Tencent Games may be brewing a new round of changes.
Looking back on 2022, Tencent is actually doing well. According to the financial report released yesterday, the total revenue of its game business was 170.7 billion yuan, and the domestic game revenue was 123.9 billion yuan, down about 4% year-on-year. In the case of the downward trend of the industry and the limited number of new products, this achievement exceeded the expectations of many people.
And Tencent has also delivered a good answer in the overseas market that has always been emphasized. Excluding currency effects and related adjustments to Q4 Supercell '21, its game revenue in the international market in Q4 last year increased by 11% year-on-year to 13.9 billion, accounting for 33% of the overall game business revenue. The earnings report also highlighted the contribution of Level Infinite publishing products such as "Phantom Tower" (international version) and "Victory Goddess: Nikki" - according to data.ai data, the latter is the TOP 1 of new games in the international mobile game market in 2022.
"Victory: Nikki"
From all perspectives, a series of actions such as Tencent's establishment of IEG Global and the launch of the international game business brand Level Infinite have achieved remarkable results. However, Grape Jun also learned from many sources that at the staff meeting a few weeks ago, Tencent Group COO Ren Yuxin, Tencent Group Senior Vice President Ma Xiaoyi, and several presidents of TiMi, Photonics, Rubik's Cube, and Northern Lights still had a lot of discussions and reflections on how to respond to market changes, adjust internal R&D logic, and assessment and distribution mechanisms.
Unlike the rumors, according to the recollections of many Tencent employees, Zhang Hanjin, president of the Rubik's Cube, did not say that "if Tencent can produce a game like Genshin, it must come from the Rubik's Cube", but some employees were impressed by his statement: "Enzo mentioned a point: how much success is considered success? Can small successes be recognized and respected in a timely manner? More space and time should be given to allow the team to do some more innovative projects based on their own characteristics, not evaluated by big or bad, but able to operate on their own from the beginning. "
Zhang Hanjin's views also implicitly match the outside world's concerns about Tencent. Looking back on 2022, Tencent does have some remarkable results in pendant products: "Golden Shovel Battle", "Dark Zone Breakthrough", "Return to the Empire"... But their achievements are not enough to meet everyone's expectations for Tencent. At least the gaming industry, and even the Internet industry, are still discussing that well-known problem -
01 "Why didn't Tencent make Genshin?" "
Why didn't Tencent make Genshin? This sentence has been said too many times, but its subtext is still valid: in the past, Tencent has hardly missed dividends in any category, but this time, the existing path to success is no longer working.
The history of Tencent's game success can be summed up in three words: "seize opportunities", the key to which lies in accurate vision, abundant resources and strong execution. For example, in the face of the outbreak of tactical competition, they were able to win the "PUBG" IP in the first time, and let TiMi and Photon develop two games simultaneously.
And the opportunities that Tencent wants to seize are, of course, those biggest opportunities. After all, the existence of WeChat and QQ makes "traffic monetization" the most direct idea of success: seize a popular gameplay, win a super IP, ensure basic quality, and then improve user experience through micro-innovation... This is how countless blockbusters were born.
Since it has found such a reliable path to success, Tencent's organizational structure and various mechanisms will naturally lean towards it. However, in recent years, in the face of some newly emerging vertical categories, such a successful path is no longer tried, and has even become a shackle that limits Tencent.
First, vertical categories often require trial and error and abundant early investment, but Tencent Games' incentive distribution system makes this not easy.
Many people talk about Tencent's success, and they will talk about IEG's round of organizational restructuring in 2014. At that time, after seeing the success of "Dota Legend", in order to stimulate the fighting spirit of the team, the top management established four major studio groups of TiMi, Photon, Rubik's Cube and Northern Lights, and will distribute bonuses according to their respective profits, and give the team that makes explosive models no less than the return of external entrepreneurship.
In an era of abundant opportunities, this system motivates teams and makes horse racing possible. MOBAs, tactical competitions... Tencent won more than once. But the problem is that if the profit of the studio group falls, the team's bonus will also fall, and the investment in the riskier vertical category will naturally be affected.
A director-level Tencent employee once lamented to Grape Jun that last year due to the impact of the general environment and the extremely high KPI targets set internally, even the top projects once thought that the year-end bonus was hopeless. In order to protect profits, major studio groups only open source and reduce expenses and control staffing. After all, the expenses of the year will be reflected in the accounts of the year.
Even in everyday environments, it is certainly a high-certainty project with a big IP and mature gameplay that is easier to obtain resources. A former employee at the general manager level gave an example: in order to run through the core gameplay of a pendant category, even if only 20 core members are used for early exploration, at the cost of Tencent, the annual expenditure may be 30 million to 40 million. "The boss thinks that he spends tens of millions a year, but he doesn't seem to see anything, so it's better to take out 100 people in the first year and spend the money on a place where he can definitely return the money."
Second, vertical categories require continuous operation optimization and capacity building, but at Tencent, it is difficult for everyone to maintain such a mentality.
The reason is simple: under the amplifier effect of WeChat and QQ, those head projects are too successful and the rewards are too great. Even if producers are willing to sink their minds and continue to polish the product after launch, team members may not be able to maintain a good attitude. An employee of a head studio group said that once the project results are mediocre, everyone's bonus may not be as much as the "big pot rice" in the research stage.
The top management is also reflecting, this phenomenon makes IEG's categories relatively concentrated, there are fewer long-term projects, and it is impossible to continue to accumulate capabilities around a certain category and core group, waiting for the market to break out. The weakening of category labels will also affect the style of marketing. "Honkai: Star Dome Railway" can be booked with the keyword "Mihayou new flagship", but Tencent's traffic can only ensure the popularity of new products, "insufficient persuasion ability", "now it is necessary to inform users that "there is this game", but also need to convince users that "this is a good game". "
Talking about this, the question at the beginning of the article is not difficult to answer. The reason why Tencent did not make "Genshin" is because its past mechanism is difficult to accumulate when a theme or category is still very niche like Mihayou, and continue to pour huge resources. At a time when the industry is highly mature and user tastes are becoming more and more tricky, this problem, which was once not a problem, has gradually become a pain point that is difficult to solve.
So, how should Tencent change?
02 How does Tencent change?
In Grape Jun's interview, many Tencent employees will ask a question: Should the company's definition of success change?
As mentioned at the beginning of the article, many high-level executives believe that at a time when phenomenal success is becoming more and more rare, everyone should discuss the evaluation system of "Xiaocheng" more openly, and even face failure more openly. Once you develop this atmosphere, you can try more new things.
To do this, we must first reduce everyone's concerns about costs.
In fact, in response to this problem, Tencent has also tried many mechanisms before, such as IEG has launched a round of bidding codenamed "Project D", encouraging studio groups to develop innovative tactical competitive products, and is willing to help the team bear the cost of research and development, the main requirement is only two words "innovation", Northern Lights' "Law of Infinity" is in this context.
The Law of Infinity,
But some employees said that sometimes studios send teams with relatively limited capacity to bid, which defeats the original purpose of the mechanism. He speculated that the top management could not tell whether the team spontaneously believed in this direction or just wanted to "cheat subsidies", so there were fewer and fewer similar opportunities.
Perhaps in the face of this problem, only relying on subsidies and traction from the top or treating the symptoms but not the root cause. A mid-level employee who left told GrapeJun that he thought the company might be able to change the way it keeps accounts, such as converting the upfront R&D investment into capital investment instead of the current year's cost. In this way, after the project makes money, the studio group can invest more resources in the new project. But the premise of this change is whether the company's financial system can accommodate similar adjustments.
The second is to strengthen the linkage between various business groups, and change the focus from "seizing opportunities" to "capacity building".
The "moon landing project", which was once highly hoped for, is a similar attempt. At the beginning, as Tencent senior vice president Ma Xiaoyi said, they hope to make games at the same level as the top 3A products in 5-8 years through one generation or two generations of products. Because the goal was too large and difficult to control, the top management later referred to the planning of the space project and broke down the big plan into different modules, or the company invested resources and the studio group independently bidd. But some insiders believe that making a game is not the same as a real moon landing - the moon landing has a large number of hard indicators, as long as all of them meet the standard, they will definitely succeed; But the game is a lot of engineering improvements, and it doesn't need so many core technology breakthroughs, and it doesn't mean anything to make 10,000 characters on the same screen. Therefore, how to break down the technical points and assess the progress of each team still needs to be explored.
Finally, after making the pendant class, how to match the right distribution resources to help them realize their potential.
In Tencent's old logic, it was indeed difficult for the pendant class to obtain too many resources. One producer believes that other business groups of Tencent Group are capturing traffic and then monetizing it to IEG. Under this logic, only socially-driven, not gameplay-driven games can make efficient use of traffic. The pendant belongs to the latter, and its "small cheng" naturally has little value.
But in the past few years, on the one hand, Tencent is changing the way resources are tilted, and projects such as "Ace Warrior" and "Dark Zone Breakout" have obtained top publicity resources; On the other hand, the Aurora program and Level Infinite also taught Tencent one thing: if you put aside QQ and WeChat, how to do distribution?
Yesterday, "There are people in the depths of Taoyuan", released by the Aurora Project, also topped the free list
Judging from overseas products such as "Dragon Fantasy", "White Night Aurora", "Phantom Tower" (international version), "Victory Goddess: Nikki", "Rise of the Night Clan", "Warhammer 40K: Dark Tide" and other overseas products, Tencent has initially formed an independent publishing style from MMO to two-dimensional, from mobile games to PC/console games. In the future, many self-developed products represented by "Dark Zone Breakout" have also taken going overseas as a new focus.
Of course, these changes will have to be explored and tested continuously. After all, for a large and successful organization, any small change will face huge resistance. What's more, Tencent is also a listed company with multiple businesses.
The CEO of a company lamented that the game business of a listed company will always face several soul tortures: Is it necessary to explain to shareholders before making a good game? Can you make a good game without considering explaining to shareholders? Is it only by making a good game that we can explain to shareholders? This is the fate of big companies: to wear heavy shackles and constantly break through themselves.
But at the town hall, senior management made it clear that they were considering changing the way they used to make products, the team structure and the incentive model. This shows that Tencent will not give up doing the right thing because the difficulty is too high.
Grape Jun also learned from the side that several studio groups are also ready to adjust their strategic direction. For example, the Rubik's Cube said that it will not pursue scale effects, but will go deeper in shooting, action and RPG to obtain the unique experience of the new generation of users; Northern Light believes that it is necessary to gradually upgrade the product positioning, production style, and capacity building model to original research and development; Photon said that it will basically no longer make IP products, and needs to strengthen content creativity and drag the domestic R&D team to the world; TiMi will also focus its resources on the most valuable and globally competitive products, and constantly adjust and change - after all, the market will change drastically every few years, and only by walking on thin ice to choose different routes and cope with challenges can everyone survive.
03 Conclusion
Looking at the past, Tencent Games has undergone several major adjustments. In 2008, Tencent merged programming and art from the R&D department into the project team, and established a studio system that emphasizes long-term closed-loop cooperation. In 2014, they established four self-developed studio groups, thus seizing one opportunity after another; In 2021, they adjusted their organizational structure again and began to promote the integration of research and operation, on the one hand, to accelerate overseas expansion, on the other hand, to try to launch the next generation of high-potential energy products through capacity building.
The existence of "Honor of Kings" and "Peace Elite" has always given everyone the illusion that Tencent's success is effortless. But in fact, in history, Tencent Games has encountered countless doubts. A CEO of a listed company lamented that he admired Tencent's self-reflection ability: "Does Tencent have many problems? There are too many, and anyone can say a lot. But every time the outside world feels that they are falling behind, they can adjust in time. "
The PPT of TiMi President Yao Xiaoguang at TGDC 2019 speech
Unlike 2022, now the industry has begun to pick up, Tencent has been effective in reducing costs and increasing efficiency (the financial report shows that the total cost of revenue in Q4 fell by 4% year-on-year), the company has at least 20 products obtained version numbers, "Honor of Kings" has just landed in the Brazilian market, and only pre-registered players have exceeded 2 million before the start of the server on March 8... At the earnings conference, Tencent executives also believed that last year was only a transition period for the global game market, and their share of the international game market will continue to increase over time.
After the resources and energy are restored and the problem is gradually identified, it may not be long before we can see Tencent's new answers.