Tencent Looks to the West for Third-Party Game Developers
Chinese Internet behemoth Tencent is looking to give developers a taste of its more than 700 million monthly active users.
The Shenzhen-based company has been busy securing deals with large American companies like Zynga and other unannounced partners to bring their most popular gaming titles to Tencent’s platform. Since opening its platform earlier this year, Tencent is paying its two top casual game developers about 10 million renminbi ($1.6 million) per month after the revenue split from the company’s payments service, the platform’s general manager Peter Zheng tells us. About eighty thousand developers have registered so far with 40,000 pending applications
The open platform strategy reflects a big shift for the chat and social networking giant, which has long chosen to create its own titles instead of deferring those opportunities to third-party developers as American companies have done. The hope is that, like with Facebook’s platform, third party developers will be able to unleash the next wave of revenue growth for Tencent, which is the fourth-largest publicly traded Internet company in the world behind Amazon and Google based on market capitalization.
Tencent’s platform, however, is distinct from Western ones in a number of ways.
For one, the platform is fairly complex, with five separate products ranging from chat to real identity and virtual avatar social networks that developers can distribute their work on.
Secondly, the share of revenue Tencent keeps is negotiable, unlike the standard 30-70 revenue split that Facebook, Apple and Google Android have settled upon. After evaluating the product and track record of a developer, Tencent will propose what it thinks is an appropriate revenue share with the company.
It can end up being a more costly split for developers, with some keeping 30 percent of what they book. Tencent says that 40 percent of revenues have to go toward covering “channel” costs, like maintaining servers (which Facebook developers have to cover themselves).
That share also covers handling payments in China, which is more complicated because consumers often don’t have access to credit cards. Sometimes they pay through the carriers and sometimes they also buy physical cards from local shops for Q Coins, meaning Tencent has to share that revenue with mobile operators or retail and wholesale partners to get these cards to local shops.
“We have to pay a high percentage to the carriers and the vendors, so in the end, we don’t really get any revenue from supporting payments like this,” Zheng said. Tencent does have a Paypal-like product called Tenpay, but because the company caters to mainstream Chinese consumers — not just the wealthy elite — most consumers don’t use it.
And then lastly, there’s the issue of censorship. It’s basically not really feasible to operate a platform in mainland China without having a review process that looks at all apps before they’re published online. So Tencent also has to cover the cost of a review team. The company says it usually takes about two weeks to go through the review process.
After handling channel costs, Zheng argues that Tencent actually offers a better revenue split than competing platforms. It in effect, usually splits the remaining revenue after covering the cost of payments and the review process with the developer 50-50.
All this said, Tencent is facing competition from other local platforms like Sina Weibo, which is giving all revenues to developers for the first year, and RenRen, which is also aggressively courting Western developers like EA’s PopCap Games and appears to negotiate more favorable revenue share on a case-by-case basis.
Many local developers we’ve talked to are looking at the Tencent platform on the assumption that market pressures will force the company to lower its revenue share over time. Zheng declined to comment on this, saying “Tencent is interested in building a healthy ecosystem.”
Developers also have to choose which parts of the Tencent ecosystem they want to publish their work on. They can push their game out to five parts of the platform, or just pick one. Some tailoring might be needed if developers choose more than one.
There are currently five parts of the Tencent platform.
- First, there’s QZone, a virtual identity or avatar network, which has 530 million monthly active users. This is one of the two parts of the platform that Zynga decided to launch its Chinese version of Cityville one.
- Second is PengYou, which is the company’s foray into real-name social networking, an area it hasn’t historically done as well at. Still, because it’s China, it has a very sizable audience with 250 million registered users and 132 million monthly actives who have posted an update or played a game. The developers doing 10 million renminbi a month are working off Qzone and PengYou.
- Third, there’s QQ Games, the company’s bigger gaming-focused platform, with 780 million registered users and 260 million monthly actives.
- Fourth, there’s also Weibo, which is Tencent’s microblogging platform (a version of Twitter, if you will). It has 200 million registered users, but it’s not as well-known or as widely used as rival Sina’s version of the service.
- Lastly, there’s Tencent’s original chat client and the premium version of it, QPlus, which boasts more than 701.9 million active accounts.
When Tencent chief executive Pony Ma announced the platform back in June, he set an ambitious goal of allowing developers to earn 20 billion renminbi (or $3.1 billion). That’s more than the $2.5 billion Apple has officially announced it’s paid out to developers since the launch of the iOS platform.