How Tencent, the world's largest gaming firm, is rebuilding its India biz

Chinese internet conglomerate Tencent Holdings Ltd is looking to step up its India presence by betting on its biggest global money-spinner: gaming. 

Tencent is planning to invest up to $200 million (Rs 1,300 crore) in the first year with an ambitious target of owning at least a third of India's gaming user base in two years, two people familiar with the development told TechCircle. 

Tencent’s gaming division, Tencent Games, is the largest videogame company in the world by revenue. 

The Chinese firm has started building a core India team which will revolve around gaming. The three-member unit which will spearhead Tencent's India operations currently consists of Srinath Ramanujan, general manager-operations; Aneesh Aravind Mandalaparambil, general manager-product and operations; and HR director Tina Balachandran. 

Tencent plans to build a sizeable India team by the end of 2018.

“There is an internal understanding to invest up to $200 million in the first year, which could be used for game developments, publishing, promotions, hiring and acquisitions,” said one of the persons TechCircle spoke to, who wished to remain anonymous. 

The person added that the investment could significantly rise based on how the operation fares.

"If the team manages to do exceptionally well in terms of the market share, Tencent may invest up to $1 billion in the long term to capitalise on that positive momentum it may gain the first couple of years," the person added.

A second shot

This is not Tencent's first shot at gaming in India. Naspers-controlled MIH Group had a joint venture with Tencent for running two set of businesses—e-commerce and social media business, including gaming in India through ibibo Gaming. The status of that operation is unclear.

But the development suggests that Tencent now appears to have some clarity about its India strategy after making several investments in the country — most recently in music streaming service in Gaana. 

According to one of the above-mentioned persons, the Chinese company now wants to create "Tencent India" rather have than a "Tencent in India" approach.

And gaming appears to be the gateway.

“The core of the Tencent India initiative is going to be focused around gaming because that’s something picking up at a quick pace in India," Ramanujan said. "When you have a strong market share in the gaming sector, you could slowly expand into other connected segments such as payments and social media.” 

WeChat, Tencent's flagship social media app, has amassed 1 billion users. The WeChat ecosystem serves as an all-in-one platform for a string of services including payments and money transfer, social media, food delivery, online shopping, ride hailing and more. Tencent's instant messaging service QQ is also hugely popular in China.

The gaming industry is still in a nascent stage in India. The country accounted for just 0.55% of the global gaming industry as of 2016.

Tencent will be looking to make a mark in a space which has seen the emergence of several companies in recent years. 

Nazara Technologies, among the most prominent of these firms, is preparing itself for a Rs 1,000 crore initial public offering (IPO). 

Other players include JetSynthesys, Dhruva Interactive (acquired by Swedish art production company Starbreeze Studios), Mech Mocha, 99Games, Cobx and GamingMonk.

Acquisitions and partnerships

According to the second person TechCircle spoke to, Tencent held talks with two leading Indian gaming firms - Octro and MoonFrog Labs - for potential acquisitions. 

However, the hefty valuations sought by the homegrown companies proved to be a dampener.

Email queries sent to MoonFrog and Octro did not elicit a response till the time of publishing this report. 

Ramanujan declined to comment on Tencent's investment goals and rumoured negotiations with acquisition targets, but said the firm would not acquire for the sake of getting users.

“We might do that [acquisitions] to get a great team or an amazing product which we think can become great if we invest further,” he said.

Ramanujan reasoned that it doesn not make sense to spend heavily on acquiring Indian gaming companies as it will not yield significant market share in terms of users.

"Spending that money on promotions and game development can still get you similar results,” he added.

While outright acquisitions are not on the cards to begin with, Ramanujan said Tencent is open to business partnerships that could lead to acquisitions. 

Gaming strategy

The company is looking at a combination of original games developed by its upcoming India unit, successful Chinese mid- and hardcore ones fine-tuned for the India market, and games by Indian developers which Tencent would publish, said Ramanujan.

“We are looking at various options, to see how we [Tencent and Indian developer studios] can work together…. can they work with us on a service model or on a developer-publisher model?” he said.

Tencent's initial games for the Indian market will be developed at its Chinese headquarters. The India strategy is mostly focused on casual mobile games. 

“For the casual section, we are looking at locally popular themes," said Ramanujan. "We wouldn’t want to spend time having people learn new concepts, those experiments will be done in the mid-core and hard-core segments because the audience is new there and it’s sensible to invest in educating/capturing them.”

But for now, the focus is on hiring aggressively, including possible acqui-hires of smaller teams, to set up its India unit.

One of the persons familiar with the developments said that Ramanujan, a former executive at gaming firms Zynga and Moonfrog Labs, will lead casual games at Tencent while Mandalaparambil, a former group product manager at Zynga, will lead mid-core and hard-core segments. 

Balachandran, who previously worked at Chinese firm LeEco, will handle Tencent's hiring activities in India.

Tencent will also spend significantly on promotions in India. 

“We are going to build a lot of communities around our games. We are going to have a lot of events, tournaments and marketing initiatives to popularise our games,” Ramanujan said.

Tencent's gaming empire

Tencent's gaming and game-related services account for more than 40% of the revenues of the company, which is valued at $510 billion.

It owns Honour of Kings, China's most popular mobile game and the most profitable game in the world.

The firm  owns significant stakes in US game developers such as Riot Games Inc., the creator of the League of Legends franchise, and Epic Games. the company behind the Unreal engine.

Tencent also has a stake in Activision Blizzard Inc, the developer-publisher behind games such as World of Warcraft, Overwatch, Destiny and the Call of Duty series.

Tencent had acquired a majority stake in Finnish mobile game creator Supercell, which makes Clash of Clans, for $8.6 billion in 2016 and bought a 15% stake in Glu Mobile for $126 million in 2015. 

In addition, the firm also has an online gaming platform called WeGame.

“Tencent has been trying to get into the global market for quite a while,” said one of the persons TechCircle spoke to. "They have tried Europe and US where acquisitions have really worked well for them. They have never been able to set up and grow their own operations anywhere outside China, except the Southeast Asian markets. That’s partially because a lot of their products and games are very China-heavy."

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