Spil Games Asia launched its first mobile game portal last month, offering Chinese mobile games to the domestic market. The China Perspective talked to founder Marc van der Chijs about the early success of the site. We also asked him about one of his other China venture – Chinese video site Tudou.com – and his secrets to success as a western tech entrepreneur in China.
You recently launched your first mobile video game portal shouji.game.com.cn, Can you tell us more about this and where you see the mobile game space heading in the future?
Correct, Spil Games Asia, the game company I run, launched its first mobile game portal in October. It’s a portal that only offers Chinese mobile games for the local Chinese market. Users have to go online to find the game they want to download for their mobile phone and then download that game to their computer, so they can transfer it from there to their mobile phone. I personally see it as a good test, if this works well we might come up with more advanced solutions for mobile gamers. Our first results are very promising by the way, in the first few weeks we already have a lot more users than I had planned.
I expect that for China the mobile market will eventually be bigger than the online game market. Everybody has a mobile phone and everybody always has the phone with him or her. Right now fast connections are still missing, that is the biggest hurdle that we need to overcome. Once there are cheap 3G connections I expect the mobile game market will grow exponentially.
You have decided against partnering with mobile network operators China Mobile and China Unicom on distribution. This seems like a smart move given the less than stellar performance of wireless value-added service providers like Linktone and Kongzhong after they teamed up with the giants. This approach also means you will be able to keep a significantly larger share of revenues and control of the product. But what is your revenue model, and how will you achieve distribution scale without the support of the mobile operators?
Our current revenue model is only based on advertising, but we are now working on some deals with content providers to use their games with in-game items that people will need to pay for. Eventually I think in-game items might become bigger than advertising, but only after faster connections become available.
Distribution scale is not a big issue. We have 32 million unique users on our Chinese online gaming portals and they are our main target group. Next to that I believe in viral effects: if a game or a site is good people will talk about it and it will grow by itself.
You are also the co-founder of Chinese video site Tudou.com, which you launched several months before YouTube in April 2005. In China your closest competitor is arguably Youku.com. How are the two sites differentiated from each other and what is Tudou doing to win the battle for the eyeballs of China’s 220 million internet users?
It is true that most video sites in China are quite similar; most of them just copy the others without trying to be innovative. Tudou, as the first player in the market, has always tried to focus on the user experience of the site. That means that we provide a nicer design, a better designed player and more convenient browsing for users.
For advertisers Tudou offers much more effective advertising formats than the competition. Not just simple banners, but nicely designed ads around the player that people can interact with while watching the video.
Tudou is now also looking to move into own production of video content, just like HBO did in the US. This will give us even more interesting exclusive content for our users.
Tudou serves over 100 million videos each day. That’s a lot of videos. Can you give us a rough breakdown of what percentage of these videos are user generated and what percentage are professionally-licensed? How does this influence Tudou's current and future content acquisition strategy?
I don’t know the exact percentage, but user-generated content (UGC) is still important for Tudou. Where the competition seems to focus on re-broadcasting TV programs, for Tudou the UGC remains an equally important part. We feel it is important to offer a platform for people to direct their own lives (our slogan). For this reason we organized the first Tudou Film Festival this year in Moganshan, where the best UGC films were chosen.
Because both UGC and professionally-produced content are important, we also keep on acquiring good content for our users. At this point we already have over 10,000 episodes of films and series licensed, many exclusively for Tudou.
Earlier this year several online video sites raised significant rounds of funding, Tudou included. Is the prospect of a global recession going to impact your funding strategy going forward and/or your business model?
For Tudou it does not make much of a difference, because we indeed just raised a major round a couple of months ago. Even if the whole advertising market would collapse, which I do not expect, Tudou could survive for a significant amount of time without any problem. For some of our competitors this will have more impact, especially the smaller ones without a lot of funding. Our business model will not be impacted, we keep on offering all our content for free.
Perhaps more importantly, what trends in revenue generation are you seeing and what formats seem to have the best future potential for revenue generation for video sites in China?
At this point the only viable business model is an advertising driven business. Users are not willing to pay for any content in China, not even a very small amount of money. So it’s important that you can get the highest advertising rates for your site. Tudou does that by, for example, offering licensed TV shows and films in a higher quality on Heidou (hd.tudou.com). We can therefore offer advertisers premium advertising products on Heidou.
In my online games business most revenues also come from advertising, but here we see a shift to users that are willing to pay for in-game items or for advanced avatars. I do not see something like this for online video.
You are one of the few westerners to have had success in China's internet industry. Why do you think so many multinationals have failed to successfully develop a market leading position in China? What are some of the keys for foreign entrants hoping to run a successful online business in China?
There are a few key reasons why multinationals are not successful in the Chinese internet industry, and it seems that companies keep on making these same mistakes. First of all, a multinational should not appoint someone who has been successful outside China as the head of China operations. That is not going to work, you need someone with local knowledge and local connections. Next to that the local management should have total control over their own business; if they have to run to headquarters for every decision they make, the business is doomed. In China you have to be able to react very fast, just like your competitors.
Furthermore, the design of the sites and the business model should be localized. When headquarters say that a model works in every other country so it should also work in China, I have to laugh. China is really different. For example, Spil Games uses sites that are similar in every country in the world, and they are doing very well everywhere. But when we used that design in China it was a big failure: only after we started from scratch with a new localized design did we start to grow fast.
Doing business in China is certainly not easy, but foreign companies can be successful. But only if they are willing to localize and give their China management team the power and resources to run it as a local, independent business.