Industry Insights | Game Going Global: 'Involutionary Competition' in Progress

• Seedling stage of 'going global' (2002-2009): Initial emergence of the concept

Around 2000, the online game industry entered its initial development phase. Lei Jue's "King of Kings" was the first online game to successfully enter the Chinese market, marking the formation of China's online gaming market. During the budding period of "going global" in the PC game era, domestic game companies gradually developed from introducing and acting as agents for overseas games to independently developing their own games. "PUBG Mobile," "Journey to the West," "Demi-Gods and Semi-Devils," "Perfect World," and "Sword Art Online" are all products developed by domestic companies that have attempted to "go global." The most notable achievement was the release of "Sword Art Online" by West Mountain Residence, which became very popular in the Vietnamese market and became the first domestic game in history to occupy more than 70% of the overseas market share.

During this period, the United States and South Korea have developed several classic games with exciting gameplay, such as "Legend," "Warcraft," "Dungeon & Fighter," and so on. Domestic games represented by "Sword Art Online" have taken a different approach, integrating traditional culture and concepts to construct a game world with a martial arts sentiment. Therefore, the gains from "going global" mainly come from Southeast Asian markets where culture is more closely aligned, while performance has been disappointing in Europe, America, and Japan.

• Early stage of 'going global' (2010-2014): Dislocation competition among some manufacturers

In the era of console games, users were immersed in highly developed large-scale online games, while the less sophisticated browser-based games due to technical limitations were less popular. Starting from 2010, console games hit a development bottleneck due to high development barriers, time consumption, and long learning curves. Browser-based games, known for their fast start and being said to be 'playable even at work' due to Flash technology, filled this market gap. During this period, a variety of high-quality browser games emerged, such as the SLG-style 'Warriors of the Warring States' and 'Pride of Heaven and Earth', and the ARPG-style 'Pride Sword' and 'Prosperous Three Kingdoms', among others.

During this period, the most representative 'going global' mobile game is the premium mobile game 'Goddess Alliance'. Youzu Network has designed a comprehensive strategy for the overseas distribution of 'Goddess Alliance', ranging from self-built game platform GTArcade to managing traffic through Facebook resources for self-operation and brand promotion. As a result, 'Goddess Alliance' has become a bestseller reaching emerging markets in Europe, America, Russia, Turkey, and even more. At the end of 2014, 'Goddess Alliance' was selected as Facebook's Best New Game. During this stage, the status of established desktop game companies is hard to shake, and they have prepared for the layout of the next phase of mobile game markets. It is a preferred strategy for game companies to turn their attention to overseas markets.

• Mid-term (2015 - 2017) of "going global": rapid development of "going global".

With the upgrade of smartphones and networks, web games have shown signs of decline. In 2014, desktop games still maintained a proportion of about half, while mobile game revenue surpassed web games for the first time, marking the transition from the web game era to the mobile game era. Leveraging resources from established game companies, the domestic mobile game market has seen a concentrated development of leading players, gradually forming a monopolistic pattern.

On another track, emerging forces in overseas markets have shown remarkable performance after accumulating strength. Smart Star Connect, IGG, FunPlus, and Youzu Network are among the representatives. The number of domestic games shortlisted for the World Game Top 1000 has increased from 47 in 2015 to 84 in 2016, an almost 80% increase, indicating a booming industry in overseas game development.

During this period, traditional big companies also made moves. Tencent has made frequent overseas investments during this stage, including overseas game companies and studios such as Supercell and Glu Mobile. NetEase, after distributing and operating casual products, has started to explore overseas markets, focusing on heavy games such as 'PUBG Mobile' and 'Minecraft: Pocket Edition'.

Against the backdrop of rapid development in 'going global', domestic manufacturers have set up operations in emerging markets such as Europe, North America, Southeast Asia, and Latin America. Different markets exhibit unique characteristics. Games with a second-generation style like 'Girl's Frontline', 'Yin Yang Shou', and 'Bleach 3' have achieved excellent results in South Korea. The Japanese market tends to favor RPG genres, while domestic games that have established a presence in European and American markets are mainly SLG titles such as 'The King of Fighters' and 'The King of Avalon'. SLG games that blend Arab culture, such as 'The Sultan's Revenge' and 'The King of Fighters', have also performed impressively in the Middle East.

• Maturity stage of 'going global' (2018-present): intensifying competition

Today, the wave of 'going global' has matured. Driven by internal supervision, copyright pressures, and external growth in the global mobile game market, domestic game developers of all types are actively 'going global'.

Game companies all regard 'going global' as a strategic focus. Borrowing from the description of Duan Wei, founder of Huiliang Technology, about the path for Chinese games to go global, Chinese games have now gone beyond 'copying to China' and 'copying from China', and are moving towards 'being born global'.

The ambitions of traditional giants to dominate the overseas game market are evident. Tencent has been closely connected with overseas game developers through capital investment in overseas markets. In 2018, it launched 'PUBG MOBILE', developed by its studio with Bluehole authorization. The game became a global sensation upon release and remained on the charts for a long time. Tencent has also successively launched products such as 'Minecraft Mobile' and 'League of Legends Mobile'. NetEase has been continuously innovating in its overseas product categories and enhancing the attractiveness of its games by acquiring globally renowned IPs. The success of 'Hearthstone: Rise of the Fallen' in the US market has validated the feasibility of this approach. The European and American servers for 'Harry Potter &mdot; Magic Awakening', which followed, were also announced in February this year.

Under the wave of 'going global', many small and medium-sized factories are also riding the tide to overcome challenges. For them, although their strength is certainly not comparable to that of large companies, the overseas gaming market offers a broader space for them to establish themselves and make breakthroughs. Compared with the domestic market, they have more opportunities to break through the encirclement of large companies.

• Focused on the mobile game field

Domestic game developers' 'going global' efforts mainly focus on the mobile gaming market. On one hand, this is related to the differences in the development status of domestic and international mobile gaming markets: after an era of lagging behind overseas developers in desktop games, domestic developers have caught up and overtaken them in the mobile gaming era. Thanks to their advantages in mobile game R&D technology and business models, domestic developers have sufficient capital to 'go global' into the overseas mobile gaming market.

Source: Frost & Sullivan

On the other hand, the development potential of the global mobile game market is also a key driving factor.According to Newzoo's '2021 Global Mobile Market Report', in 2021, the number of smartphone users worldwide will reach 3.9 billion, a year-on-year increase of 6.1%. The global mobile game market size was also estimated to reach $907 billion in 2021, a year-on-year increase of 4.4%, and is expected to reach $1164 billion by 2024. From 2019 to 2024, the annual average compound growth rate of the mobile game market is expected to be 11.2%.

• Widely involved in various regions

Domestic self-developed mobile games hold a certain weight in markets such as Europe, America, Asia, etc. From 2019 to 2021, self-developed mobile games maintained an overall considerable share in markets such as the United States, Japan and South Korea, Europe, and the Middle East. Their share in the Saudi Arabia and Turkey markets even exceeded 60% in 2020.

Compared to the established European, American, Japanese, and Korean markets where major international game companies operate, the Middle Eastern market was almost blank before Chinese manufacturers entered, making it an untapped blue ocean. When this blue ocean was first discovered, the entry of domestic game companies could be described as a 'dimensionality reduction attack'.NetDragon's online game 'Conquest', launched in 2009, had a lifecycle in the Middle East that lasted for seven years, which is incredible considering the rapidly evolving domestic gaming market. Domestic game manufacturers have gradually entered the Middle East market and, leveraging their first-mover advantage, have maintained a high proportion there.

The United States, Japan, and South Korea have long been the main 'going abroad' destinations for domestic manufacturers. These three regions rank among the top in global mobile game spending market share and have high per capita game expenditure. As a result, domestic manufacturers particularly favor these markets.

Source: Frost & Sullivan

In addition,Emerging markets in the Asia-Pacific and Latin America regions are also receiving increasing attention. Factors such as the development of internet infrastructure, the reduction in mobile data prices, and the growth in the number of internet users may bring more potential to these emerging markets.

• The market pattern in the head sector is gradually stabilizing

According to last year's game business revenue rankings, Tencent and NetEase ranked first and sixth globally, respectively. However, in the special category of mobile game overseas expansion, the top three domestic manufacturers are: Mihoyo, Tencent, and Lilis. Mihoyo has risen from seventh place in 2020 to the top spot with 'Genshin Impact', while Tencent and Lilis also hold popular games 'PUBG MOBILE' and 'Vanguard', respectively.

Currently, the leading game publishers in the overseas market have formed a relatively stable pattern. After the first-tier publishers have established themselves firmly, the threshold for entry into this sector has also risen.Among the overseas games with significant year-on-year growth in revenue in 2021 are many works by leading manufacturers, such as MIHUAO's 'Genshin Impact', Funplus' 'State of Survival', and IGG's 'Kingdom Era', indicating a trend towards concentrated development by leading companies. However,Even within the first tier, there is still some room for change.Genshin Impact, which has historically broken into the top RPG market in North America, is a clear example.

Source: Frost & Sullivan

• Challenge 1: Security Challenges

The globally popular "Genshin Impact" is facing threats from private servers, sounding the alarm on the security issues of domestic games going global. Hackers have built private servers for "Genshin Impact" that allow for unlimited card draws, customization of game item parameters, and game dungeons. The methods for building private servers have even been uploaded to open-source platforms.However, in addition to the issue of private servers, game developers also face a series of security challenges such as cheats, piracy, and cracked versions.For instance, issues such as the prevalence of cracked versions exist in Southeast Asia, South America, Japan and Korea, as well as Russia. Additionally, domestic game security products may be at a loss due to the concealment and difficulty in dealing with overseas cheats.

• Challenge 2: Localization

Domestic game developers are facing overseasDiverse and fragmented market environmentUnlike a unified and vast domestic market, overseas markets consist of different regional markets. Due to the varying environments and characteristics among markets, even 'blockbuster' games find it difficult to achieve the revenue levels of 'Honor of Kings' in the domestic market, as they struggle to find an income base comparable to that of the domestic market. Faced with a complex and diverse market landscape, localization becomes an increasingly challenging task.

Localization initiatives mainly include localization of distribution and content.Localization requires game developers to have a thorough understanding of the culture, society, and even history of the target market, and to tailor their text writing, UI design, voice-over, and customer service to meet user needs.Localization in issuance requires enterprisesHave a sufficient understanding of overseas market channels, resources, etc., in order to achieve the best marketing effect.

At the same time, localization requires game companies to abandon their inherent thinking patterns and adopt a new perspective and insight into the target market; they should not remain confined to conclusions based solely on explicit data but should combine in-depth market and user research to grasp users and markets and create immersive games.

• Challenge 3: Compliance Challenges

On the other hand, game developers also need to deal with cumbersome and complex compliance issues during the process of 'going global'.When entering a new market, businesses should understand local laws and regulations and track relevant developments to respond promptly.For example, different countries in Europe and America have different game rating systems, and regions may have varying regulations on data compliance. There may also be information about the scale of promotional materials and game content that requires internal teams to pay attention to. In addition to avoiding regulatory risks, manufacturers also need to deal with platform measures such as Apple's 'IDFA' policy, which has potentially affected some manufacturers' marketing models.

• Trend 1: Premiumization

With the in-depth development of the gaming industry,User dividends are gradually disappearing, and gamers' expectations for game quality are gradually increasing. Only game products with excellent quality can withstand the market's test.Especially for mature markets such as Europe and America, high quality is what players in these markets expect from new games. 'Genshin Impact' has become the biggest dark horse in overseas markets due to its advantages in theme and art style, which demonstrates the demand for quality among players in mature markets. The pursuit of quality inevitably involves substantial R&D investment. According to Mihoyo, the R&D investment for 'Genshin Impact' has reached up to $100 million, which is undoubtedly a challenge for small and medium-sized factories with insufficient financial resources.However, in addition to financial capability, the optimization of game quality also relies on gameplay innovation, enhanced R&D capabilities, breakthroughs in R&D technology, and so on.

• Trend 2: Fine-Tuned Operations

For small and medium-sized manufacturers that do not excel in 'banknote power', developing emerging markets and refined operations are ideal development strategies. Of course, for large companies,Refined operations are also crucial; this is another competitive arena besides game quality.Refined operations mean precisely defining target user groups and game positioning, efficient customer acquisition and monetization, timely and meticulous operations to maintain user retention, and so on.In enhancing refined operational capabilities, efforts are focused on improving team collaboration, analyzing and utilizing data effectively, and delving into market conditions and channel promotion strategies.