Zeng Hang
The long-anticipated commercialization of Tencent's WeChat has finally begun.
On the morning of August 5, Tencent officially released the updated version 5.0 of WeChat, quickly making it the hottest topic of the day.
WeChat version 5.0 underwent significant updates compared to its previous versions, including the launch of a new game center, the addition of payment functionality, folding subscribed public accounts, adding street view scanning, and English word translation functions.
These major updates indicate that WeChat, with its 400 million users, is formally stepping into commercialization, first through games and paid stickers. Given WeChat’s crucial role in China's mobile internet landscape, its moves will significantly impact the monetization of the entire Chinese mobile internet industry.
By the time this article was published, WeChat had rapidly entered the top 10 of Apple's App Store revenue list, while the game "Everyday Puzzle" launched by WeChat quickly became the number one ranked game on the App Store.
What kind of achievements will Tencent make in mobile gaming with the massive user base of WeChat?
How large is the scale of WeChat games?
The biggest change in WeChat version 5.0 is the launch of the long-rumored game center. Two casual games were initially launched with version 5.0: "Classic Airplane Battle" and "Everyday Puzzle".
"Classic Airplane Battle" can be played directly without downloading. Users can see their rankings among friends and also receive help from friends within the game. Liu Yong, CEO of Hot Cool Games, pointed out that after analysis, this game should be embedded within WeChat rather than using HTML5 technology to redirect to an external webpage.
The other game, "Everyday Puzzle," developed by Tencent itself, requires separate downloading. This game quickly rose to the top position on Apple's App Store ranking shortly after the release of WeChat version 5.0.
"It feels like casual games will definitely be dominated by Tencent in the future, just like Line in Japan," said Zhang Xiaolei, head of D2C's China gaming business who has been working in mobile gaming in Japan for many years.
Line is often referred to as the Japanese version of WeChat. Its financial report shows that Line's revenue for the first quarter of this year was approximately $58.9 million, with game revenue accounting for 50% of total revenue. Currently, there are 23 games being operated on Line, and any game launched by Line can quickly rise to a very high position on the App Store ranking in Japan. KakaoTalk launched its gaming platform in July last year, and within about a year, its game platform revenue reached $311 million in the first half of this year.
Based on the experience of the Japanese and South Korean markets, WeChat's formal start of commercialization will greatly drive the development of China's mobile gaming industry.
The scale of China's mobile gaming market was around 5 billion yuan in 2012, with 4 billion coming from feature phone markets. With 400 million users joining via WeChat, the user base of China's mobile gaming industry will double.
In a research report, GF Securities pointed out, "Through analyzing the income scale, user scale, and ARPU value of KAKAO's gaming platform, we judge that WeChat's gaming platform income scale could reach 20 billion yuan within 2~3 years, and the long-term income scale could reach 40 billion yuan or even higher."
Social games may make a comeback
"WeChat will definitely popularize nationwide games like 'Fishing Joy' and 'Find Your Sister'. It will bring more people who don't play games into the gaming industry, which is a good thing for the entire industry," said Zhang Xiaolei.
Liu Yong, who has worked in social games for many years, pointed out that light social games that were once extremely popular on PCs might have another chance to shine on WeChat. "The types of social games that were once popular on Facebook could all become popular again on WeChat," Liu Yong stated, because mobile games have smoother payment channels and a larger user base.
Casual social games represented by "Happy Farm" were once extremely popular in China. Tencent's open platform on PC was the largest platform for social games, where a large number of social games such as "QQ Farm" and "Skyscraper" became popular, making a group of social game companies famous. However, social games then began to decline rapidly in China.
Wang Yue, CEO of恺英Network, which was once the largest social game vendor on Tencent's PC open platform, pointed out that the company has now started to transition to web games because the cost of acquiring individual users for social games has become increasingly high, but the output per individual user is very low.
Will games on WeChat repeat the curve of PC social games?
"The first wave of games on WeChat will be quite popular, and breaking through a monthly revenue of ten million US dollars shouldn't be a problem, but games that come later might face difficulties," said Wang Yue, CEO of恺英Network. Based on the trend of PC social games, subsequent games on WeChat may face issues of lacking momentum.
A major reason why social games like vegetable stealing, fish farming, and finding parking spaces declined quickly is that when the number of games increased, users were split. The greatest fun of these social games is playing with friends. When everyone is stealing vegetables, it feels interesting; but when there are 100 games, the number of friends playing the same game at the same time decreases significantly, leading to the decline of the entire social gaming market.
Judging from this perspective, the number of games WeChat can accommodate is likely limited. Liu Yong pointed out that another factor to pay attention to is the lifecycle of games on WeChat. Generally speaking, the stronger the social aspect of a game, the shorter its lifecycle. If the lifecycle of games on WeChat is generally short, then the number of games WeChat can accommodate is very limited. Game developers need to improve game quality to extend the lifecycle of games on WeChat.
Strict conditions for accessing WeChat
Before the release of WeChat version 5.0, the capital market had already speculated on stocks related to the concept of WeChat games for a long time. So, how much benefit can the launch of the WeChat gaming platform bring to third-party game companies?
A senior executive from a game company that had discussed WeChat game cooperation with Tencent pointed out that currently, the cooperation terms offered by Tencent to game companies are very strict: "They (Tencent) currently require S-level products, exclusivity, no copyright fees, and no commitment to any promotional conditions, which lacks appeal to us."
All games that want to go on WeChat are required by Tencent to be exclusively distributed. This means the games can only be downloaded on WeChat and the App Store, not on other channels, meaning these games cannot be issued on platforms like 360 or 91.
Besides its own developed games, Tencent's first batch of online games are all cooperated with well-known foreign game manufacturers. However, some domestic game professionals pointed out that Tencent should strengthen cooperation with domestic game manufacturers, as foreign game companies often invest insufficiently in localized R&D, thus making the product launch schedule uncontrollable when cooperating with domestic manufacturers.
"As for when our game can go on WeChat, no one knows," said a senior executive from a game company that had discussed WeChat game cooperation with Tencent. Currently, the rules for cooperation between WeChat and third-party game companies are highly uncertain, and domestic game companies' games will not appear on WeChat until at least October.
Regarding the widely concerned revenue-sharing ratio, Tencent is currently negotiating individually with each company without detailed rule disclosure. On Tencent's open platform for PCs, Tencent and third-party game companies adopt a tiered revenue-sharing method, where game companies usually get only about 20% of the total income. The industry generally hopes that Tencent can increase the revenue-sharing ratio for developers in the mobile internet era.
The reason developers hope for a higher revenue-sharing ratio from Tencent is that Tencent's traffic advantage in the mobile internet era has been weakened. Tencent's competitor 360 is gaining momentum in mobile app distribution, and another giant Baidu recently acquired another major app store entry point, 91. How much impact the new type of mobile internet entry point like WeChat can have on already mature app stores still needs to be verified by data.