Tencent’s “dog-eat-dog” gaming empire

When Tencent’s blockbuster multiplayer online battle arena game Honor of Kings (internationally known as Arena of Valor) rolled out in 2015, it had a fierce competitor – We MOBA.

Here’s what’s peculiar: Both games were created by Tencent. Honor of Kings was developed by TiMi Studios and We MOBA was housed under Lightspeed & Quantum Studios, which are both in-house developer groups in the company.

The market immediately crowned Honor of Kings the better game of the two. Consequently, Tencent allocated its promotion, marketing, and distribution resources toward the title, which went on to dominate global download charts and emerged sixth in the rankings for consumer spending, according to estimates by app analytics firm App Annie.

We MOBA, on the other hand, saw sluggish sales and was eventually discontinued in 2019.

Tencent Games’ empire relies heavily on this approach, pitting internal studios against each other and letting consumers decide on the victor. While this is a recipe for constant improvement and innovation, the approach could lead to an overemphasis on profit-making and may eventually suffocate innovation.

Betting on the “horse race”

The “horse race” approach, as Tencent calls it, underlies the success of many of its flagship products. In fact, the company’s messaging app WeChat is the product of internal rivalry, as founder and CEO Pony Ma once said.

Back in 2010, QQ, a popular messaging platform developed by Tencent, was tasked to resolve a slew of mobile messaging issues. Three teams were given the assignment – QQ, QQ Mobile, and QQ Mail. The version created by QQ’s mail service eventually came out on top and became WeChat as we know it.

In the wider game development industry in China, this Darwinian approach is commonly referred to as the “yang gu” model, which is a term with a rather sinister meaning. It stems from a traditional method of making poison by sealing venomous creatures (such as centipedes, snakes, or scorpions) inside a closed container, where they devour each other.

Within Tencent, in most cases, the team that makes the more popular version of a game not only gets to bask in the halo of prestige but also gains access to the coveted game promotion and distribution channel WeChat.

Screenshot of Tencent Games mini-app in WeChat.

“The rivalry between game studios is fierce. Whoever lags behind, gets eliminated,” a Tencent Games developer tells Tech in Asia.

The ongoing battle between TiMi and Lightspeed & Quantum, two of Tencent’s most well-known studios, is no secret in the game development scene either. After TiMi triumphed with Honor of Kings, the battle between the groups flared up again in 2018 when Tencent struck a deal with Bluehole Studio for the exclusive distribution rights to hit battle royale game PlayerUnknown’s Battlegrounds (PUBG) in China. The studios were assigned the task to build the mobile version of the game.

This time around, players favored the trial version developed by Lightspeed & Quantum, PUBG: Exhilarating Battlefield.

This came as a surprise since TiMi had been known as the most prominent studio with blockbuster games, including Honor of KingsQQ Speed, and Call of Duty: Mobile, in its portfolio.

While TiMi reworked its version and released the game under the title PUBG: Army Attack, the reception was miserly in comparison to Exhilarating Battlefield’s. According to third-party platform Quest Mobile, the daily active users (DAU) of the version developed by Lightspeed & Quantum and TiMi was 43.09 million and 5.84 million, respectively, as of September 2018.

After winning the popularity contest, the former was launched worldwide as PUBG Mobile, which became one of the world’s highest-grossing mobile games with a consumer spend of US$825 million in the past year and 260 million in lifetime downloads worldwide, according to App Annie’s estimates.

Made with Flourish

Like WeChat, Tencent’s four in-house game studios, including TiMi and Lightspeed & Quantum, have been forged from rivalry.

In a bid to consolidate its internal game studios in 2014, Tencent merged 20-some smaller groups into its four existing entities: TiMi Studios, Lightspeed & Quantum Studios, Morefun Studio Group, and Aurora Studios. Meanwhile, some of the less competitive teams were dropped by Tencent. “We encourage healthy competition between internal game studios,” Tencent said in a comment regarding the structural change in its game unit, adding that by giving studios more autonomy, games could be developed faster and better.

Apart from the four main teams, Tencent has another rather secretive studio called Tencent Boston, set up in 2008 to focus on the North American market. The group has yet to release any games.

Charlie Moseley, a Chengdu-based game developer and co-founder of mobile game company Tap4Fun, tells Tech in Asia that facilitating this kind of internal rivalry is a Chinese approach. The country’s game development scene, and the entire industry for that matter, is more of a dog-eat-dog jungle, says Moseley.

“This type of competition is not so common outside of China,” he says. However, other developers and publishers around the world have begun experimenting with the practices common in the country, Moseley adds.

Case in point, King, the developer of Candy Crush, uses a similar tactic. Most of the company’s existing games were introduced as beta versions on Facebook first, and it then used metrics such as player count and feedback to determine which of these titles it would develop further.

Tencent declined to comment on the internal rivalry between its game studios.

A fight for survival

A large distribution channel and a breadth of promotion tools are Tencent’s natural advantages over other gaming giants like NetEase.

However, even for Tencent, resources are limited and must be used strategically.

The company’s most coveted traffic funnels include WeChat, QQ, and the Tencent App Store. As a super app with more than 1.15 billion monthly active users, WeChat is a far more powerful marketing vehicle and portal for games than QQ, which only has around 731 million monthly active users.

As a result, the games that perform better in trial runs are marketed on WeChat and get a landslide of distribution resources when they officially launch.

Photo credit: PUBG

There’s actually a logic to how Tencent pits studios against one another, says Daniel Ahmad, a senior analyst at Niko Partners. “Tencent can pair the right studio with the right license. We see this less as a rivalry between studios [and more] as building options and a strong, broad product pipeline,” he adds.

This approach allows the company to hedge bets on various titles within the same genre, says Ahmad. Through an aggressive M&A strategy and fast international expansion over the years, Tencent has gained exclusive rights and built its dominance in China for certain genres like battle royale.

It’s also a way to keep game developers on their toes. Before beating TiMi in creating the mobile version of PUBG, Lightspeed & Quantum had not rolled out a single blockbuster title. To win against TiMi, the group assembled a team of more than 200 people, mainly made up of hardcore players with at least 1,000 hours of play time under their belts, according to the head of the studio.

Emerging victorious in Tencent’s internal rivalry is almost a guarantee for success in the business, says Gabriel Liu, game and esports analyst of video game developer FunPlus. Not only do these studios get a chance to compete with a few “top dogs in Tencent,” they also receive financial rewards and get access to resources for promotion and distribution, he says. On the flipside, it’s a fight for survival for game development companies outside of Tencent.

With the horse race approach, Tencent also has room to explore various directions among product teams and can have a certain period of trial and error in areas without a clear direction, said Tony Zhang Zhidong, co-founder of Tencent. Indeed, Honor of Kings and PUBG were examples of how Tencent used this approach to dominate certain genres.

Stunting innovation

There are critics to this approach, however.

The strategy of terminating any game title that is not as profitable is “barbaric,” a person who worked for a Tencent partner firm previously told Chinese media. Focusing too much on sales figures and winning the race, the person said, can ultimately discourage game creators and developers from incorporating new ideas.

With revenue as a prime indicator for Tencent, game quality and user experience may also drop.

On its part, Tencent recognized that the deeply embedded competitive culture could indeed create a cutthroat and siloed environment. In 2018, the Chinese firm said it would dial down in-house competition especially in emerging areas like data and AI research. In his comment regarding the announcement, Zhang said that internal rivalry often leads to “overly fragmented teams and overlapping directions which result in waste and internal friction in hot areas, and neglect in important fields as well.”

For companies who work with Tencent, betting on the wrong horse can also result in huge losses, as Monster Energy learned when it entered into an endorsement deal with TiMi reportedly worth tens of millions of yuan.

Despite its dominance in the gaming industry, Tencent has yet to cultivate sophisticated intellectual property expertise internally – powerhouse game titles including PUBG Mobile and Call of Duty: Mobile are licensed from other game developers after all.

Perhaps to boost its ability to create original games, the company decided to hire Japanese veteran game designer Kenichiro Imaizumi and Halo 4 lead designer Scott Warner in May.

Whether or not cultivating internal rivalries is a boon to Tencent’s new ambition is still unclear. But it seems the company will continue to use the strategy nonetheless. In emerging areas like game livestreaming, for example, Tencent is reportedly pitting Duoyu and Huya against each other, two game livestreaming platforms that it has stakes in.

The two platforms have grown increasingly similar, and it was speculated that Tencent would eventually merge the two entities, mirroring the strategy it employs in its dog-eat-dog gaming empire.

App Annie’s data excludes PUBG Mobile on Android in China, as well as both iOS and Android versions of Game for Peace, the version of the game that adhere’s to China’s regulations on gaming content.