Tencent vs. Bytedance | Chinese Gaming Civil War
Amongst the Chinese tech companies in western discourse in recent months, only one has been able claim a serious stake in the global gaming industry - Tencent. It has dominated the global gaming market in subtle, yet ferociously effective, ways for years. However, the crown resting on Tencent’s head may be wobbling, not from a tech congomerate like Google or Amazon nor even western games publishers like Ubisoft or Activision Blizzard (which Tencent has minority equity stakes in by the way) but from a fellow Shenzhen based company - Bytedance. Let’s set the stage first with Tencent’s gaming arm.
Tencent Gaming
Tencent, which few in the west are familiar with, is the largest gaming company in the planet full stop across a number of dimensions. For the sake of brevity - let’s highlight just two: Revenue and Equity Ownership
Revenues
It’s global revenue in recent years stands firmly above not only it's publisher counterparts (i.e. EA, Nintendo, TakeTwo) but over the platform owners themselves, such as app store owners Apple and Google or consoles manufacturers Sony and Microsoft.
As an individual player within the gaming marketplace, they out earn the very firms that regulate and administer the marketplace. For example Apple takes 15% of all revenue stemming from in-game purchases/micro transactions)
Most of these revenue streams come primarily from In-App-Purchases (IAP’s) which allow players to spend real currency (USD,RMB, etc.) to purchase digital goods within a game that typically has no entry cost. Think of it like entering a club with no cover. You don’t have to spend money on drinks to enjoy yourself, but a lot of a clubs build their entire business on upselling you on those add-ons.
Additionally, Tencent can make money by presenting players with advertisements within the game environment itself. (i.e. Watch this ad for 30 seconds before we [Tencent] let you continue playing. The world of mobile game monetization is a beast in and of itself so if you’re curious about other methods check out this post by Andrea Knezovic!
Equity Ownership
Beyond its sheer revenue, Tencent holds minority and majority shares in many major companies that you may already be familiar with. These equity positions not only entitle Tencent to a portion of the companies entire valuation but bleeds into ancillary perks such as broadcast or streaming rights for games. If you’re curious about that - check out my other blog post on Tencent and their master plan for game streaming!
Many of these companies focus on mobile exclusively (i.e. Supercell) but many are cross platform like Epic Games, who owns Fortnite and Rocket League or Discord whose is a leader in VOIP communication for the gaming market. Needless to say it’s a very strong portfolio of gaming companies
Bytedance (Nuverse Gaming)
Odds are you know Bytedance, just not as Bytedance. You may know them by one of the apps they make - Tik Tok. Much like Tencent’s WeChat platform, Bytedance’s Tik Tok also carriers serious weight in the world of global social media, currently sitting at 689M MAU’s.
In February 2019, TikTok reached its first billion downloads. The app took just under eight months to gain half a billion more. These figures are nothing short of impressive, considering that the app was launched only as recently as 2016.
So what is Bytedance, a unicorn darling of Shenzhen’s booming tech sector, want to do with gaming? With chinese advertising slowing somewhat, and rival tech companies attempting to copy the secret sauce that launched Bytedance into stardom - they will need to diversify their lines of business if they want to stay competitive.
From reviewing its movements over the past few years - Its approach appears to be 3-pronged:
People | Hiring Spree
IP | Studio Acquisitions
Publishing Technology | Marketplace Ownership via Douyin + Tik Tok
People | Hiring Spree
Bytedance’s gaming arm really made itself now in March 2021 with a rebrand, now titling itself Nuverse Gaming giving itself a swanky new website and conducting a recruiting blitz on China’s top tech talent.
NVSGames.com - The humble yet determined start to dethrone the largest gaming company on the planet.
The company’s gaming headcount numbers nearly 3,000 today, up from only 1,000 last year. That’s the equivalent of hiring nearly 40 people every week for 52 straight weeks. These employees are scattered across China’s major tech hubs, from Beijing, Shanghai, Hangzhou to Shenzhen, working in various gaming studios under ByteDance.
How big is a 3,000-person team? 37 Interactive, the third-largest gaming firm in China, had around 4,000 gaming staff as of January, according to a company executive It took the company 10 years to reach this scale. ByteDance began exploring games only around five years ago. I guess it helps to have the most popular app on the planet.
This talent is far from cheap either. Tech Crunch’s Rita Liao from Techcrunch recently sat down with a Nuverse executive and mentioned the talent Nuverse is poaching from BAT firms (Baidu, Alibaba, Tencent):
“In recent years, ByteDance has hired a large number of ex-employees from the BAT (Baidu, Alibaba, Tencent).
While poaching and job-hopping are common in China’s fast-changing tech industry, ByteDance is known for doling out generous paychecks (30-50% increases) and many tech workers are lured by the prospects of receiving employee options before the firm goes public someday.”
IP | Studio Acquisitions
Beyond just bringing on talent organically via its hiring blitzkrieg. Nuverse has been acquiring a roster of heavy hitting game studios. Since 2018, ByteDance has invested in at least 11 gaming companies, six of which were full acquisitions.
Most recently is its acquisition of Shanghai based studio Moonton Technology for $4Bn which is most famous for its mobile game Mobile Legends and, funnily enough, was founded by an ex-Tencent Employee. To add insult to injudry. Tencent made a bidding for Moonton but the offer was matched by ByteDance just days before the deal closed.
Beyond just the sheer size of the acquisition, this deal means that Byte Dance can effectively comepte in the multiplayer online battle arena (MOBA) against Tencent’s Honor of Kings (#1 mobile game in china) and League of Legends. There may or may not have been some copyright suits against Moonton for taking “heavy inspiration” from League of Legends when designing Mobile Legends…see if you can spot the subtle differences below.
Also worth nothing this deal took place only in March 2021 - no surprise that Bytedance decided to go live with their Nuverse rebranding once this deal was closed. Bytedance is out for blood and happy to broadcast that Pony Ma (Tencent CEO) and his team any chanc
Publishing Technology | Marketplace Ownership via Douyin + Tik Tok
What good is smart people and strong IP if you don’t control the means of distributing your games? As we saw with Tencent above, despite not owning the app platforms their games are hosted on, it still somewhat beholden to them. It’s why Epic Games, a company Tencent has 40% ownership of, has been so adamant with Apple and Google to reduce their taxes.
That’s why Bytedance went ahead with trying to create its own marketplace, where they can reap full margin for In-App Purchases and dictate the publishing terms for their own games more effectively. Without the Moonton acquisition, Bytedance has struggled to find quality “Heavy Games” (being high usage/high user spend games). It’s why it’s focusing on developing a strong casual market in the form of a dedicated games marketplaces.
Beyond creating its own marketplace - Bytedance will have to leverage it’s Douyin platforms to convert video traffic into its game downloads. According to Founder Securities, Bytedance boasted 27% market share ($17.7bn) in the Chinese advertising market. Bytedance has proven that it can devise clever solutions for such a strategy by creating “mini-apps”. Much like Tencent’s WeChat platform, Bytedance’s Douyin allows for users to play lite versions of other games directly in the the Douyin environment. Leveraging technology like this will be key to activating the app’s ~700M MAU’s into Bytedance’s gaming realm.
What’s Next?
It’s tough to say with any certainty, but fresh off the immense global success of Tik Tok, Bytedance needs to diversify its business lines if it wants to stay at the top. But some thoughts that Bytedance may need to keep in mind as the plunge down this new rabbit role.
Smart, well compensated tech employees is certainly a way to start a gaming arm, but is by no means a recipe for success. We learned this recently with Google recently shuttering their first party game studios for Google Stadia. It takes more than money to make great games, you need a good studio culture, more than a few years of patience, and some luck. It’s about creating the environment for great games to be made, not simply trying to make magic from scratch.
Gobbling up IP ownership has been a pretty successful strategy in the western tv/movie market where the likes of Netflix/Amazon are in an absolute knife fight for streaming rights of top content. I believe a similar wave is hitting the global gaming industry. Whether it be Bytedances $4Bn acquisition of Moonton or Microsoft’s $6bn acquisition of Bethesda - it’s proving a simple, cold, ruthless maxim - if you can’t make magic, just buy the rights to it.
Finally, I don’t doubt the technical leads over at bytedance to organically weave gaming into their UX. The Tik Tok recommendation algorithim is frighteningly good (speaking from way too much experience). But tech isn’t a silver bullet, especially in games. The consumer behavior of an e-commerce fanatic in an app like Douyin or Tik Tok could very well be different than that of a hardcore Mobile Legends player -the tech stack will have to accommodate this or Bytedance may fail to convert user engagement into user profitability.
Key Takeaways
Tencent is still top dog in global gaming. It generates more revenue than anyone else and owns minority (if not majority) stakes in the largest gaming companies on the planet
Bytedance, most well known for its social apps, Douyin and Tik Tok, is entering the games industry by producing and distributing games, in an attempt to diversify their business
Their new gaming arm, called Nuverse, is onboarding employees at an aggressive rate, buying game studios (including the makers of Mobile Legends for $4Bn USD) and investing in integrating their existing apps to fit this new gaming strategy
That being said, there are case studies in the west that prove that Bytedance will need a more sophisticated strategy in the long run if they want to compete with Tencent.
