GAMES: Tencent Takes Gaming Act Abroad

Bottom line: Tencent’s WeGame could stand a 50-50 chance of success in moving abroad, since the company already has a proven track record in games and will face relatively low privacy protection concerns due to the less-sensitive nature of gaming.

Despite their huge success at home, none of China’s big Internet companies has ever scored a major victory outside its home market, despite a number of low-profile attempts. Social networking giant Tencent (HKEx: 700) is about to become the latest to take a stab at the market, with word that the company will soon launch an international edition of its gaming platform called WeGame.

There are a number of reasons why Chinese Internet companies have yet to really crack any major foreign markets, underscoring the uphill battle Tencent will face. The largest is probably well-established competition in most places, both from local players as well as global giants like Amazon (Nasdaq: AMZN) and Google (Nasdaq: GOOG). The second biggest element is probably trust, since many foreigners are a bit suspicious of these Chinese companies and their ability to protect customer privacy.

A third element is these companies’ lack of experience overseas, which sometimes translates to their acting in ways that might be ok at home but are unacceptable international practice. Finally, there’s the often-overlooked fact that these companies operate in a unique home environment that is at once quite competitive but at the same time quite protected from outsiders. That means these companies don’t really know how to compete in a global environment, which can hurt them when they try to go abroad.

All that said, let’s look at the latest headlines that cite a post on Tencent’s Twitter account saying the company’s “WeGame international addition will come soon.” (Chinese article) Another report says the plan is to roll out WeGame in Hong Kong first, and then gradually take it global from there, a common strategy for Chinese service companies looking to go global. (English article)

Tencent, easily China’s leading game company, launched the original Chinese version of WeGame last September, and the platform now has about 220 titles. That’s a fraction of the 20,000 titles available on leading global platform operator Steam, which also apparently has a large fan base in China and is planning a launch of its own China site at a date that has yet to be announced.

Getting Ready

Tencent has certainly been positioning itself for this kind of move for a while by buying up mostly small stakes in lots of major game developers, which could theoretically give it preferred access to many of their titles.  One of the most recent of those saw it purchase 5 percent of European gaming giant Ubisoft (Paris: UBI), but it also owns a stake in US giant Activision (Nasdaq: ATVI) and quite a few others.

So the question becomes: Will Tencent succeed in this latest initiative where others have failed? I’ve already given the many reasons why the odds could be against it, and should also quickly note one of Tencent’s own recent failures at a major campaign to push its popular WeChat service in the US.  That campaign came in 2014, and saw Tencent spend millions of dollars trying to convince young Americans to use WeChat, which has become the preferred mode of communication for many in China these days.

That campaign failed for many of the reasons I’ve mentioned above, and I do think the trust element was probably high among those. In addition, many people in the US use functions from apps like WhatsApp to do similar things, and there was also the chicken-and-egg issue of there not being a large enough user base for people to take the trouble to try out the app because none of their friends used it.

WeGame shouldn’t have as big an issue with user base, since it’s not really the same kind of communication tool as WeChat. What’s more, Tencent does have quite a few titles and access to many more, and is a proven leader at creating good gaming products.

It also has the luxury of time, since there’s far less rush to make this product work overnight. There’s not much you can do about the trust factor, though that’s probably less of an issue here since gaming doesn’t require you to give lots of personal information. When you look at all of those things, I would give this WeGame push a 50-50 chance of success, which is probably higher odds than I’ve given for any Chinese Internet company going abroad to date.