The China Angle: Reaching Into The Heartland Of China

[Why would one of China's largest online games company's invest in a dating site? In Gamasutra's latest China Angle column, Frank Yu looks at Giant Interactive's recent $51 million stake in 51.com, concluding that the move will give the MMO giant greater reach into the country's less populated but significant urban centers.] China is a big country and the online gaming population is, by some estimates, now the largest in the world. Many in this population comprise what we would consider 'social gamers' -- those who mainly go online to play, meet and interact with other gamers. Online games in China play a role that goes beyond just entertainment, they serve a niche that social networks play in the U.S. for letting people develop relationships as well as reinforce and maintain contact with friends and family. That is why it is no surprise that one of the largest online game companies in China, Giant Interactive, has invested USD 51 million and taken a 25 percent stake in 51.com, one of the country's largest online social networks. In Chinese, the name 51.com sounds a little like “I want,” and was meant to be a social dating site complete with webcam authentication and a lot of pretty users posting their pictures. 51.com has in the past been one of sites most successful at competing with Tencent’s QQ social chat juggernaut. With Tencent entering the gaming market a few years ago, it seems natural that competing gaming companies have also begun to move into the social networking space. What makes both 51.com and Giant Interactive's stake interesting is that both have a strong market base in China’s 2nd and 3rd tier cities. With a total of 120 million registered users, 51.com is the size of one third of the U.S. population by having a bulk of its customer base in the backwater and grittier cities of China. When foreigners and media write about China, we tend to focus on the shiny modern cities of Beijing, Shenzhen and Shanghai (pictured) where we live and work. However, the real China, especially for gaming still lives in these lesser developed cities where manufacturing and farming still dominates and the infrastructure and income lags those of the 1st tier cities. In the first tier cities, income levels and entertainment venues means that people can buy laptops and work and play in cafes or at home. In the second and third tier cities, the net cafes still affords the cheapest access to PCs and online games as one of the cheapest entertainment choices. Finding net cafes in Beijing becomes harder each day as real estate prices and regulations make running and owning one more difficult. In other cities in China, enforcement is more lax and alternative choices for entertainment fewer which makes the Internet a popular and cost effective source for both information and diversions. The average online gamer in China is not from a Beijing or Shanghai but from a smaller and less developed city or even county in China like Harbin, Xian, or Wuhan. In many of these smaller cities (which by U.S. standards are actually large cities) exists many wealthy people who have made their money from manufacturing, mining or some local industry that find their escape and entertainment via online games as well. As an escape from their boredom, and with the ability to buy even more powerful items and cheats to gain status and power in games more quickly, these premium players help drive the growth in revenue for many games. If casinos have high rollers, these big spenders in China’s virtual worlds are the ones that buy the magic swords, gold, and characters that create instant heroes. Revenues from China’s online gaming phenomena more or less follows the 80/20 rule - where 80 percent of revenues come from 20 percent of the user population. However, without those 80 percent low-revenue users playing the game as opponents or followers, the other 20 percent won’t find the game interesting or active enough to invest in ever more powerful virtual items and characters. Giant Interactive made a significant splash in China’s online gaming industry by pushing their game Zhengtu Online into the channel of second and third tier cities the way fast moving consumer goods company pushed food and nutritional products, using sales representatives at net cafes and shopping centers. Their strategy was not surprising since Giant Interactive started as a nutritional supplement company prior to be a gaming powerhouse. With the investment in 51.com, Giant will now continue to grow both their games and their reach deeper into hundreds and thousands of China’s urban centers that most Americans have never heard of. [Frank Yu is an founding advisor to Cineo. Prior to his current position, Frank started and led the first China game team for Microsoft Casual Games. He has also served as the first Regional Business Manager in Asia for the Xbox and Home Entertainment Division. He can be reached by email at [email protected].]