Gaming the China market

Fortumo has been operating in China for close to four years now. During this time, we’ve tried to establish a business there twice and failed. As a mobile payment provider, we have just recently achieved our goal of signing a partnership with all of the mobile operators in the country. The following is an overview of what we as a foreign company have learned about the Chinese Android app business.

Making Sense of the App Economy

The Western Android app economy has a relatively simple structure. Google Play is the undisputed behemoth and around 10 or so alternative stores have a one-digit market share. For payments, there are credit cards, carrier billing and PayPal. In China, things are different - Google Play is not available and the space is dominated by numerous other distribution channels, each looking for a cut from the Android business. So who are they?

First, we have three major mobile operators: China Mobile, China Unicom and China Telecom. Each of them operate two separate marketplaces – one for games and one for apps. Altogether, carrier marketplaces have roughly 25-30% of the market share in China.

The rest of the market is covered by independent third-party app stores such as 91.com, Wandoujia, 360 and Tencent - altogether around 10 of significant ones. In addition, there are hundreds of smaller portals to download apps from as well, but these can largely be ignored by Western developers.

So in total, there are around 10+ app stores that a developer could be interested in - not that big of an issue in terms of distribution channels which you need to map and cover. What makes the situation challenging is the roadblocks you are going to run into when it comes to publishing and distributing your application.

Getting Published For an Arm and a Leg?

Anyone can develop a game and publish it to Google Play, Samsung Apps or Amazon – it doesn’t matter whether they’re a one-man start-up or a game studio with thousands of employees. There are no barriers to entering the market (provided you do not violate a few simple regulations). This is not the case in China. Self-publishing is almost impossible - in order to get your app published in China, you need to have a special permit. Issued by the Chinese government, this document gives you the right to earn revenue from digital goods in the country.

For a Western developer, getting this license is a painful and time-consuming process; among other things, a local company needs to be established. This is a feat of its own, which requires going through massive amounts of paperwork and bureaucracy. Even then, applying for a publishing permit will not guarantee that you will be given one. Fortumo has gone through the process and we would recommend it only to the larger game companies who have the time (up to 12 months) and resources available for this.

An alternative to getting a game publishing permit is finding a local publishing partner. In this case, the local partner already has the necessary permits to get your game launched. But going through a local partner does have a price. To start with, the publishing partner will take a cut of the revenue made from your game – we’ll return to that later. Second, publishing partners usually have agreements with a specific, limited amount of stores – meaning you will never reach 100% market coverage. And third – the local publisher will often ask you for the source code of the game in order to adjust the game to be best suited for the local market - which may not be acceptable for Western developers.

Whichever approach you choose to take, keep in mind that entering the Chinese market with your app is very different from what you’ve experienced in the West. Legislation and written rules are complicated and having a local with the right contacts working for you speeds things up significantly. Even then, accept the fact that you need to waive some of the expectations you’ve had in earlier endeavors. This applies also to revenue.

Making Sense of the Revenue Split

Whether your game is premium or freemium with an alternative source of revenue, the monetization tools you’ve become accustomed to on Google Play will not work. Credit cards as a payment method are unavailable for most people – by optimistic estimates, less than a quarter of people actually own a credit card in China.

For selling virtual goods in China, there are two other options used which are far more popular. The first option is carrier billing through the three national mobile operators. Carrier billing enables developers to leverage the large Chinese carrier app stores as well as collect revenues from other leading 3rd party marketplaces - some of the most successful Chinese revenue-earners such as CocoaChina’s Fishing Joy 2 are relying on carrier billing only.

Another payment method is Alipay, the Chinese version of PayPal, which is most popular with Chinese online games, but is also being used by many of Android marketplaces. Increasing the fragmentation for developers, most 3rd party marketplaces typically require using their own native billing SDKs, meaning developer has very little choice in what payment provider to use in each specific store.

As for the payouts in China, channel fees charged by app stores for distribution typically range between 30-40% (with 60-70% left to developer). Local publishers typically charge 30-50% after the channel fees, depending on the amount of promotion effort and commitments provided by the local partner. Altogether, the expected payouts to developers from China are roughly 30-50% from the end-user price. This number may not look too high for Western developers, but taking into account the huge market (China already is the country with the biggest number of Android devices in the world) it is a sizable opportunity.

Good luck in China.