and diversified distribution model is the one that will lead the globe.
To stay competitive, mobile gaming studios must look beyond their own borders and invest in companies that have exposure to different markets and different distribution channels. To do otherwise is to ignore how global (and lucrative) mobile gaming is.
The markets that matter
Mergers, in the traditional sense, aren’t typical for the mobile gaming market. Partnerships and investments are the new norm. “Korea, Japan, the U.S., and China are the four mobile gaming markets that matter,” says Niccolo. “You can ship a game that can make a billion dollars of revenue in any one of those four markets.” But until recently, mobile gaming companies stuck to their own regions.
In fact, “Super Mario Run”, made by Japanese gaming companies Nintendo and DeNA, is exclusive to Apple iOS. The competitive strategy behind this exclusive release is one of the many examples of Apple partnering with technology companies across the world to create exclusive features and content to drive adoption and sales.
Partnerships seem to be more advantageous than complete mergers, Niccolo says. “People are generally afraid to bet their careers on merging with someone six thousand miles away in a different culture and language, which is why you haven’t seen as many cross-world deals happening as much.” When the industry does witness a major acquisition, it sends a message.
When Tencent acquired competitor Supercell, the Finnish maker of “Clash of Clans,” the Chinese holding company made it clear to the mobile gaming market that it had the financial and technological firepower to take on some of the premier European mobile publishers. By acquiring a gaming company in an entirely different market, Tencent was able to annex and profit off of the competition’s well-established brand, creative, and technological assets. This purchase also highlighted how the traditionally APAC market powerhouse is staged to take over markets in the Western Hemisphere, through a blend of acquisitions and partnerships.
“In the next five years or so, you’re going to see a lot of these, what I call, ‘Renault–Nissan’ deals,” Niccolo says. In 1999, France’s Renault and Japan’s Nissan, two automobile manufacturers, decided to create a partnership as a strategy to sell more than nine major brands in several different markets: Nissan, Renault, Infiniti, Renault Samsung Motors, Dacia, Datsun, Venucia, Lada, and Mitsubishi Motors. Modeled after such alliances, mobile gaming partnerships are following suit as a way to infiltrate new markets (and operating systems).
“Each company owns 20 percent of each other. They share chassis [infrastructure], they share technology, but they do their own marketing, branding, and bring their own games and titles to the market. Through my eyes, collaborations and partnerships are the future of the global gaming industry.”
And despite the Chinese tech company at the top of the leader board, Tencent is still inspired by its partners, like Glu Mobile, when it comes to mobile gaming content.
East meets West
From narrative roleplaying to racing games (ahem, “Super Mario Run”), a big part of knowing what types of mobile games to build is learning which genres are en vogue and rising to the top of the charts.
“Tencent is aggressive about taking a top-down approach when they think a genre is growing,” Niccolo tells me. “And if it is growing, they will pursue it with multiple shots on a goal at the same time. We share that strategy at Glu Mobile, although we don’t have the resources they do. “For example, Tencent has seven or eight thousand people in their internal studio, so when they go after a category, they’ll put five or six teams on it.”
In comparison, Glu Mobile “aggressively” pursues a category in a different way: by testing a thesis with a big bet. Before investing too many resources into a new genre, like celebrity mobile games, Niccolo tested the hypothesis that “living intellectual property,” like celebrity brands, versus “static IP,” like “Angry Birds” or “Super Mario Run,” builds a far more loyal, social, and growing following with higher lifetime values.
After white-labeling Glu’s popular celebrity apps, “Stardom: Hollywood”, Niccolo partnered with one of today’s most notorious celebrities, Kim Kardashian, to personalize Glu’s app to her character and storyline. Launching “Kim Kardashian: Hollywood” with record-breaking downloads was all the proof Niccolo needed that the celebrity narrative roleplaying game was a category Glu Mobile could own and dominate. Since then, Glu Mobile has launched “Katy Perry Pop”, Britney Spears’ “American Dream”, and greatly anticipated games from Nicki Minaj and Taylor Swift.
“Tencent and Glu share a number of things in common with the way that they approach game development,” Niccolo says. “We have multiple studios. They have multiple studios. Oftentimes, our content is inspired by each other.” What Tencent and Glu Mobile also have in common is their strategy of buying out companies as a means to grow their own portfolio of games, when necessary. Just as Tencent acquired Supercell, Glu Mobile seeks to acquire smaller, independent mobile studios.
“We’ve been able to derive a lot of value out of acquisitions and running mini-turnarounds,” says Niccolo. “PlayFirst is a good example that we bought two years ago. They ran out of cash. We paid $15 million in stock for their business. Now, it’s making many times that per year in revenue. We’re very happy with that trajectory,” he notes nonchalantly.
While Niccolo is leading a relatively new mobile games trend – investing in celebrity brands as a driver for higher lifetime user value – he recognizes how Pony Ma’s company will probably always lead the industry pack.
“Tencent has a much more integrated approach to traditional entertainment and distribution,” says Niccolo, “And no doubt that Tencent leads us and many companies in the West on how social their games are and how deep the monetization systems are.”
Knowing this, comparing a studio like Glu Mobile to a powerhouse like Tencent is a bit unfair. Apple is a far more apt comparison to Tencent, considering its vertical integration as both a game developer and a distribution channel.
While Apple partners with other gaming studios to launch exclusive content on the App Store (and takes 30 percent of all in-app purchases from game developers), the Western juggernaut doesn’t have the same sort of influence as Tencent does in mobile gaming’s end-to-end process, from conception to go-to-market.
But the story of Tencent is not just about the mobile game titles they create and publish, but how this mega-technology company owns, controls, and profits from its massive distribution channel. Apple’s crowded App Store can’t compare to the social and distribution potential of WeChat, which is the lifeblood of China’s mobile culture.
“While seemingly just a messaging app,” writes Connie Chan, Partner at a16z, “WeChat is actually more of a portal, a platform, and even a mobile operating system depending on how you look at it.”
As a highly connected ecosystem, for web and mobile, WeChat is hosted on more than six types of devices, allowing users to do anything from playing and recording mobile game sessions, to making in-store payments with QR codes, to applying for a mortgage, to streaming the Olympics on any mobile phone.
And unlike the infamous “Apple tax,” taking 30 percent of in-app purchases, Tencent only takes 0.1 percent of each transaction on WeChat Payment, totaling $46 billion dollars in January 2016 alone, Reuters reported. This figure didn’t even include transactions for other services like paying for taxis and restaurants, or online media, like games and music. Tencent’s cheaper transaction rate and highly social distribution model is reason alone for game developers to shift their market to APAC.
But with Apple’s recent announcements, iOS 10 highlights how Apple is catching up in the mobile gaming race, more than leading it. In fact, China may even find Apple’s latest operating system to be redundant or even a lesser version of what they already had in WeChat. Maybe being second place to Tencent is just what will inspire Apple to push through this coming age of mobile innovation.