China Social Games Analyzing Chinese Social Networks and Games

Obstacles for Social Game Developers in China

Guest Blogger: Zhou Hao is the Founder of Winzone, which developed the browser game “Dark Agreement”（黑暗契约), which is now in Open Beta. Zhou Hao has four years of experience in the gaming industry, built a payment system that allows users to pay cash at Internet cafes in exchange for virtual goods, and is an expert blogger on BloggerInsight.com.

“Happy Farm” is exploding in China and the developer Five Minutes raised USD 3.5 million from DFJ (Draper Fisher Jurvetson). It begs the question: how can developers capitalize on the growth of social games in China?

Social games are a blessing for Chinese social networks. The revenue model for social and web games is proven. The alliance of gaming and advertising will generate the majority of income on social networks. Tencent's Qzone now proudly says, “No, we don’t display any ads from third parties. We use all our advertising to promote our own games!"

But this does not mean that all Chinese social game developers will benefit from these trends. To move from individuals or small teams to serious and profitable companies, developers will have to overcome three significant obstacles.

1. Standardize Social Games; Creativity Carries High Risk

In China, web games are now part of a long industry chain. On the one hand, this is due to China’s enormous population (which brings countless young game players); on the other hand, it benefits from its successful industrialization. You can create a profitable web game as long as you have the following elements: various mature components and designs; fashionable graphics; and effective promotion channels. A little creativity in the details helps, but it can even be done without any creativity at all.

In contrast to web games, social games have been extremely reliant on creativity so far; there is no mature, industrialized model. Instead of  large game developers, social games are now still being built by small-scale developing teams. And when a business is driven by creativity instead of a standardized process, it dramatically raises the risks.

Editor's note: In "Zynga and the End of the Beginning," Tadhg Kelly critiques the "fast food" formula for social games, which he views as rampant on Facebook: "Viral gaming up until this point has largely been a game of distribution plays rather than content plays, which is why the developers don’t really spend a lot of time on the depth of their games."

2. Find Barriers to Entry to Protect Against Copycats

A social game must be quick and easy for players, but this also makes it quick and easy to copy. It is estimated that it costs a developer only 3 to 5 days to copy one entire social game! This is an open to social game developers: how can you create successful games with barriers to entry so that revenues go to you instead of your copycats? I have not seen any good solutions yet, but they may still come. For example, switching from "pay-to-play" to a "freemium" model was a game-changing innovation for web game developers.

3. Gain Leverage Over Social Networks

The relationship between game developers and social networks is very tricky. On the one hand, developers and networks are win-win allies, because only a popular community can make a game successful and bring in considerable income. On the other hand, a network can exploit developers if it is too strong. For instance, Tencent simply sets a rule whereby top game developers only get a few million RMB split of the revenue, while other social networks even copy games in house to avoid paying anything.

It requires a lot of creativity to successfully develop a social game, but most of the profits are taken by the all-powerful networks. This is a major concern for game developers. Right now I think networks are bringing the users, not games. Unless this situation changes, developers will never hold leverage over social networks.

Editor's note: In "5 Predictions for 2010" we predict that game developers will gain leverage if Kaixin001 or Qzone open up their API and support 3rd party developers. Even if good social games don't convince users to switch users, they allow networks to monetize existing users.

Conclusion

Thanks to Happy Farm, social gaming has entered center stage, surrounded by the inspirational aura of grassroots startups. Let us wish that some day in the future, these spunky “grassroots” developers can overcome these obstacles and to the head of the Chinese social game industry, or even the Chinese Internet!