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Analysis

Tencent Fights With NetEase Again: Overseas Market Is New Battleground

May 24, 2018 by Yun Nie
Tencent Fights With NetEase Again: Overseas Market Is New Battleground

Another battle between Tencent and NetEase was launched on May 15, when Tencent’s mobile game, PUBG debuted in Japan. It swiftly climbed to #1 in the iOS free game list, competing against NetEase’s Knives Out for the overseas market.

The two companies have been long-term rivals, who have guarded their dominant positions in the domestic market. According to official data, the revenue generated from Tencent’s mobile and PC games in 2018 Q1 surpassed CNY 35.8 billion, in contrast to NetEase that gained over CNY 8.7 billion from online game services. Another statistic showed that Tencent and NetEase accounted for 80% of the total revenue of CNY 53.2 billion that was earned from online gaming.

As the domestic market failed to feed the two titans, Tencent and NetEase have turned towards the global market for increasing profits. The China Gaming Industry Report 2017 suggested that online games developed by Chinese enterprises earned USD 8.28 billion from the overseas market, a 14.5% increase compared to last year. Now, the competition for new overseas game market is becoming progressively intensive.

Growth after sudden decrease

Hidden behind the 18% and 9.4% growth in 2018 Q1 was an unexpected slowdown in 2017 Q4. Both Tencent and NetEase were frustrated by the sharp decline of game revenue - Tencent decreased 9.3%, and NetEase by 1.32%.

When mobile PlayerUnknown’s Battlegrounds gained popularity in China, other games were suspended. However, Tencent and NetEase released their own hard-hitting products, including QQ Speed, MU, Chu Liuxiang, and Knives Out that fundamentally promoted game profits.

As globalization became the trend of the game industry, Tencent and NetEase gradually shifted their focus from the national market to the international field, spending more time and energy on foreign business. In the company’s Q1 financial tele-meeting, Chief Strategy Officer, James Michelle said, “our previous idea was that Chinese games, due to different cultural background and consuming models, might only appeal to the Chinese population, rather than global players. However, recent evidence has demonstrated that games designed by Chinese companies can also affect the overseas market.”

Last year, NetEase’s vice president, Wang Yi expressed the same idea in an interview saying, “every time that we have showed the world new products, global consumers have found that our games boasted high quality, but the issue is that we have little understanding about their game preferences. Therefore, to break into the global market and obtain international support, we have to research preferences of foreign players as a prerequisite.”

Gain from overseas market

After mobile games became popular in the global market, the pioneer companies were subsequently established, such as IGG, FunPlus, elex-tech.com, ONEMT, Droidhang, IM30.net, Tap4Fun, monotone.com, and YOOZOO Games. For mobile game companies, the Western market remains the core, followed by the Japanese and Middle East markets. In terms of categories, SLG and gambling games were most liked by local players.

These companies focused in different regions. For example, IGG, FunPlus, and elex-tech.com targeted the Western market, whereas Droidhang, Tap4Fun, and etc. concentrated on the Middle East market.

Tencent and NetEase set up diverse overseas-expansion strategies. Before PUBG, games developed by Tencent were limited in quantity and scope, but when PUBG lead the globalization trend, the company’s games became more competitive in Southeastern nations, such as South Korea, and Japan. In addition, since elex-tech.com allowed Tencent to release a series of SLG games, Tencent got greater opportunities to win over global customers.

In contrast to Tencent, NetEase forged a different path to develop - highlighting Japan as the primary market. Before 2016, the Japanese market was not very welcoming to foreign game producers, but from 2017 onwards, game startups such as happyelements.com, ourpalm.com, and NetEase, developed a large amount of products, especially games hitting out at local digital products. After Onmyoji, NetEase relied on Knives Out which went on to become very successful in Japan. According to App Annie’s Japanese iOS & Google Play game list in April, Knives Out remained #1.

Besides the overseas market, NetEase reinforced its position and influence in the domestic market too. The company’s Q1 financial tele-meeting, CFO, Yang Zhaoxuan said, “in Q1, game revenue from overseas market is still lower than 5%, but we believe that our games will continue to be prevalent among global players in the future, as we release more games.”

Promoting product competition by overseas investment

On May 15, the PUBG mobile game debuted in Japan, directly in competition with Knives Out. The reinforcing of products and market resources signaled a new battle breaking out between the two companies.

Besides revamping previous products, NetEase has to enhance its new games to compete with Tencent. In 2017, NetEase set an agenda to acquire foreign game companies. Experts analyzed that NetEase imported products, established strategic partnerships with foreign companies, and developed new products with high-quality enterprises through investments.

In terms of Tencent and NetEase’s overseas expansion, small and middle-scale companies need not panic because products and brand marketing will be the determining factors as to who wins the battle.

Yun Nie

Yun Nie is a New York-based tech reporter. She focuses on India-China financial market, global IT giants and technology-centric market trends. She can be reached at Yunnie@thepassage.cc.

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