The significance of the game business to Tencent has undergone a key transformation.
On the afternoon of March 22, Tencent released its results for the full year and fourth quarter of 2021. In the fourth quarter, the game business revenue in the domestic and international markets totaled 42.8 billion yuan (30% of revenue), while the financial technology and enterprise services business reached 48 billion yuan (33% of revenue) in the fourth quarter, indicating that To B's business surpassed online games for the first time and became Tencent's largest source of revenue.
Earlier in the same day, Tencent's game business just received a piece of good news. According to the Sensor Report, in February 2022, Tencent's "Glory of Kings" attracted $225 million in the global AppStore and Google Play, returning to the top of the global mobile game best-seller list. Meanwhile, Tencent's PUBGMobile (combined with Peace Elite revenue) ranked Second on the list with $205 million in revenue.
Tencent's game is strong, and it has long occupied the throne of the world's highest-revenue game company. However, for the Internet giant, the relative importance of games in various businesses has dropped significantly. Although games are still an important support for Tencent in the long run, the future of Tencent is no longer determined by games.
This is related to the regulation of the game industry, but also to Tencent's own active transformation.
01, game novices come to the top
Looking back at the development of Tencent Games, it will be found that Tencent's success in the field of games is unexpected.
2003 was a fruitful year for Tencent, benefiting from the cooperation with "Mobile Monternet", Tencent achieved revenue and profit of 735 million yuan and 322 million yuan respectively, an increase of 179.4% and 129.0% respectively year-on-year. Also in this year, Tencent's game business officially set sail, but it was unfavorable.
At that time, China's Internet was still in the stage of barbaric growth, online games were just emerging, and all Internet companies wanted to share a piece of the pie. NetEase launched "Big Talk WestWard Journey Online" at the end of 2001, and launched "Big Talk WestWard Journey 2" in 2002. Tencent founder Ma Huateng thought about it.
In his view, the young group that likes online games and QQ users are naturally compatible, and Tencent should not miss this market. But Tencent's other entrepreneurial elders disagree on this. Among them, Zhang Zhidong clearly objected. He said that the foundation of QQ is not stable, and it is not appropriate to open up a new front. But Ma Huateng eventually persuaded the entrepreneurial partners.
(Zhang Zhidong, one of the founders of Tencent)
In March 2003, Tencent Game Operation Division was established in Shanghai to enter the game market in an agent mode, and the first agent game was called "Triumph". It's a 3D role-playing game with gorgeous graphics, advanced technology, and at first glance, more promising than the popular 2D Legends game of the time. Unfortunately, they chose the wrong proxy object.
As a newcomer to the game industry, Tencent at that time lacked experience in game operations. Although the game they selected seemed good, the 3D technology of Triumph also had higher requirements for computer configuration and network bandwidth, and in the Chinese network environment at that time, the game was difficult to run smoothly, and players had to face the troubles of screen jagged and mosaic.
According to the "Tencent Biography", the spokesperson of Shanda Company once told the media in a sarcastic tone: "We are in awe of Tencent's entry into the field of online games, but Tencent must also be in awe of the online games themselves." And "China Game Storm" mentioned that at that time, the media was generally not optimistic about Tencent's entry into games, and one of the main opinions was that Tencent had a huge span from chat software to games, and Tencent was not capable of making a big punch in the game field.
The failure of "Triumph" shook Tencent's determination to enter online games, but Ma Huateng decided to try again.
After that, Ren Yuxin, who likes games and understands games, served as the head of Tencent's game business, and he reflected that Tencent did not have experience in operating large-scale online games at that time, so the most reliable tactics were to start from easy, practice while playing, and focus on chess and small casual games. This strategic twist laid the foundation for Tencent's game to take off.
(Tencent COO Ren Yuxin)
In August 2003, QQ Games was born, which is Tencent's self-developed casual game platform, which can play a variety of casual games. In just one year of its birth, QQ Games has more than 1 million people online at the same time, which is a great success.
It is worth noting that this success depends on the "social + imitation" mode of operation, and this model has since contributed to the success of many other tencent products.
Before the birth of QQ games, the king of the board casual game market was Lianzhong. In 2003, Lianzhong occupied more than 80% of the market share. The counterattack of QQ games is unimaginable to many people. At this time, the importance of a national chat software is reflected: QQ Games has launched a killer function, which can show what games friends are playing on QQ.
At that time, QQ already had 200 million registered users, which was a resource that Tencent's opponents were difficult to obtain. QQ games are bundled with QQ, and naturally there is a deep moat. Ren Yuxin once mentioned: "The biggest feature of our game is that it is linked with multiple products to form a large game community, such as props, pets, etc. obtained in the game, which can be reflected on the 'QQ show'."
That is to say, Tencent Games has long been not to compete with the market with simple game products, but to compete with opponents with a larger social derivative ecology.
Of course, Tencent's game products themselves are also outstanding. In fact, QQ Games is very similar to Lianzhong Game products, but player feedback is that QQ Games is better than Lianzhong in product details. This is also the way for Tencent Games to win: "In the way of learning and re-optimization, borrow the strength of others, and slowly break through on their own."
Relying on QQ's user resource advantages, imitating and innovating on specific products, Tencent can catch up later. After the QQ game, Tencent developed "QQ Tang", which also achieved the transcendence of Shanda's similar game "Bubble Hall".
While rising through casual games, Tencent has accumulated a huge group of gamers and rich experience in game operations, laying the foundation for expanding the game category and further growing.
At the end of 2007, Tencent obtained the two game agency rights of "Crossfire" and "Dungeons and Dragons", and launched it in public beta in 2008. Originally, South Korean copyright owners expected up to 300,000 users to be online at the same time, but by the end of 2008, the number of accounts online at the same time exceeded 2.2 million and 1.5 million, respectively.
Also in 2008, Tencent's game business achieved revenue of 2.838 billion yuan for the whole year, ranking second in the domestic game industry and second only to Shanda. By the second quarter of 2009, Tencent's game revenue had achieved a counterattack against Shanda.
2008 became the first year of tencent's history of games.
02, the throne has been loosened
In the whole of 2009, driven by Dungeons & Warriors, Crossfire, QQ Dance and QQ Speeding Car, Tencent's online game revenue increased significantly by 131.5% year-on-year to RMB5.385 billion, accounting for 43% of the company's revenue.
In the fourth quarter of 2010, Tencent's online games achieved revenue of 2.786 billion yuan, compared with 5.524 billion yuan in the quarter, accounting for more than half of the game revenue. In the days that followed, games were long Tencent's largest source of revenue.
Looking back at Tencent's history, social products such as QQ and WeChat are the foundation for development, and the game business has contributed revenue and profits for a long time to continuously deliver energy for Tencent to open up new markets. The importance of games to Tencent is self-evident.
As mentioned earlier, social resources coupled with imitation innovation are an important way for Tencent's game business to catch up later. Although this model is easy to succeed, it has also attracted many criticisms for Tencent, such as being labeled as "plagiarism". "If your project is copied by Tencent, what can you do", such questions have become a headache for entrepreneurs.
In fact, relying only on "social + imitation" is not enough to support the later glory of Tencent Games, and there are other reasons for its rise. On the one hand, Tencent dares to take risks and bet boldly. The loss of this kind of adventurous boldness has also caused Tencent Games to a certain extent to be troubled since then.
The outbreak of "League of Legends" is related to Tencent's bet. Today, the League of Legends Pro League LPL is receiving global attention, but the game was a curse at the beginning. Tencent invested in Riot Games, the developer of League of Legends, in 2008, when the game had not yet officially opened for testing.
The details of why Tencent was optimistic about Riot Games in the first place are unknown, but the investment in Riot Games became one of Tencent's most successful investments.
In terms of investment, in 2008, Tencent invested $8 million in Riot Games; in 2011, Tencent invested another $231 million, with a shareholding ratio of 92.78%,; after that, Tencent further took the remaining shares. In terms of returns, according to the list of the world's most valuable IP released by WikiMili in March 2021, "League of Legends" ranked 39th, worth about $12.4 billion.
In addition, the channel advantages such as the application treasure occupied by Tencent's ecology are also resources that general game manufacturers do not have. The brilliance of Tencent mobile games is inseparable from its channel advantages. In Tencent's current game matrix, there are other printing machines, and the mobile game "Glory of the King" is an example. Also on the WikiMili list, the "Glory of kings" IP ranked 50th on the list, worth about $10 billion.
In terms of revenue, Tencent Games has become an unprecedentedly powerful presence. According to the Newzoo report, in 2020, the world's top 100 listed game companies generated a total of $166.3 billion in revenue, with Tencent ranking first with $27.4 billion.
However, Tencent Games' dominance over the industry has been slightly loosened. The rise of two-dimensional games such as "Original God" has caused an impact on the market pattern controlled by veteran game manufacturers such as Tencent and NetEase. In addition, in the eyes of industry insiders, independent two-dimensional games will become the norm to get rid of traditional distribution channels.
The only constant is the change, Tencent Games can not sit back and relax.
According to late Later Post, at a game investment strategy meeting in early 2020, Tencent Chief Strategy Officer James Mitchell pointed out the problem of Tencent's game investment return on investment is too high, which he said can only show that there are not enough failures in Tencent's investment. And why are there not many failure cases? "That's because we don't see enough and invest too conservatively."
If you don't invest enough, you will inevitably miss some good targets.
03, the future is not in the game
In addition to the disturbance caused by new forces in the game field to Tencent, the regulatory policies in the game industry in recent years have also put pressure on Tencent. Since Tencent's listing, there have been 5 rounds of stock price shocks, and the last two stock prices have declined, which have been affected by the suspension of game versions and anti-monopoly policies.
On March 29, 2018, the former State Administration of Press, Publication, Radio, Film and Television issued the Notice on Important Matters Concerning the Approval of Game Declarations, saying that due to institutional reform, the progress of game approval work will be affected, and the issuance of game version numbers has been suspended, after which Tencent's stock price fell, continuing until the end of October of that year, a decline of more than 40%.
According to Tencent's financial report, in 2018, Tencent's online game business achieved revenue of 104 billion yuan, although it far exceeded the earlier scale, but the year-on-year increase was only 6%, compared with the earlier Tencent game business year-on-year growth rate of at least double digits. At the same time, the contribution of game revenue to Tencent's overall revenue in that year decreased to 33.3%, and the relative importance of the game business weakened.
It is worth noting that on September 30 of that year, Tencent launched a new round of organizational structure adjustment and made a fundamental shift: adding platforms and content business groups and cloud and smart industry clusters, and strategically turning to the industrial Internet.
Earlier, the identity of "game company" was Tencent's most prominent label, and since the transformation in 2018, Tencent has continued to develop B-end businesses that are unfamiliar to the public. In the 2021 annual report, from the perspective of revenue in the fourth quarter, the To B business surpassed the game for the first time to become Tencent's largest source of income, becoming a key node in Tencent's transformation.
In the long run, games are still an important pillar of Tencent, but it will not be games that will determine Tencent's future.
According to the data of this annual report, in the whole year of 2021, Tencent achieved a total revenue of 560.118 billion yuan, an increase of 16% year-on-year, and according to non-IFRS, excluding the impact of one-time and non-cash items such as investment, the annual net profit was RMB123.788 billion, an increase of only 1%.
If you look at it from the fourth quarter, Tencent's total revenue was 144.188 billion yuan, an increase of 8% year-on-year, and according to non-IFRS, net profit was 24.880 billion yuan, down 25% year-on-year.
Revenue growth slowed down, profits shrank sharply, and Tencent, which has been developing vigorously, began to face the trouble of transformation: in the fourth quarter, in addition to the relatively bright performance of financial technology and enterprise services business, achieving revenue of 48 billion yuan, an increase of 25% year-on-year, Tencent's rest of its business is now weak:
Social network revenue of 29.1 billion yuan, an increase of only 4% year-on-year; online advertising business revenue of 21.5 billion yuan, down 13% year-on-year; international market game revenue increased by 34% to 13.2 billion yuan, but the local market game revenue of 29.6 billion yuan, an increase of only 1% year-on-year, "Tianya Mingyue Knife Mobile Game" and "Peace Elite" Revenue declined.
tencent president Martin Lau said that Tencent's revenue structure is changing to a low-profit, high-health business direction. Tencent's clear direction of progress is to vigorously develop the B-end business of the industrial Internet.
(Tencent President Martin Lau)
According to the "China Industrial Internet White Paper", by 2030, the scale of the mainland industrial Internet market will reach 12.22 trillion yuan. This is indeed an attractive market, but for Tencent, its cloud business is currently the second largest in China, and the financial technology field must also face the competition of Alibaba, an old rival, and the road through the throes may not be smooth.
In Tencent's early development, the successive successes of QQ and WeChat have allowed it to rely on its huge user scale and traffic resources to continuously obtain revenue; the success of the game business is to continue to deliver profits to Tencent. But success can also become a burden.
Since then, Zhang Zhidong, one of Tencent's main founders, reflected in an interview with China Entrepreneur: "There may be a kind of inertia, or the lag of the dividend period. Zhang Zhidong judged that Tencent's third organizational change will be far more difficult than the first two changes in history.
The change in the revenue structure of this financial report illustrates the phased effect of Tencent's transformation. And as Zhang Zhidong said, this change also "requires the patience of the goose factory to climb the slope and fill the pit." ”
Key References:
Tencent Biography, Wu Xiaobo;
China Game Storm, Wang Yahui;
"Tencent Holdings 2004-2022 Review", Dongxing Securities;
"Dialogue with Zhang Zhidong, the main founder of Tencent: Tencent seeks change, where is the difficulty", a Chinese entrepreneur
(Except for the separately marked source, the above picture is from Visual China)
(Author |.) Li Nan Edited by | Lei Yanpeng)