Games Drive Mobile Apps
A new media report is underscoring the importance of games for the future of China’s mobile app developers, who are desperately looking for ways to monetize the big sums of money they spend developing such applications. Social networking sites Sina (Nasdaq: SINA) Weibo, Tencent (HKEx: 700) and Renren (NYSE: RENN) are all good examples of companies that have quickly built up communities of tens and even hundreds of millions of users by developing popular desktop and mobile apps. But earning money from those huge communities has proven much more difficult, as all of these companies are quickly discovering. In that environment, games have emerged as one of the few things that users of these popular apps are actually willing to pay for.Let’s take a closer look at the latest news, which has Chinese media quoting a China Mobile (HKEx: 941; NYSE: CHL) official talking about the popularity of mobile gaming. The official says that mobile games now account for about a quarter of the downloads from China Mobile’s app store. (English article) But China Mobile’s app store actually earns 88 percent of its revenue from mobile game downloads, he’s quick to add. He also says that up to 30 percent of mobile app users are willing to pay for their downloads, a relatively high figure compared to other kinds of apps.
That tells us that mobile gamers are paying a disproportionately large share of mobile app revenue compared to their overall numbers in the mobile community. It also appears to indicate that many of the apps now being downloaded are free and have little or no revenue earnings potential. I have to admit that I personally am also guilty of this preference for free apps, as the few such apps that I have on my cellphone are all free.
Sina, Tencent and Renren all seem to have discovered this reality about gamers, namely that they are one of the few groups willing to pay for not only their apps but also online time spent playing games. All 3 companies are making aggressive moves to develop the area, and I wouldn’t be surprised to see others like online search leader Baidu (Nasdaq: BIDU) and e-commerce giants Alibaba and Jingdong follow with similarly aggressive campaigns as they seek to boost their mobile business.
Tencent has already leveraged its popular QQ instant messaging platform to become China’s largest online game operator, and is now trying to do the same thing with its fast-rising WeChat mobile instant messaging service. Sina is also trying to boost mobile game playing on its Twitter-like Weibo platform. Meantime, Renren, which began its life as a Chinese equivalent of Facebook (Nasdaq: FB), is rapidly morphing into a specialist in online games, which now account for about half of its revenue.
Interestingly, one group that seems a bit slower to embrace the mobile gaming trend is traditional online game companies like Shanda Games (Nasdaq: GAME) and NetEase (Nasdaq: NTES). Perhaps that’s because many of these companies depend on big gaming titles licensed from third-party developers, meaning they may not have access to mobile versions of those titles. If that’s the case, then these companies could face a difficult future as many non-traditional gaming companies with better resources crowd into the space.
At the end of the day, we can probably expect very mixed results from what’s likely to become a major rush into mobile games. Tencent looks like the best bet to succeed with WeChat, based on its previous success in bringing online games to QQ. Renren also looks like a good bet based on its early success in developing its gaming business.
Baidu and Alibaba certainly have the size and resources to develop the business, though neither has shown much success so far in developing areas so far removed from their core products. When the dust finally settles, I do expect we’ll also see some big new names emerge in the space, along with a few casualties from the traditional online game operators who lack the resources to compete with much bigger rivals.
Bottom line: Mobile games are likely to grow quickly in China in the next 3 years, drawing many of top Internet names as smaller game operators get crowded out.
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