There is no shortage of competition between Tencent and upstart ByteDance, and recently, the two rivals are increasingly encroaching into the other’s territory. Reportedly, ByteDance is preparing to assault on Tencent’s home turf—gaming— while Tencent has started to test short-video features on its ubiquitous app WeChat.
ByteDance, the Beijing-based company best known for its popular news aggregator Jinri Toutiao and viral short-video app Douyin (known as TikTok overseas), is reportedly preparing to release two games this spring. As part of this push, ByteDance has embarked on a talent-hiring and poaching spree for its gaming arm, which already has more than 1000 staff, according to Bloomberg.
For Tencent, gaming has long been a stronghold and a major source of revenue—it dominates the gaming market in China with 55.8% market share, which contributed nearly a third of the Chinese tech giant’s revenues in 2019. But Tencent, the seemingly unrivaled king of Chinese gaming (NetEase is a distant second with a market share slightly below one-third of Tencent’s), was once too an upstart challenging the industry leaders.
When Tencent first made its foray into gaming in 2003, the market leaders were Shanda, a Shanghai-based gaming giant, and Lianzhong (or Ourgame, in English), a gaming platform focusing on casual games. Shanda was unquestionably the top dog in the burgeoning industry—its multiple-player online role-playing game The Legend of Mir 2 was a whopping success and represented 68% of China’s online gaming market then. Lianzhong was then the world’s largest casual games platform with 200 million registered accounts in 2003—more than twice the entire Chinese internet user population that year, composed of 79.5 million internet users, according to the China Internet Network Information Center.
At the time, it seems neither could be challenged. But Tencent, blessed with its 300-million-strong QQ user base, dethroned Lianzhong in just one year. By the end of 2004, Tencent was crowned the largest casual game platform, replacing Liangzhong. Five years later, Tencent overtook Shanda and became China’s largest gaming company. Currently, Tencent has over 300 investments in gaming developers and publishers, and generated a revenue of USD 19.7 billion from its gaming-related business.
Now, you might be thinking all this history points to the fact that Tencent should be worried.
Indeed, ByteDance’s strategy looks similar to Tencent’s master plan 16 years ago—taking on casual games first, with a huge user base, then going after heavy video games to woo hardcore gamers. If ByteDance would be able to shake Tencent’s dominance, the way Tencent did back in the 2000s, it would be a crowning achievement for the short-video giant.
But as it turns out, Tencent has little to worry about it for now.
Despite ByteDance’s success in casual games—it has churned out more than a dozen popular casual games in the past year—the short-video giant has yet to prove its capability of developing, distributing, and managing heavy games. To put it bluntly, it’s inexperienced.
ByteDance has a huge pool of young users which could potentially convert to its gaming users and it also has the cash necessary to recruit top gaming talents which could make up for its lack of experience, some people say.
But so did Baidu and Alibaba, the B and A of China tech’s BAT dynasty, (and Tencent takes the T.)
Do you remember all the hype over Baidu’s USD 1.9-billion acquisition in 2013 of Netdragon’s 91 Wireless, one of China’s top Android app stores at that moment, to become part of Baidu’s mobile gaming arm? Or when just a year after Alibaba’s rolled out its own mobile games platform, and then established a mobile gaming business group in 2017?
If the huge user base and ample financial support were guarantees of success in a new market, we would have already seen the early success of Baidu and Alibaba, each taking a large chunk of gaming market shares. Instead, Baidu sold its gaming unit for RMB 1.2 billion (roughly USD 173 million at the time) in 2017, and Alibaba, despite its ability to make people pay for its goods and services, has yet to make a big splash in gaming.
Furthermore, Tencent has fended off ByteDance’s advances in its home turf before. Despite having access to Douyin’s millions of young users, messaging app Duoshan, which Bytedance once hoped it would take some of WeChat’s social networking market share, failed to make a splash after a brief period of initial success.
If anything, ByteDance putting its weight behind gaming is a boon for Tencent. Both Honor of Kings and Game for Peace, two of Tencent’s most popular game titles, are losing gamers to short video apps, KrASIA reported. If ByteDance could manage to introduce its young users to hardcore online games, or bring former Tencent’s gamers back, Tencent could potentially lure some of those viewer-turned-gamers with its own popular game titles.
“The consensus within the gaming industry now is that ByteDance’s gaming business is still at its early stage and does not have the capability of posing a serious threat to Tencent Games,” concluded the Late Post, which first broke the news of ByteDance gaming foray last year.