In 2018-2019 the quarterly market size of consumer electronics was around 30 billion yuan. However, in the first quarter of 2020 during the COVID-19 outbreak, Chinese consumer electronics market size dropped to approximately 20.9 billion yuan.

Data Source: Statista, Chinese consumer electronics market size

The COVID-19 outbreak in China had a great impact on the Chinese consumer electronics market in China. Forecast predicts it will see a decline in revenue growth from 16.8% in 2020 to 6.1% in 2021.

Data Source: Statista, Chinese consumer electronics market revenue growth

Smart technologies drive the growth of the consumer electronics market in China

The popularity of AI in China has brought new development opportunities to the consumer electronics market in China. In the next decade, smart homes and IoTs (Internet of Things) will be a huge development opportunity for manufacturers.

For example, the domestic smart connected room air-conditioner market in China is expected to grow from 4.1 million units in 2015 to 37.6 million units in 2020. Midea Group and Haier Group are leaders in domestic smart room air-conditioner market. Both these leaders are expanding product sectors of smart room air-conditioners this year.

At the same time, the revenue of smart home appliances in China is growing. In 2017 it accounted for US$ 2 million, when in 2019 it increased twice to almost US$ 5 million.

Data Source: Statista, Smart appliances revenue in China

The growth of the consumer electronics market in China is partly due to government policies

It is quite unique that policies and regulations that the government promulgated play a critical role in the development of the consumer electronics market. As of 2011, China is the world’s largest market for personal computers. In 2013, the Chinese government issued 5G licenses, marking the beginning of a new era in China’s high-speed mobile network. China Telecom promised to create 300,000 5G base stations by the end of 2020. The operator, which is taking part in a 5G network share with China Unicom, deployed 40,000 of its own base stations by the end of 2019. That reflected a RMB 9.3 billion investment in 5G networks in 2019.

2019 was a booming year for e-commerce. China raised the limit on cross-border online purchases, as well as expanded its list of duty-free goods. The government raised the annual quota on cross-border e-commerce purchases for individual buyers from 20,000 to 26,000 yuan. The limit on a single transaction was raised from 2,000 to 5,000 yuan or $723 dollars.

Growing consumption of consumer electronics requires new technologies

 The rise of domestic manufacturers: Huawei, the leading provider of consumer electronics

When it comes to the best domestic mobile phone brand, many people will think of Huawei. Since 2017, Huawei continues to maintain leading position in China’s smartphone market, with a year-on-year increase of 23.4%.

According to GfK, as of the end of February 2020, the market share of Huawei Tablets was approximately 46%. In addition, since 2019, Huawei has surpassed the Apple iPad for the first time in the Chinese tablet market. It has continued to expand the gap with the Apple iPad. In 2020 Huawei grabbed 40.2% of the domestic market, up from 33.9% a year earlier. Its overall unit shipments rose about 1% to 30.1 million.

Data Source: Statista, Market share of tablets in China

Lenovo, Huawei and Xiaomi go global

Consumer Electronics remains by far the best performing category in the electronics market in China, dominated by brands such as Lenovo, Huawei and Xiaomi in China.

David Roth, Chairman of BAV Group commented: “The companies behind China’s brands are taking a more active role on the world stage. They are increasingly shaping the conversation at a category level, as well as helping to support economic growth in developing markets in many ways, not least by investing in infrastructure”.

Lenovo

Lenovo holds 24.4 percent of the global PC market, sustaining its position as the worldwide #1 in PCs. Growth came from premium categories, including Workstations, Thin and Light PCs, Visuals and Gaming PCs. They all had double-digit sales volume growth year-on-year. In North America Lenovo moved up two places in the industry rankings from the previous quarter to number four. In addition, revenue continues to outgrow the market with profit continuing to improve. Going forward, Lenovo will continue its investment in its mobile business to drive future growth opportunities.

Data Source: Statista, Revenue of Lenovo

Huawei

Huawei, thanks to a whopping 16-17 percent annual growth, claimed the No. 2 global smartphone vendor spot in 2019, behind Samsung and ahead of Apple. Both firms have similar global market share numbers for 2019. Samsung had around 20 percent, Huawei at 16 percent, Apple at 13 percent, and Xiaomi and Oppo around eight percent each. Q4 2019 was Huawei’s first quarterly decline—down seven percent from Q3. It blames on the export ban. But this ban doesn’t affect Huawei’s marketability in its biggest market, China, where Google doesn’t do much business. Huawei has had its own software ecosystem in China for years, with the “Huawei AppGallery” store, cloud storage, a browser. 

Data Source: Statista, Revenue of Huawei

Xiaomi

As of 2018, Xiaomi’s international business grew by 150 percent and has successfully entered 82 foreign markets. Among these 82 markets the brand ranks among the top five in about 25 markets. Xiaomi beat its rival Samsung to be the leading smartphone brand with most shipments in the Indian market in the third quarter of this year. Xiaomi’s overall market share during Q3 2018 comes at 27 percent while Samsung managed to grab 23 percent on market share.

In Indonesia, Xiaomi became the second largest brand for the first time and is leading the sub-$150 segments. It holds 22 percent market share in Indonesia while the leading brand Samsung holds 25 percent market share.

The company continues to expand globally and Xiaomi’s global shipment numbers are also growing. The company reportedly shipped 9.7 percent of all smartphones shipped worldwide during third-quarter this year.

Data Source: Statista, Xiaomi’s annual revenue

Apple and Samsung struggle against domestic competition in the consumer electronics market in China

In 2018 the U.S. and South Korean firms had fourth and fifth place in the Asian giant’s smartphone market. Ahead of them came three Chinese firms: leader Huawei with a 16% share, then two companies little known elsewhere, Oppo and Xiaomi.

Data Source: Statista, Leading Chinese global consumer electronics brands as of 2019 (in BrandZ brand power scores, BrandZ is a brand power score based on analysis from Millward Brown)

Brand loyalty is not as strong in China as in other markets. It’s a very crowded, fragmented market and fiercely competitive, with rivals undercutting each other with price and design. Low-priced Chinese competitors have been “particularly troublesome” for Samsung, which has sought to offer phones across all price ranges.

Apple still benefits from its luxury image and the strong loyalty of its long-time users in China. But the California firm sometimes has to contend with the country’s Communist authorities. In 2017 Beijing blocked Apple’s iTunes Movies and iBooks services launched in China. Besides, the Chinese media has prominently reported about alleged security vulnerabilities on Apple devices.

The revolution of distribution channels has promotes sales in all areas

Nowadays, selling-commerce contributes to the diversity of the sales channel and avoids many problems like establishing an outlet in a rural place. Despite the relatively small base, continuously rising disposable incomes in rural areas, together with increasing education and interest in consumer electronic products has stimulated demand and continued to drive volume sales in rural areas. Meanwhile, the expansion and penetration of retailers such as Suning and Gome into the rural areas has also played an important role to boost volume sales in rural areas. However, urban sales still account for the majority of volume sales of consumer electronics products thanks to the higher acceptance of innovative technologies and disposable income levels in urban areas.

Other than large e-commerce platforms like JD, Tmall, and Taobao, many electronics brands sell directly to Chinese consumers through their own websites.

Source: Statista, Top 5 online stores by net sales in the consumer electronics segment in China

China’s overall online and offline consumer electronics market consumption upgrades intensified

In the future, the retail in China’s consumer electronics market will change, and the online plus offline model will dominate.

In China’s consumer electronics market, offline channels are the main channel for consumption upgrades. Taking traditional home appliances as an example, the proportion of retail sales in offline markets reached 70% in 2018. High-end consumer groups pay attention to product experience, so the offline market has an advantage over the online market.

The consumption upgrade trend has continued in the past few years, and the proportion of retail sales of high-end products has increased from 21% in 2012 to 23% today. All-channel retailers such as Suning, high-end products accounted for 27%, which is the driving force. E-commerce promotions have also become important, and consumers are becoming accustomed to it.

Smart home innovations will change the retail format

For offline channels, there will be new value revaluation opportunities due to the innate advantage of the consumer experience. Visionary vendors and retailers have focused on rebuilding their smart home retail prospects in the future. Retailers with online and offline advantages will have more imagination space in new retail.

Brick and mortar locations allow consumers to see a product in action before purchasing and gives them the ability to take a product home the same day. Offline direct-to-consumer tactics can help sell smart home products in China.

Beyond physical brand-owned retail stores, mall kiosks and other seasonal “pop up” stores can be effective at marketing complex smart home solutions.

COVID-19 impact on the consumer electronics consumption in China

The lockdown had a great impact on the companies in the consumer electronic market in China. China’s smartphone shipments will be 5% lower than expected. In total, China’s smartphone market shipments declined by more than 30% in the first quarter of 2020.

COVID-19 has caused severe challenges for leading Chinese manufacturers such as Huawei, OPPO and Xiaomi. Forecast predicts that in 2020, they will face the risk of declining demand in the Chinese domestic market. International brands such as Apple will also suffer from insufficient production capacity and the risk of declining demand in the Chinese market. As China slowed down and then stopped, supply chains were disrupted. It affected Apple as one key consumer electronics vendor. More than 90% of Apple’s products are made in China and the Chinese marketplace accounts for 18% of its revenues.

Slow recovery

Since April 2020, consumer electronics companies have started seeing a  pickup in sales due to healthy domestic demand.

China shipped nearly 21 million smartphones in March, up 240 percent on a monthly basis. In particular, over 24 new 5G smartphone models hit the market in April. The domestic shipments of 5G smartphones exceeded 6.21 million units, representing a 160 percent growth from February.

Wu Qiang, vice-president of smartphone maker Oppo, said the company’s smartphone sales have been recovering rapidly.

Huawei Technologies Co said its sales revenue rose by 1.4 percent on a yearly basis to 182.2 billion yuan ($25.7 billion) during the first three months of 2020, despite challenges from the COVID-19 pandemic. Huawei said revenue from consumer business group (smartphones, personal computers and tablets) will see rapid growth in China this year.

Lenovo said as more people stay at home for work and study, the demand for PCs and tablets will increase. The growing demand for mobile games, remote consultations and video conferencing tools also provides tons of opportunities.

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What Chinese people did at home during the epidemic

The main lock-downs of the Coronavirus epidemic in China lasted over two months. However, as China’s economy is recovering from COVID-19, the potential for another outbreak is ever-present. The months that consumers spent indoors have significantly altered China’s stay-at-home economy. Even when the pandemic becomes a thing of the past, the length of the outbreak is long enough to cause new habits to form, and the severity of the outbreak is enough to forever change consumer values.

Six new trends of China’s market during the epidemic

1. Mobile games have seen explosive growth

The average DAU of Arena of Valor reached 50 million during the 2020 CNY.

2. Video industry performed well overall

Short videos got more welcomed. Live-streaming and foreign movies and TV dramas are growing popular.

3. Fresh food ecommerce is facing more demands

Major platforms are in short supply.  The DAU of JD one-hour delivery reached 1 million, while Hema reached 400 thousand.

4. Online education becomes necessary

After the government announcing to postpone the starting day of school, online learning APPs achieved dramatic growth.

5. Online medical care attracts more attention

The demand on remote medical inquiry and O2O medical ecommerce in China increased remarkably.

6. Remote working has become the mainstream

The DAU of Dingtalk is going to exceed 100 million, with absolute advantage in the market.

Main activities of Chinese while at home

In addition to daily household duties like cooking, childcare and pet care, Chinese people spend more time on information acquisition as well as investment. The end of the outbreak could give way for consumers’ growing reliance on social media and APPs for information and an increase in financial awareness.

In general, Chinese people felt optimistic about the impact of the Coronavirus in China. 63 percent told that they are optimistic and only 2 percent were pessimistic.

[Data Source: 199it.com, COVID-19 impact on Chinese consumer behavior report by daxue consulting. How Chinese people feel optimistic about COVID-19 impact]

Activities of Chinese people in different age groups

Under 20s

Chinese digital natives increased their time spent binge-watching TV series and online learning.

20-30yo

Millennials also spent time binge watching TV series and playing mobile games.

30-40yo

30-40year-old watched the news through short videos, and extensively talked to others and cooked.

40-50yo

40-50year olds spent more time on WeChat, cooking and watching news.

Over 50s

Those over 50 paid much attention to news, health information and the management of their community.

Chinese consumers developed new habits

Among all respondents, 73.5% tried at least one new service for the first time. All the services listed below will likely keep a strong growth. Additionally, many people said they will continue to use these online services after the epidemic.

[Data Source: 199it.com, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Most of Chinese people tried at least one new service during the epidemic]

COVID-19 changed the way of Chinese people get information

Outside of news apps, WeChat, Weibo and short video apps became the main channels for Chinese to obtain information. Information supply form with social function is more likely to gain traffic in the future. 48% said they will continue to spend more time in information acquisition after the outbreak. Business and finance represent the second news trend, this financial interest will last after the epidemic.

[Data Source: NetEase Positioning & CTR, COVID-19 impact on Chinese consumer behavior report by daxue consulting. WeChat, Weibo and short video apps became important information acquisition channels]

Online study apps are now a necessity

The epidemic largely decreased the cost for online education platforms to attract consumers. Students and parents in tier-2 and 3 cities have greatly improved their awareness and acceptance of online education in China. It created huge traffic for online education platforms. During the epidemic, the daily active users of Xueersi (学而思) online education platform exceeded 10 million. Many new users are come from tier-2, 3 and 4 cities.

However, the online education industry still has some difficulties. For example, it’s hard for online educators to create an atmosphere which is conducive to learning. Many teachers don’t have much experience on online teaching and cannot conveniently interact with students. Moreover, students need supervision to help them concentrate on online courses, but many parents don’t have time. Online education platforms need to launch more interactive teaching modes to gain more consumers after COVID-19.

COVID-19 outbreak effect on Chinese consumption

Consumer tendencies during the COVID-19 epidemic

The coronavirus outbreak has improved people’s safety consciousness. JD data showed commodities that reduce disease and meet nutritional needs are more popular. Frozen food, snacks and health products have a high proportion of online consumption.

Indoor fitness equipment purchases skyrocketed during the epidemic. JD data shows that the turnover of wall pulley increased by 109% YOY during the 2020 CNY, jump ropes increased by 56% and rowing machines increased by 134%.

[Data Source: JD.com, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Commodities that reduce disease and fitness equipment became popular]

Health-related consumption increased

The epidemic may have a lasting impact on attitudes towards a healthy and sanitary lifestyle.

For instance, laundry sanitizer sales increased 643% according to Suning. Antiseptic hand sanitizer sales increased 1.7% according to Suning.

Staying at home for a long time made people find new ways of stress relief, like Yoga or indoor workouts. They also started to access more info and products about disinfection.

These health-related considerations may change consumer habits, such as investments in household cleaning, disinfection products and at-home workout equipment.

Three types of consumption that reduced in the short term

COVID-19 greatly impacted China’s beverage market, especially liquors. Normally, CNY accounts for a high proportion of liquor sales. However, the epidemic caused a full-scale impact on consumption of gifts and catering.

Less automobile consumption is an inevitable short-term outcome. Consumers’ behaviors also changed during the outbreak. Online sales are now attracting more consumers since they want to prevent the risk of cross infections in 4S shops.

Coronavirus seriously affected offline air-conditioning market in China. The spread of the epidemic has greatly restrained consumer demand, especially the need for replacements that are not urgent.

Where did consumers shop during the epidemic

COVID-19 has changed consumption in both frequency and preferred channels. Many consumers choose to reduce the frequency of shopping due to fear of going out.

More than half of consumers have moved from offline stores to e-commerce. Online penetration rate during the epidemic period was as high as 68.2% which increased by 50.7%.

[Data Source: Dataway, E-commerce became a key shopping channel during the epidemic]

Explosive growth of fresh food e-commerce

As of 6th February 2020, JD daily active users have exceeded 1 million, Hema and Dingdong Maicai exceeded 400 thousand. The number of daily users is still increasing.

Normally, people can make a habit after using the same channel 4 to 5 times. Since the coronavirus outbreak, most consumers ordered fresh food by e-commerce far more than 4-5 times. It means the industry had not previously received much attention and will play an important role in the future.

After the panic consumption in the epidemic period, food delivery services in China will keep growing.

[Data Source: MobTech, COVID-19 impact on Chinese consumer behavior report by daxue consulting. More and more Chinese people use food e-commerce platforms]

Live-stream proactively met consumers needs

The general performance of the apparel industry fell by 60% – 80% during the epidemic. However, brands that promote products by live-stream had much more sales than others. In addition, other industries have joined the live-stream tide, such as cosmetics and fresh vegetables.

If a live-stream sales model for brands during the epidemic is sloppy, then they will have to be more strategic after the epidemic to maintain sales.

COVID-19 outbreak effect on Chinese entertainment

Mobile game market will upgrade

During the Coronavirus outbreak, demand for mobile games increased enormously. The top mobile game companies (such as Tencent) expended their business and further seized the market space of small companies. But the sustainability of mobile games’ boom is questionable once the epidemic subsides.

[Data Source: Capital Watch, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Revenue of mobile gaming sector is growing]

Short video platforms gained many new users

During the Coronavirus outbreak, there was an increase in China’s short video market. Before the epidemic, young people widely used short video platforms. They spent more time on short video platforms for entertainment during the epidemic.

Also, it is easier for short video platforms to have new users from middle-aged and elderly groups than the past. Now many young people started to teach their parents to use short video platforms when they were at home. It makes the platforms accessible to them as a form of entertainment long after the epidemic ends.

[Data Source: Quest Mobile, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Short-video market in China is increasing during the epidemic]

Live-stream further enhanced user stickiness during the epidemic

Live-stream is useful for enhancing user stickiness, it is growing during the COVID-19 epidemic. On top video apps, live-stream users spend more time (more than 120 minutes/day) than other users during the Coronavirus outbreak. Tourist sites and venues like museums and bars also started to use live-stream to increase exposure during the epidemic. This may be a new growth point for the live-stream market even after the epidemic.

[Data Source: Quest Mobile, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Live-stream got more users during the epidemic]

Video games are the most popular live stream

During the epidemic, video game live-streams attracted more viewers than any other live-streams. Many of those audiences follow specific gaming KOLs in China, which means they have high users’ stickiness. Since more people are returning to work, the time of live-stream is the key to remain those audience.

[Data Source: iResearch, Game live-stream became more popular during the epidemic]

Increased demand for movies and TV dramas

Because of the Coronavirus, all movie releases were postponed or canceled. Users could see some Chinese movies on the Internet platforms such as Xigua video and Douyin. Online TV dramas also received many views during the epidemic.

Through the way of “film + Internet“, movies can have new development channels and rid the model of box-office revenue. It also can be the way of small and medium-budget films to compete with big movies.

[Data Source: MobTech, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Movies and TV dramas became more popular during the epidemic]

The consumption boom after the epidemic

Chinese people look forward to going out again after Covid-19

21-30-year old hope to have dinner with friends and family in restaurants after the epidemic. They focus on the quality and health of restaurants. They are the key clients of catering market’s recovery.

31-40-year old wish to travel after the epidemic. Most of them will choose short trips in China since the epidemic is still serious in other countries. They probably will get away from the most popular travel destinations to avoid crowds.

41-50-year old plan to visit their parents after the epidemic. They usually purchase health products for their parents, thus health related products will even have more sales than before.

More purchases will come after COVID-19

According to the survey of DATA100, more than 70% of consumers say they will purchase more after the epidemic. Thus, Chinese consumption will have a quick growth after their daily lives return to normal.

[Data Source: 100.com, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Chinese consumption will grow after the epidemic]

What will be Chinese people’s first consumption after COVID-19

Food & Beverage

29.3% of consumers choose “Food & Beverage” as the first consumption after COVID-19. There is no doubt that many of them would take milk tea and hot pot as the first choice.

Go shopping

15.8% of consumers choose to “Go shopping”, far exceeding other consumer scenarios. It may be related to consumers’ long-sufficient shopping desire during the epidemic.

Still stay at home

9.7% of consumers choose to still stay at home, which should be related to the fear brought by the epidemic. They will keep the way of consumption during the epidemic.

[Data Source: Dataway survey, COVID-19 impact on Chinese consumer behavior report by daxue consulting. Food and beverage will be the first consumption after the epidemic]

Resuming work is helping consumption recovery

China’s recovery from COVID-19 outbreak impacts on consumption. More than 50% employees were already back at work during the first week of March 2020.

The white-collar people in the first-tier cities are the first group back at work. They showed high consumption demand for F&B, especially delivery services. The food delivery is growing very fast in tier-1 cities.

Consumption areas that are starting to recover

[Source: Reuter Communications, China gradually goes back to business]

Increased caution regarding health and finance

In terms of consumption, Coronavirus has a greater impact on young people, especially consumers between 20-30 years old. The epidemic may invoke feelings of financial insecurity. Hence, they may be inclined to have less impulse spending and save more.

The health management of the Chinese consumers will be the primary consideration. Additionally, consumers may pay more attention to the science behind health and diet. Health products and organic food may have long-term growth trends.

The epidemic made consumers realize the importance of insurance, they will secure further family risk prevention from purchasing insurance.

Key Takeaways

Chinese daily life went online during the epidemic

The Coronavirus outbreak largely increased the time spent online, it further digitalized the Chinese people’s consumption, entertainment, and social lives.

Health-related market achieved much growth

Due to the epidemic, the Chinese consumers are paying more attention to health-related goods such as household cleaning products and fitness equipment, this habit may continue for a long term.

Fresh food e-commerce should continue to expand penetration

The epidemic has provided a large growth for fresh food e-commerce to increase the penetration rate of the industry, so it may follow the trend to improve further.

Many consumers will remain cautious

The sense of panic and depression during the epidemic may linger, part of consumers may be more cautious and health-conscious.

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Full transcript below:

Matthieu David: Hello everyone. This is China Paradigm, where we, Daxue Consulting, interview seasoned entrepreneurs in China. Hello everyone. Today, I am with Vincent Ghossoub. I met you in Hong Kong at an event for tech startups and I thought I had to interview this guy because you are in between China and the Middle East. I’ve interviewed many people who were in between the US and China or Europe in China, but you’re in between two parts of the world we rarely talk about and still, there’s a lot to do. You’re in an industry where China is playing a big part. It’s China’s game industry.

Tencent and many other studios are developing games for the world. That’s something I discovered through research we did for one of our clients. One-third of the top 100 apps in India are Chinese. Now people understand how China can be big in apps when we talk about TikTok. But so far it has been a bit unknown how big it could be. So, you have co-funded Falafel games. Maybe, you will tell us more about your co-founders later. You co-founded Falafel Games in April 2010 and you are still the CEO up till now. So, for close to 10 years, you’ve been adapting and developing games for the Middle East from China. I’m sure you’re going to correct me about what you do exactly, but you are adapting and developing games for the Middle East from China and you are also pushing them, doing some marketing, and contributing towards the acquisition of this game in the Middle East, and further than Middle East—Arab-speaking countries, if I’m correct.

You have raised money. You have raised several million. My number is 4.7 million so far from very actually interesting investors such as the Irish SME Association, Middle East Venture Partners, and twofour54 which is an Abu Dhabi-based incubator. And again, that shows me how the links between the Middle East and China can be. One more number: you are attracting, on your different platforms and games, more than 2 million users. And in one interview, we found out that you have been able to monetize on average $0.50 per day per user. Thank you very much for being with us. So, what do you do exactly? What’s your business model? Who are your clients?

Vincent Ghossoub: First of all, thank you very much, Matthieu, for having me. You did a great presentation and introduction explaining what I do. To answer specifically, the clients of Falafel games are basically end-users mostly based in Arabic speaking countries as you mentioned. And half of our revenue comes from Saudi Arabia. 

Matthieu David: Okay. When you say that your clients are the users, does it mean that you develop games for the Middle East from China? It’s not what I understood initially. I understood that you were taking games from China or from wherever in the world to adapt them to Arabic speaking countries.

Vincent Ghossoub: We do have this line of business currently. So, basically, we publish games. We find games that perform well in China’s game industry that are just about launched and the KPIs are okay. We approach the developer and we offer them the opportunity to promote the game in new markets such as Arabic-speaking markets and now increasingly Persian-speaking markets. So that’s one line of business. We do also develop our own games in parallel. And we have a live streaming platform from China also. 

Matthieu David: True. I remember when we met, you actually insisted on your live streaming platform from China mainly initially. Would you share a bit more about the size of the company now? I mentioned $4.5M raised so far as investment and 2 million users. I don’t know if it’s daily or yearly users. Would you mind sharing a bit more numbers, your offices, the size of the team, or the size of the company? Can you share some revenue numbers and confirm the numbers I just mentioned? 

Vincent Ghossoub: Yes. So, your numbers are not too far off—maybe they date since our last discussion. In fact, from the Arabic-speaking markets, we have 3 million cumulative users. This is the number of members of users who have installed any one of our games. And our games are focused on the mid-core category. So, the mid-core category is generally speaking very lucrative per capita. But in terms of volume, it’s quite niche. So, 3 million installs out of a market of, let say, 50 million people in Saudi and GCC, which we specifically focus on as a specific target market in the whole Arabic-speaking market. I think it’s quite an okay penetration. In terms of company size, we have sales of a few million. We have about 28 people in most places between China and Beirut, Lebanon. Yeah, as you said, we raised $4-5M over the course of the years. Yeah, generally speaking, this is the outline.  We have launched six or seven titles so far.

Matthieu David: So, thank you very much for clarifying the size and what you do. More precisely in China’s game industry, you are talking about a niche of games or apps. What’s the name of this niche you’re targeting?

Vincent Ghossoub: Most of us in the industry call it mid-core. So, it’s between casual and hardcore. I’ll try to simplify it with as few parameters as possible. It’s basically the time commitment needed by a user to spend on a game. And the attention needed to put on a game while playing is more or less what defines the whole continuum from casual to mid-core to hardcore. 

Matthieu David: I see. Are there some examples that people can know? 

Vincent Ghossoub: Yes, of course, instead of being too abstract with the definitions. So if you were to spend, for example, both hands on your phone screen on a game and 100% of your attention over the span of one hour and a couple of hours every day and over a few months, this is a lot of time commitment, especially that your full attention is taken when you’re playing the game and both hands are taken. So, this is hardcore. But if you are, let’s say, to spend one or two hours a day over a few months also, but with much less attention when you use it… let’s say you open the game, you do a couple of turns, you switch to email and nothing happens, you have a discussion, you have a call, you come back to the game, and you readjust your situation on the game and then keep going. With sessions of say, 30 seconds and maybe 30 sessions a day, this is mid-core. And then casual is like you can play in a minute and then you don’t have to commit for days or months.

Matthieu David: So, one example that everyone knows is Tetris. Will Tetris be casual, mid-core or hardcore? 

Vincent Ghossoub: Yeah, Tetris is casual. 

Matthieu David: It’s casual. 

Vincent Ghossoub: You can play it for a minute or a session and you can drop the game for six months and nothing happens. Then you come back and you can still play.

Matthieu David: What would be a well-known hardcore game? Will Final Fantasy be a hardcore game? 

Vincent Ghossoub: Final Fantasy is quite a heavy-duty, mid-core game. For a hardcore game, you need to have your full attention focused on it. So, for example, the recent Call of Duty does require full attention over 30 minutes. You cannot get distracted while you’re playing. Call of Duty Mobile released based by Tencent Studios basically is something I would call hardcore. Now, a lot of people in China’s game industry or anywhere else would agree with me on how this is defined. Generally speaking, those two defining parameters—time spent per session and attention spent per session—are something we all agree on.

Matthieu David: I see. By listening to what you said before, I feel that I overstated, in fact, the link with China’s game industry because I feel actually you develop your own games, you develop games for the Middle East from China or the live streaming platform from China. I’m not seeing the link with China as obvious as before except that you have an office in Hangzhou.

Vincent Ghossoub: The gaming business is a global business and our presence in Hangzhou is in China. And our foundation is in China. So, I founded the company in China. The company had spent six years in China before establishing anywhere else—seven years even. So, the presence in China has been essential in a few ways. So, we have employees in China. We have talent in China. We learn best practices in China’s game industry. And we do find games and partners who have games in China which we could promote outside. So, both for the games we develop, for the games we publish, and for the talent we need, China is always a part of the recipe.

Matthieu David: I see. I see. So, I understand now that China has been the place where you founded it. So that’s why actually you have a link with China; because you were there. I think you were at that time studying at CEIBS for your MBA in Shanghai or maybe in other cities because it should be Europe and China Business school. I understand that it’s by that circumstance that it started in China. And then you learned from this environment in transformation with digitization. It’s so big and so advanced in China and especially in Hangzhou. Okay. I get it. 

Vincent Ghossoub: Beyond digitization, there were some very specific trends that made it make sense to set up in China. At that time, China’s gaming freemium model (free-to-play models) were extremely nascent in the West while it was growing and becoming dominant in Asia (Korea and China) for many reasons. Mainly the Koreans started implementing it because of the situation in China where piracy was rampant back then because people wouldn’t pay to buy a box game. They would want it for free. They were used to free content back then. And then Chinese companies kind of perfected this art way before it was adopted and completely embraced in the West—in the US and Europe. So, at that time, China’s gaming freemium model which was emerging made very much sense for the Middle East because it shared a lot of similarities with the environment in China. Piracy used to be rampant back then in the Middle East also. And the internet had just come of age whereby you could actually play a game on the internet while just a couple of years before that, you had to buy it on CDs as box games. So, we shared the same attributes in terms of piracy and in terms of the need for free content and no fluency at all with buying paid content and the emergence of acceptable internet infrastructure. So, it was sort of two very similar markets except for the language difference obviously. So, beyond just digitization, very specifically in the games business, China was a good reference and model back then.

Matthieu David: What has changed? What has changed that China’s gaming freemium model now is not the mainstream and then you can have a premium? What has changed that now people can pay? Now you are monetizing like $0.5 per user on average per day. It’s a huge number for me. When you multiply it by 360 days and by 2 million, it seems huge. So, what has changed?

Vincent Ghossoub: We don’t make $0.50 per day per the millions. 

Matthieu David: Yeah, I calculated it. It’s like $300M. 

Vincent Ghossoub: Yeah, hopefully soon. But basically, if I have like a hundred users enter my games today or are active today whether it’s their first time or their nth time, I make 40 to 50 cents per these users per day. So, it’s not over 2 million. Hopefully soon. We have tens of thousands of users, a few thousands of daily active users, basically. 

Matthieu David: So, the question is what has changed?

Vincent Ghossoub: Do you mean what has changed from premium to freemium or China’s gaming freemium model being bashed these days and turning back to premium?

Matthieu David: You said that similarities were between China and the Middle East and that China’s gaming freemium model and the willingness for people to pay were low. And that freemium then became more mainstream and it had to be freemium if you wanted people to use the games. So, people want to use the games. But now it turns out that in China’s game industry, and I don’t know if it’s the case in the Middle East (you know it), people pay for games. People pay to be VIP clients of QQ email. Just because you have a bigger box, you pay for that in China. So, they accept to send small money to KOLs. What has changed in China and in the Middle East if the similarities continue to be built? What has changed that now you can ask them to pay?

Vincent Ghossoub: Yes. So, first of all, there’s a disconnect and this behavior these days between China and the Middle East. Chinese users have become much more willing to pay outright for content. While this hasn’t happened yet in the Middle East, they still expect free content and try to do their best to work around getting free content. But, of course, you can monetize them well in different ways. So, certainly, China has gone very fast through this transformation of going from ‘we want all the contents free’ to ‘we are happy to pay and even at rates much higher in some cases and in some categories than the West (paying outright for content)’. Just thinking of it, generally speaking, I don’t think much has changed. I just think the natural evolution of things is taking place.  

So when you think about it, if I want to go out with my friends today and watch a movie, let’s say, we’re going to spend ¥100 or ¥200 per person, basically, we’re watching a movie and spending time together while increasingly we are spending time together online, separate physically, but spending time online and we can get that same movie for ¥2 or for a ¥20 subscription or ¥30 VIP subscription on some video-on-demand platform or something. So that’s online entertainment. It’s the same thing for China’s game industry. If we were to go out to a bar or play tennis or something, we’re going to spend a couple of hundred RMBs also, while we might spend ¥2-3 per hour if we’re like having fun online. So, it’s just normal. Online entertainment is still by far the cheapest form of entertainment on a per hour basis. 

So, one thing that really changed and made people realize that it is actually quite cheap to have fun online is maybe the increased penetration of payment systems such as WeChat and Alipay. So, they’re used to buying. We’re more used to ordering online and transferring money all with our phones. So, it’s really one click away. It completely removed the friction from seeing, let’s say, a movie online for ¥2 or for a ¥20-30 subscription and paying for it. But that pricing had always made sense. In fact, I think if you look at how much disposable income goes online, it’s still a tiny portion. I think we can still spend much more online than we are today.

Matthieu David: So generally speaking, we know that users moved from China’s gaming freemium model to a little bit of premium which is $0.5 per day when they are active, as you said, on average. What do they pay for?

Vincent Ghossoub: It’s a bit less than $0.5 in our case. And in our case, it’s still China’s gaming freemium model. So, when I tell you it’s $0.4-5, it’s the average. If I take today’s revenue and divide by the daily active users, it’s $0.4-5, but only 1% of these users paid and they subsidize the remaining 99%. So, it’s still freemium. As you mentioned, you can pay for a lot of things online like the outright content subscriptions, premium games, and items inside of games. So, specifically, for items inside of games such as our case, basically you can categorize what the payers pay for in three categories. First of all, it’s utilities. Utilities are, for example, making my experience of the game easier. Let’s say you want to send two coins or one unit of stamina to all of your friends in the game. With one button, you can send it to all of them and that’s going to cost you a few gems. And the gems convert to dollars. They are bought with dollars. Instead of sending to all of them one by one, it just makes the experience smoother. We remove the ads if you pay a small amount. That’s utilities.

The second category is cosmetics. It’s just cosmetics. You just want to make your avatar look nicer. You want to add skins. You want to make your gun brighter. You want to have a crown on top of your icon. It’s things like that, that don’t perform in the game experience, but just look better. And when you spend enough time on the game, you might want to say, “It’s time for me to put my signature on the game”. The third category is performance items. So, for example, sometimes in strategy games. You mentioned Final Fantasy in games. Similar to Final Fantasy, you need to upgrade your heroes and find the items for your heroes and upgrade the items and go to battle. And you have very few stamina points for the battles. So, for all of these, for the waiting, you can accelerate it. For the finding, you can increase the chance of finding. For the battle, you can battle more by getting stamina. So, all of these bonuses—less waiting, more chance of finding, more battles—are paid for with gems.

Generally speaking, it varies with the markets. But in our case, a fraction is the performance. So, people just want to perform better in the game. And we can discuss a little bit of the psychology behind that. Cosmetics and utilities are a couple of percentage points of the overall spending of gems. Now, why do people want to perform so well? You have different kinds of gamers. You have the gamers who play on their own. They just want to feel they’re achieving. What is the Olympic slogan? Higher, further, stronger or something like that. So, they’re happy with beating themselves time after time. So, they might want to improve their performance from time to time. You have the killers—those who really want to compete. They want to perform better than others. So, you have leaderboards for them to compare. Sometimes, there are direct confrontations between them. So, someone wins and someone loses. You have the socializers who just want to spend their time lubricating the system and doing alliances and chatting and messaging with each other. You have the explorers who are just curious about finding out more and more hidden corners of the game.

Generally speaking, the killers are the most lucrative in the performance. That’s at least in our category of games. Now you would say we have killers who pay thousands of dollars a month. Now you can say, why do these people spend so much? And I can make the case why this is actually, first, a very proportion of their disposable income. Second, it’s much cheaper than all of their other entertainment options. But most importantly, what you do when you’re a leading killer is you’re basically showing status. You are getting a certain puff of psychological satisfaction by being the leader, by being the number one. And here, I can showcase a few situations why this is still taking place outside of games. And it’s much healthier inside of games.

So outside of games, you can go to the hottest mall in Beijing and check the cars parked by the gate. So, these cars are the most luxurious cars in the country and they’re parked there at the front of the gate. Why are they parked at the front of the gate? They’re parked right at the gate for two hours because it’s to a very large degree, one utility, but most importantly a status symbol. And that car was expensive compared to the status symbol you can get inside of a game, especially that only a few hundred thousand people are going to walk in and out of that mall and see the car while tens of thousands are going to see you for over an extended period of time inside of an online game.

So basically, I’m selling you the psychological puff, that satisfaction, without selling you the metal, wheels, alloys, and all the pollution that goes along with it. Basically, it also goes down to the question of what are you buying when you buy a pair of jeans? Why was your pair of jeans more than ¥1000? Tell me. What’s the reason? Why wasn’t it ¥50? Why that premium? That premium is basically a puff of emotional satisfaction. So, I’m selling you that puff without selling you the denim and for a much more extended period of time. So, it completely makes sense. If you’re willing to buy a ¥1000 pair of jeans, it completely makes sense to spend ¥500 on a much better level of satisfaction inside of an online game. In fact, let me go even further. There were Imperial colonial wars waged on colonies. Let’s say Holland in Indonesia or France and other places just so that a person in Paris drinks a cup of coffee and gets that satisfaction. That cup of coffee, let’s say, was sold for 5 Francs in some Parisian cafe and maybe the ton was bought for 5 Francs from the colony. So, the coffee shop was not selling coffee beans. The coffee shop was selling that puff of emotional satisfaction. 

Matthieu David: Interesting. So, what you are saying is one of the reasons for paying is social status. You believe that people want to compare to others. They want to be the first. They are competitive. As a killer, the psychology, as you said, is to be above all the others. Actually, we moved a bit further in your core business and how people convert from China’s gaming freemium model to premium. Actually, before that, I wanted to talk about the beginnings of Falafel Games in China. I believe Shanghai and Hangzhou because you have been studying in Shanghai at CEIBS and you have your office in Hangzhou. Could you tell us more about how you started and with whom? Why games? Are you a developer yourself? Why did you start this business? How did you start to develop games for the Middle East from China, with which money, and with whom? I need a bit of understanding of how it started for people to get a better sense of what the start was.

 Vincent Ghossoub: It’s a long story. I like to say I started it when I was three years old, ever since I could hold a controller because from whenever I was three years old until I started the company after my MBA graduation, there had always been a very obvious lacuna in the Middle East market. And there were not many games with authentic Arabic content. And that was not like, ‘Oh, such a discovery’. It was so obvious. It turns out when I was doing my MBA in CEIBS (China Europe International Business School) in Shanghai, it was the time when the trend we just discussed—the growth of China’s gaming freemium model and the maturity of the internet infrastructure—was taking place. And I had a few classmates also who had been in China’s game industry. It just clicked in my mind—the fact that now you can make a game that does not need to be pirated, that is free, and that can still make money in areas where the internet is just coming of age and solving the problem of lack of content. It just made perfect sense. Now, it’s really a no-brainer. It’s a very simple proposition.

Matthieu David: I take myself as an example. I’m French. I grew in France in a very French family and environment. I didn’t know what I didn’t have. Suddenly, if some movies were not translated in French or games weren’t translated in French, I just couldn’t know them. But I believe that your ability to assess that there were more games in English that were not in the Arabic language is because you have been educated in a very international environment. Because when I go on your LinkedIn, I see that you have been at the American University of Beirut. You have been in Toronto. And you have been at CEIBS. So, from the very beginning, you had an international mindset in order to be able to compare with other countries, behaviors, and so on. Am I correct with that? 

Vincent Ghossoub: Now, you’re asking me to come out of my shell and look at it and analyze. Maybe. Maybe, but I don’t think it’s so extreme really. I think I wouldn’t attribute so much the realization and the articulation of the opportunity to, let’s say, my experience in living in many places and international outlook. I just used to play games. 

Matthieu David: Okay. 

Vincent Ghossoub: So, imagine you loved watching movies when you were a kid in France and all the movies were in English. Let’s say that was the case. I know that this was not the case, but let’s say that was the case. Then you don’t need to be like Marco Polo to realize that it would be nice to have a movie in French—or at least to have it translated to French or dubbed. So that was my trigger. It wasn’t like so much international outlook. I used to play games and they were in English. What can I do? And you don’t need a lot of languages to be able to play the game. But the actual lacuna I noticed is content, not language. So, it’s not just about a matter of translating the shape of the heroes, the story, the narrative, and all of that. So, that’s one, but I think that’s in terms of articulating the opportunity.

But I think in terms of execution, this is where the international outlook really helped me. So, just in terms of context, I also lived in France during the Lebanese civil war for a couple of years during my childhood and in North America and the Middle East, in Lebanon, in Iraq, and in China. So that’s like three or four continents and four or five countries. It just made things easier. I didn’t see the barriers like doing cross-border business of like negotiating with my first Chinese partner. For me, it was just like some dude. He’s a guy. There’s a lot of them all over though. I didn’t see a big barrier in doing that. The travel needed, the cross-language communication required, and all of that including my international outlook maybe made me reckless. It gave me a reckless attitude toward it, which in a way can be good as long as it’s not too reckless.

Matthieu David: So as far as I understand, you had an understanding but also a passion for games. And it was obvious to you that you would do something in games. I mean there was basically an attraction to games. And you were in China studying at CEIBS. Because you were studying in China, for you, it was a laboratory to see what’s happening, digitally speaking, with China’s game industry. And maybe, Korea as well as a laboratory for you. And you started that to get inspired to learn the best practices and so on. It’s a bit counter-intuitive for me because what I get from most people in the development and online businesses is that China is expensive. China is not a place where actually developers are cheap. It’s not a place where you can find developers easily. It’s not a place where they can develop for the world because it’s very China-centric compared to India for instance. So that’s why for me, it was a bit contrarian. How do you react to that?

Vincent Ghossoub: Yeah, I always get that. So why are you in China? Is it because of the costs? 

Matthieu David: That’s not the case, right? 

Vincent Ghossoub: Costs are very high. Yes, of course, there’s a lot of competition from most multinationals and from a lot of software companies to get the talent. And despite the big volume of talent supply, in fact, if you divide it by the number of companies competing on that talent supply, it’s quite competitive. And it just jacks up the salaries basically but there are a lot of reactions. There are a lot of justifications for that. First of all, it’s the best practice developed. So, China is a bloodbath in terms of China’s game industry and it’s leading in terms of competition.

Matthieu David: Would you mind sharing two examples of the best practices? What best practices have you learned from China?

Vincent Ghossoub: It’s just doing good game design. So, if you look around the whole world, teams that could do good game design develop a game efficiently. There are very, very few places. And China is one of them where suppliers are big enough or large enough. And if you compete, if you are able to acquire, you can come up with something. So, let me boil it down to you to a very simple equation. You want to make a game in China. You want to make games in China. So, let’s say you have a certain cost; let’s say $1M to make the game. So, your cost per game is $1M divided by one. You spent $1M to make a game. If you make it elsewhere, it might cost you $500,000, but you’re not sure you’re going to get a game. So, it’s $500,000 divided by zero. You end up with zero games and it’s practically infinite costs. So, per human resources, it might be cheaper elsewhere. But per game, you might end up with no games.

I’m not saying it’s only China that can deliver that. Of course, there are other places that are still much more expensive than China. Northern Europe, the US, and Canada can deliver good quality games. And there are even developing countries. It’s not like it’s the monopoly of advanced places. But the idea here is that you need to get a good game so that you can compete. And then you stop asking about the cost of your human resources, especially that your cost of human resources is practically not the cost of goods sold. It’s not like I’m buying cheap and selling slightly with a markup. In games, if you think of the cost structure, the development team is a fixed cost. You have to pay for the salaries every month. And then the revenue is variable. So, it’s very high operational leverage. The revenue can grow ad infinitum in theory. It can grow infinitely in theory without much growth in your fixed costs. I’m not mentioning here the variable cost of the marketing.

Matthieu David: Yeah, that’s the beauty of it. 

Vincent Ghossoub: Yeah, exactly. So, if you’re in a situation like this and you’re chasing the utopia whereby you get high revenue compared to the fixed cost, then you will accept to have a fixed cost that’s still okay and relatively high because the revenue is so much higher. And if you try to save a little bit on your fixed costs, let’s say bring it down by 20-30%, you might be killing the chances of the game even breaking even on your fixed costs.

Matthieu David: So, we understand that there is an investment.

Vincent Ghossoub: Yeah.

Matthieu David: Initially, you need to invest for a period of time to develop games for the Middle East from China. How did you invest? Was it your own money? Did you raise money from the very beginning?

Vincent Ghossoub: A bit of everything. So, early on, we just discussed the proposition. The proposition is quite simple. And if you look at the Middle East market, generally speaking, it’s around 400 million people, a homogeneous language or quasi-homogeneous religion, a lot of common cultural norms, they have a young population, and they are well-connected. So, it’s a good opportunity. So initially, I put in some of my money. I was able to convince a couple of friends to put in a little bit of money. And most importantly, I found a whole team because, in games, you need multiple skills. 

Matthieu David: What skills do you need?

Vincent Ghossoub: The art, engineering, game design, and management. You need to glue them all together. And then, of course, a few sub-skills within these. You need them all. You cannot have one link missing.

Matthieu David: Designers. 

Vincent Ghossoub: Yes, design. Game design. So, I was lucky to find a game development company based out of Hangzhou which agreed to partner with us for equity to go after the opportunity and put in their own team. 

Matthieu David: Wow. 

Vincent Ghossoub: And I had the option to bring that team in-house and I did exercise that option. So, I don’t have the exact numbers in my mind. We needed a few hundred thousand dollars to come up with that first game. And we only had tens, maybe a couple of hundred thousand, in cash commitments early on. But along with the team that was working on it for equity, we were doing progress and this allowed us to raise our first institutional round.

Matthieu David: How much time did you take to develop your first game for the Middle East from China? Did you talk about two months, three months, six months? 

Vincent Ghossoub: No, no, no. A lot of time. Generally speaking, our category of games has a very variable production cost. In our case, it’s about 15 people over 15 months.

Matthieu David: 15 people over 15 months. I see. 

Vincent Ghossoub: Yeah. So, 225 man-months. But you have similar games in the same category that might cost tens of millions of dollars—10, 20, 30 million sometimes just because it’s so easy to spend bottomless pits of money on, let’s say, perfect art, more art, and more stages. And you always have a critical decision of when you should launch and start harvesting or collecting money. When you’re at 50% or 99% or 150% of the development progress in the game, it’s something that affects your upfront investment. But generally speaking, now more and more, the upfront investment in developing games for the Middle East from China, whether a few hundred thousand dollars like our case or a few million dollars like many cases or even tens of millions in very few cases, is generally not the main upfront investment. The main upfront investment eventually turns out to be the user acquisition spend. 

Matthieu David: But this is like less of an investment and variable cost because you should cover your cost after the acquisition, right?

Vincent Ghossoub: Yes. So, I mean it also depends on policies cause it’s so variable. You can spend $100 on user acquisition per day or you can spend $10,000 per day. You can spend millions per day. It’s extremely variable. Essentially, it boils down not only to that, but an easy parameter is a cost per install. So, you put your target installs and then you know your budget needed per day. And that can be extremely highly variable. Let’s say you have a policy of like 90-day-payback on your ROI or your ad spend. So, you have this initial trust that you have to go through and you need the cash balance for it. Some companies go for a 360-day-payback. So basically, the idea is if I spend, let’s say, $100 on Facebook ads today, from the cohort of users that get acquired from this $100, how long do I need to earn back the $100? So, I keep optimizing my targeting and my budget allocations until I need a certain payback target. So, if my payback target is 90 days, depending on the game, the game quality, and the advertising quality, I might reach a high volume of players or a low volume of players. But the longer my payback target period target is—I know some companies who have 440 days payback period target—then your cash balance needs to sustain all that trust. That valley is huge.

Matthieu David: I think another question that many people who are listening to us are asking—and I am myself—is how were you able to connect with this Chinese company to convince these Chinese company to work with you and to actually work well with the Chinese company when you are just an MBA student or you just got out of the MBA? I think those three items—how you found, how you convinced, and how you worked with them—are kind of a mystery for us right now.

Vincent Ghossoub: It’s kind of a mystery to me too. The secret word here in my case in how I found this Guanxi. I’m sure you have like 50 podcasts where you discuss Guanxi. It’s a friend who knows a friend who knows a friend and then it’s a chain of favors. And then, things get done. I was very lucky that my MBA gave me sort of like a soft landing in China and I was able to build a small network of well-connected businesspeople in China. But you have to push through. The first layer of your Guanxi is never the one that gets you the connection. Then you have to ask one person for the next and build trust. Then they ask the next for the following and build trust. And you don’t know in which branch of your Guanxi network where you can eventually get the click where there’s a good synergy for good business.

So, I had a friend basically. I have one of my alumni who was into gaming too. And we were going around looking at opportunities in games and going to conferences. And then he remembered that he had that friend who had a development company who does things that I might be interested in. And then we discussed that. He was interested in my market and my proposition and he agreed to put in his team. Another thing in games and software, in general, is that you could, to some degree, build one cell infinitely many times. So, from the perspective of our first development partner who entered for equity, they could build our games skinned for us once and reskin it infinitely many times for other markets. And that was their idea. So, they had actually every skin of our very game in the Chinese market for themselves. 

Matthieu David: I see. 

Vincent Ghossoub: Let’s say his investment in nine months was $500K. But that $500K also went into his own games. 

Matthieu David: I see. 

Vincent Ghossoub: So, the margin of cost he had for us was not so much. It was like tens of thousands. So, that’s how we found it. How we worked was much more difficult. And I think luck and perseverance were big factors because I completely moved to Hangzhou. I stayed on top of it. I knew we were not going to understand each other. They barely spoke English. We barely Chinese. So, our proposition was bringing Arabs with Chinese together and develop games for the Middle East from China. I can barely work with Arabs. I can barely work with the Chinese. Now I have to work with both and let them work together. So, it needed a lot of perseverance, I think. And one of the mottos I had is whatever the problem is, consider it a cultural gap problem first. Put that off the table. Sometimes, it’s coordination. Sometimes, it’s bad code. Sometimes it’s implementation not as per requirements. I didn’t start like this, but I got to the point where whatever this problem is, let’s see whether it’s a cultural communication? Should we just sit and cross the cultural bridge and put it out of the way? And then if I make sure all the possible cultural gaps are not there, then it’s a normal professional problem that you handle normally and professionally. But guess what? Most of the problems were of that first category.

Matthieu David: I see. Very interesting. Very, very interesting. When did you raise your first round from institutional investors? I mean, understand it was from a partner first and then from institutional investors. Actually, I’m surprised about the investor you have. You have the iSME. I didn’t know about them—Irish SME Association. I didn’t know they would invest in it. And then you have the Middle East Venture Partners. I understand better because they are Middle-East focused. And then you have an Abu Dhabi based incubator. 

Vincent Ghossoub: We might be mistaking the iSME you are mentioning here. So, the iSME that invested in me is basically a Lebanese financial entity which is a joint venture between a large loan insurance company in Lebanon and the World Bank. Half, half.

Matthieu David: I see. So, it’s not Irish at all. So, my team wrote wrong. Right?

Vincent Ghossoub: It seems it’s the same name. Maybe, I shouldn’t say iSME. I should just say Kafalat which is the name of the loan insurance company because iSME is almost like an internal name for them. It’s that small initiative. It’s just a small fund of maybe $25M or $50M or something like that which they put half and the World Bank puts half. It’s for equity investment. In fact, it’s for equity matching. They don’t invest. They match. And in my case, they matched MEVP with this venture partner which is my lead investor in a couple of rounds—two rounds, basically. 

Matthieu David: When did you raise? One year after? 

Vincent Ghossoub: Yeah, about one year after. Like they say in the stories and when you listen to podcasts, I got Series A or Series B, very finite, opened round or closed round… maybe because I’m in a market with very little equity financing liquidity. So, it’s like an ongoing thing with me. My round is always open. My valuation is always going up and down and those windows are not so well defined. So, to tell you how it went—this kind of like flexible, ongoing thing—I got $100,000 convertible loan by MEVP first and they had three conditions to enter with their follow-up equity round. I think it was $500,000 or $600,000. One of them was getting a co-investor. Two of them are operational. One of them was getting a co-investor. And I was really, really lucky that the game we were working on, met the branding of a TV series that MBC (Middle East Broadcasting Corporation) was working on. So, they accepted to join that round and I cleared that condition. I also cleared the other two conditions. So, they entered with an equity round then of 800 more or less. Yes, 800, including the convertible and they converted their convertible note to equity with a discount. And then the following round was also led by MEVP and followed by twofour54 and iSME. 

MATTHIEU DAVID: Did you raise money because you were not profitable or did you raise money to go faster and develop new markets?

Vincent Ghossoub: Both.

Matthieu David: Okay.

Vincent Ghossoub: It went hand in hand. 

Matthieu David: Are you profitable now? 

Vincent Ghossoub: We are if we want to. 

Matthieu David: Okay. I see.

Vincent Ghossoub: So, we are investing heavily in our live streaming platform from China. And it’s eating from profits and from the capital in our live streaming business. 

Matthieu David: I see. 

We have not talked enough about live streaming and we’ve been talking for one hour already. So, I’d like to take five minutes to talk about the live streaming platform from China which actually seems to be the masterpiece of Falafel games. I feel that it’s the cornerstone of it. Could you tell us more about what it is, how you monetize, how important it is, and where it came from?

Vincent Ghossoub: Yes, of course. So, today the interactive live video multiplayer platform is indeed the masterpiece of our strategy moving forward. And in fact, it’s even a separate kind of department and even a subsidiary in the whole Falafel Group. So, we have the developing games for the Middle East from China part and the live streaming part set up in two separate legal entities, but it wasn’t designed that way at the beginning. In the beginning, it started as a simple product to solve one challenge we had in the game part, which was that the cost per installs (CPIs) were rising dramatically and significantly fast. And ROIs were thinning. So, we were thinking, “Okay, where is this going and what is an approach we can do so that we dramatically reduce our CPI?”. And we found a nice category of games with experimentation. And after the experimentation, we realized how nice it is and we were able to articulate it.

It’s basically games that are not in Arabic and cannot be played by Arabic users such as word games or quiz games. A competitor from, let’s say, the US can come with the best quiz game in the world but if it’s not good Arabic content, my crappy game in comparison will do better. And people will want to install mine because of the content. It’s basically the difference between necessary local content and nice-to-have local content. Consider yourself a user and going through a journey. And I tell you to come to play this tank battle game. Whether it’s an English or Arabic or French, it’s not going to make a big difference for you. The language is nice to have, but if it’s a quiz game or a word game or crossword game, whatever, it’s a must. So, we put out a crossword game which was a really cool game by the way. And it just sucked traffic like crazy. In fact, I don’t count this traffic as part of the official KPIs I gave you early on because it was more of an experiment and outside of our core back then.

But to give you a comparison, when we launch a mid-core game, let’s say a strategy RPG game, our cost per install is $2 to $7 depending on the channel and the quality. It averages out at about $4. It’s a bit less than $4. It’s $3.5. When we launched that crossword game, it was a must-have Arabic game so there was very little competition in that category. And although, in general, Arabic-speaking people don’t like too much reading games or games that involve texts, with only $13,000, we were able to get 500,000 installs. Make the comparison. Yes. In terms of CPI, it’s very big. I don’t know; is it like $0.3 CPI or something like that? So, it’s a very big difference and we concluded that the reason was that this game is a must-have. It must be Arabic. It doesn’t have much competition. And then we stumbled upon a second problem.

We thought, “Okay, let’s go after this category”. But then we stumbled upon the second problem. It’s that text medium doesn’t monetize as good as a strategy or role-playing games. So, lifetime value (LTV) of your user is very low. Then you go back to the problem of low ROI. In the case of mid-core, it’s a high cost to acquire and high lifetime value per user with a thin margin. In the case of a quiz, it’s low CPI but also lows LTV with a thin margin. So, what are we doing? And so, now we set out to bring up the LTV and we thought, “Okay, let’s move from the quiz or text medium to the live video medium where we have real hosts who present the game”. It’s much more engaging.

So basically, it turns out like Who Will Be The Millionaire game kind of whereby instead of having one participant, everybody’s competing at the same time on a leaderboard. Everybody’s talking, chatting, and interacting with each other and especially between themselves and an audience and the host who is streaming live. And the LTV was slightly better. So, we found a good chance here—high ITV, low CPI. We can go after this. And it solved in a way another problem which we had in China’s game industry and the world’s one, which was the sunrise, sunset reality. You know, for every game, you have to launch it, you harvest for a while, and then it sunsets. Then you have to go again with new games or revise the game somehow. So, there are almost always up and downs. But the live video content is basically kind of like YouTube. You always have new content that you can put out there. So, we’re hoping and it’s starting to prove that it’s much more sustainable. It grows slowly but it’s sustainable. 

Matthieu David: Sorry to interrupt.

Vincent Ghossoub: Yes.

MATTHIEU DAVID: Livestreaming platform from China. Live video. I mean Facebook, as you mentioned, is doing it well. How do you differentiate yourself from them for instance?

Vincent Ghossoub: Did you say Facebook? 

Matthieu David: Yeah.

Vincent Ghossoub: So, of course, there’s Facebook. There’s YouTube. There is Twitch even. But our proposition is basically mostly interactive live streaming platform from China with a lot of different ways to interact with the game. So, we have games set up on top of overlay—on top of our live video feed—where a host or an influencer can come and set up. So now we have variations of quiz games. We have roulette games whereby the host is practically the dealer in a social casino setting. So, no cash-out. And we are releasing, I guess, what’s in the box game. So basically, the video feed technology is the same but we have a lot of gamification on top, which I don’t think Facebook or YouTube even want to do. It’s not their DNA. So, we’re a completely separate DNA from what they’re doing. And we’re geared towards maximizing revenue for hosts and influencers. So basically, our product road map is going to the influencers and hosts and telling them, “What do you want now that can help you make more engagement and more money and we’ll just do it for you”.

Matthieu David: I see. Do I understand well if I say that during a live stream, for instance, you will have someone playing with cards with an audience of people watching and they may ask some people to pay if they want to interact in the game with him? Would it be this kind of live streaming?

Vincent Ghossoub: Almost. So, it’s not only cards. It’s not only a live social casino. 

Matthieu David: Yeah. It’s just an example.

Vincent Ghossoub: Yes. So, any interaction or participation will include some spending on virtual items of credits in the game. So, if you earn, you earn credits, if you lose, you lose credits. If you like the game enough, you reach a point where you run out of credits and then you want to top up.

Matthieu David: What’s the closest version in China to what you do? What’s the closest version in the US?

Vincent Ghossoub: Yes. So, there are a few attempts in China and the US to crack this system which is basically the interaction of traditional media and interactive games. Some went well and then crashed. Some are going well and some are exploring. So, I’ll name a few. The most famous one in the US was HQ Trivia and it had a couple of clones in China such as ChongDing DaHui where it’s one or two 15-minute sessions per day and there’s a cash payout at the end. So, it became really popular because of the cash payout or prize, but then it went down and people realized that they were not able to win so much because so many people were joining. And for a lot of regulatory reasons, this was stopped in China. You have other kinds of a live streaming platform from China or anywhere else which I allow myself to call soft sex cams. So, it’s basically Facebook Live but with tipping and gifting. But most of the monetization comes from quasi-nudity or at least users flirting with the host. 

Matthieu David: Do you have this issue? How do you tackle this issue with your own platform?

Vincent Ghossoub: Yes. So, let me go to the third category. Then I’ll tell you how I tackle this issue. 

Matthieu David: Yeah. Okay. 

Vincent Ghossoub: Another one is obviously live casinos—the real money gambling. They do it and they’re doing it well. It’s probably the fastest-growing category. And you have a horde of people exploring it to which we belong and some others belong. It’s like a company in the US called Joyride. Another one is called Tele. So basically, the reincarnation of live game shows on mobile is in a much more interactive way whereby the interaction is no longer message-in or call-in or rate or poll or vote. We have all sorts of possible interactions which you can do through the mobile. Now how did we tackle the issue of sex cam business when we started our own live streaming platform from China. In fact, we did have a host monetizing crazy amounts per hour of broadcast and we had to figure out why. And eventually, it was sort of like she was pushing a certain behavior from the users. She was incentivizing them to send her a lot of gifts. So, she was using us as an appointment platform and as a payment gateway basically because the gifts are paid.

So, they sent the virtual gifts on the platform and then we’ll give her her revenue share on the back end. Now, you mentioned it’s an issue for a lot of companies. It’s the core business. If you look at the numbers, they are not so bad. So many of these companies in China are listed. Some of them are listed in the US running this as a core monetization scheme for them and making billions a year. So, putting aside the ethical issue, we didn’t even consider it for ethical reasons. Luckily, we did not have to confront that dilemma. At least, for business reasons, we thought it wasn’t sound for us to do so. We were at the same time finding in one room housewives who wanted to play and males who just wanted to flirt with the host. And this could not cohabitate. So basically, we just removed all incentives to the host to redeem revenue shares from gifts and we focused the whole experience on the gaming part. So, you come and you play the game. You don’t just do social interaction forever without playing the game. You must play the game. 

Matthieu David: I see. Is the game designed by you or it’s just someone live streaming the game?

Vincent Ghossoub: It’s designed by us. So, it’s a functional overlay on top of the live video. Maybe in the future, but not very soon. We could open up an API for other people to put their functional overlay on top of the live video. But today, it’s too early. So, we’re just coming up with our own functional overlays on top of the live video feed which represents different kinds of games.

Matthieu David: I see. Thank you very much for your time. It’s already more than one hour. Actually, I had more questions. Maybe we could have one session on the live streaming platform from China part, but it was very, very interesting and instructive on how you partner with the Chinese company which invested in you at a very early stage. Thank you very much. I hope you enjoyed. I can tell you I enjoyed talking to you. 

Vincent Ghossoub: Thank you very much, Matthieu. I enjoyed too. 

Matthieu David: Thanks again. 

Vincent Ghossoub: Thank you. 

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article Podcast transcript #86: A promising company developing games for the Middle East from China is the first one to appear on Daxue Consulting - Market Research China.

The 2020 Lunar New Year will be remembered for more than just the year of the rat. In addition to celebrating the New Year with family, China also had its hands full containing the outbreak of the Novel Coronavirus. The economic impact of the Coronavirus can be felt around the world. On 23^rd January, the Wuhan’s Government decided to seal off the city from all outside contact in an effort to stop the spread of the Coronavirus. Since then, other cities in China have decided to cancel public events and citizens are suggested to stay at home. In a few short weeks, the streets of Chinese cities went from bustling with traffic and pedestrians to eerily empty. As the virus spreads, many cities in the coastal province of Zhejiang are now also getting sealed off. To prevent more spread, a majority of Chinese are cooped up in their homes. While Wuhan fights the virus, Chinese people are fighting off boredom. Lets look at the Chinese daily life during the coronavirus outbreak

Chinese are active on social media platforms during the coronavirus outbreak in China 

Weibo: share updated information of the Novel Coronavirus

Weibo (similar to Twitter) is the most popular social media platform which enables Chinese people to share and discuss up-to-date information regarding the Novel Coronavirus in China. According to Weibo, on February 4, 2020, approximately 13 out of 23 topics are about the Novel Coronavirus in China. In addition to the information of the Novel Coronavirus, topics related to as celebrities, like Kobe Bryant’s death, are being discussed on Weibo. Some topics reaching over 1 million reads per minute.

WeChat Posts: Chinese are staying updated on the virus

WeChat (similar to WhatsApp) is also a popular social media platform which enables Chinese people to access up-to-date information regarding the Novel Coronavirus in China. During the period of Chinese New Year, the updated Novel Coronavirus is placed in the top on every user’s page so that they are able to access this information easily.

[Photo source: WeChat, ‘Update of Novel Coronavirus’]

Chinese are extensively using video platforms  

According to the ranking in App Store, in the entertainment sector, 7 out of 10 apps are video platforms. This has proven that Chinese people are keen on watching movies or TV dramas during the Coronavirus outbreak. Cinema in China has temporarily shut down during this period. Nevertheless, this does not impede the release of New Year Movies. One example is the debut online premier of Lost in Russia. By the 27^th January, it has reached 0.6 billion of views from 0.18 billion  viewers. Since then more than 26 New Year Movies, including ones from previous years, have been on via video platforms such as Youku, TenCent and iQIYI.

[Photo source: App Store, ‘Ranking of entertainment apps’]

[Photo source: 36Kr, ‘New Year Movies in 2020’]

Online shopping: medical products and daily necessities  

E-commerce is a major part of the Chinese daily life during the Coronavrus outbreak. Since Chinese people are not suggested to go out, they do even more shopping online. According to JD’s Big Data Research Institute, during the Chinese New Year in 2020, people were likely to purchase medical products ( medicine and masks), hygiene products (hand wash and disinfectant) and food. From 24^th January to 4^th January, JD has delivered 19, 000 tons of staple food, 5.9 million liters of cooking oil, 15 million units of instant noodles and 4000 tons of fresh food.

During the Chinese New Year in 2020, several food sectors have prominent performances. Sales of cooking oil experienced a significant growth with 556% YOY. Compared with the same period last year, sales of prepared food and instant drinks increased by 423% while that of dairy products rose by 300%. Sales of staple food were 20 times more than the figure last Chinese New Year and sales of frozen food were 7 times more than that in the same period last year.

As for the fresh food sector, sales during the Chinese New Year in 2020 were 370% more than that prior to this period. Furthermore, the sales of vegetables were 9 times more than that in the same period last year. The sales of meat were 7.5 times more than that of the last Chinese New Year. The below graph shows how the proportion of sales on JD changed between 2019 and 2020.

[Data source: JD Big Data Research Institute, ‘Change in consumption during CNY (2020 VS 2019)’]

Mobile Gaming: multiplayer online battle arena sector is the most popular. Plague Inc. rises ahead

The outbreak of the Novel Coronavirus caused Chinese citizens to turn to gaming for in-home entertainment. Data has revealed that Chinese people have spent more time gaming during the Chinese New Year in 2020. According to Baidu Index, the searches related to mobile gaming has boosted from 26th January onwards. According APP store rankings, Honor of Kings and Game for Peace are the most popular mobile games among Chinese people. During the last Chinese New Year, the daily active users of Honor of Kings was consistently 70 million whereas that of Game for Peace was 30 million. However, the performance during the Chinese New Year in 2020 is more outstanding. The daily active users of Honor of Kings has reached 120 to 150 million  while that of Game for Peace has reached 80 to 100 million during this period.

Coronavirus inspires gamers to play Plague Inc.

Besides, it is noticeable that Plague Inc. has become increasingly popular along with the expanding influence of the Coronavirus. According to the ranking in the App Store, since  January 19th, downloads have surged rapidly and it is now ranked first in the paid game sector.

[Photo source: Baidu Index, ‘Search index of mobile gaming’]

[Photo source: App Store, ‘Ranking of game apps’]

Online fitness: Rejoice Sport and Keep are keeping Chinese active during the Coronavirus outbreak

During the Coronavirus outbreak, Chinese are looking for ways to stay in shape. Mobile fitness apps such as Rejoice Sport and Keep are gaining traction, as they can do exercise at home. According to qimai, from 27th January onwards, the search index has increased drastically and maintained at 9407. Prior to the Chinese New Year in 2020, the figure fluctuated around 8600.

[Photo source: qimai, ‘Search index of Keep’]

[Photo source: zcool, ‘Page of Keep’]

Education Platforms: Chinese students study through the  Coronavirus outbreak

The Coronavirus outbreak does not affect Chinese students’ passion on study. The downloads of Some education apps such as Yuan Fu Dao, Ren Jiao Dian Du and Xueersi Online School experience a significant increase. Moreover, from 9^th January to 30^th January, the period prior to the Chinese New Year, the search index of the mentioned apps remained stable. However, from 30^th January onwards, the 6th day of the Chinese New Year, their search index have risen significantly to around 9000.

[Photo source: qimai, ‘Search index of education apps’]

Discussion forum and cooking apps get traffic during the coronavirus outbreak

Other mobile apps such as XiaChuFang (cooking app), Zhihu (similar to Quora) and Douban (similar to Reddit) are also popular with Chinese people during the Chinese New Year in 2020. Moreover, it is noticeable that the search index of Xia Chu Fang has boosted from 27th January onwards and has reached 9000. During the coronavirus outbreak, Chinese people dare not dine out. Cooking at home seems to be an alternative for them. On 4th February, the app was out of order and it had terrified lots of users as they claimed to rely on such an app for cooking.

As for the discussion forum, Zhihu and Douban, Zhihu has maintained its search index around 9250 during the Chinese New Year in 2020 whereas Douban has stable increase in search index since 27th January.

[Photo source: qimai, ‘Search index of discussion forum and cooking app’]

Traditional games and activities during Chinese New Year in 2020 have been brought online

In general, traditional games in Chinese New Year such as paying a new year call (拜年), and playing Chinese poker and mahjong are common activities during Chinese New Year. However, these activities require gathering and are likely to spread the coronavirus among families. In order to avoid such activities, there are now penalties for gather to play games, and people are encouraged to report these to the police. Despite the fact that gathering to play Chinese pokers and mahjong is prohibited, online Chinese pokers and mahjong are the alternatives. According to qimai, on 7^th February, the search index of different types of Chinese pokers occupied the top-5 positions in the ranking of game’s search index. This has indicated the popularity of these traditional games.

In the image below of top searched APPs during the Coronavirus outbreak, all poker games are circled in red.

[Photo source: qimai, ‘Ranking of game’s search index: Chinese poker games are circled in red’ ]

[Photo source: yiwan, ‘Online mahjong’]

Coronavirus made a 1000 year old tradition go digital

Chinese people normally go to the temple fair during Chinese New Year to pray for luck and health for their families. With over 1000 years of history, it is hard to imagine a Chinese new year where families do not gather at local temples. However, owing to the outbreak of Coronavirus, the temple was banned in every Chinese city.

Nevertheless, there is an alternative for this event. For example, the temple fair in Foshan, Guangdong has switched to a online temple fair. Every year, on the 16th day of the Chinese New Year residents from Foshan carry handmade windmills and lettuce  through a bridge, which can bring luck and happiness to people. This year, people from Foshan attended the temple fair via their mobile phones. By browsing and clicking the handmade windmills and lettuce that appeared on the page, users were able to “walk through the bridge” as if they did so in reality. Photos of the temple fair are placed on the page so that users could feel the event’s atmosphere.

[Photo source: Sohu, ‘Temple Fair in Foshan (2018)’ ]

[Photo source: WeChat, ‘Online Temple Fair in Foshan (2020)’]

Unusual activities that combat boredom during the Coronavirus outbreak

Even though Chinese people can access a variety of activities via electronic devices, some people feel extremely bored at home. According to Baidu Index, the search index of “Boring” and “Stuck at home” has surged significantly during the Chinese New Year in 2020.

[Photo source: Baidu Index, ‘Search index of “boring” (on the left) and “Stuck at home” (on the right)’ shows boredom in the Chinese daily life during the Coronavirus outbreak]

Therefore, what to do at home has become a popular topic on social media. On Weibo, Chinese people are likely to search “how to kill time at home”, “what to do at living room”, etc. Some Chinese have funny ideas like fishing at home and making crafts with seeds.  

[Photo source: Sina, ‘Fishing at home’]

[Photo source: Sina, ‘Seed craft’]

On 27^th January, residents from Wuhan launched an event, singing at the window, in order to cheer themselves up. At 8 PM, residents from different communities in Wuhan played the music and sang at the window. Lately, this event was criticized by doctors as it increased the risk of coronavirus infection.

Coronavirus memes created by Chinese netizens: embody non-mask phobia

Even if the current situation in China is serious, Chinese have faced it with a sense of humor. The following memes and funny pictures embody this.

People are suggested to wear masks in the public area. On 26^th January 2020, Guangdong government has established a policy regarding wearing masks in public areas. Penalties apply to people who refuse to wear masks. A lot of memes are created and are related to masks during the Coronavirus outbreak. Chinese people tease that masks are trendy, even putting masks on their pets. Moreover, masks are precious and are thought to be luxurious gifts, sharing them in Red Envelopes which are normally used for gifting money.

[Photo source: Zhihu, ‘Memes of Coronavirus’]

When the coronavirus started to break out in China, the older generation were in contempt of it and refused to wear masks. It was hard for Chinese youth to convince them. Thus, they create lots of memes which embody their helplessness.

Thankfully, the situation has reversed. Due to the spread of the coronavirus in China, the older generation has gradually been aware of how serious the situation is and now wear masks while going out.

 [Photo source: Zhihu, ‘Memes of Coronavirus’]

During the Coronavirus outbreak, Henan province has been widely discussed on social media due to its effective precaution. Every village in Henan has implemented a strict rule, that is, people are not allowed to visit the village that they do not come from. Villagers take turns to guard the entrance and prevent other people from entering.

[Photo source: Huxiu, ‘Villagers from Henan, guarding the entrance’]

Author: Amelia Han

The ultimate Coronavirus economic impact in China report

This article Chinese daily life during the Coronavirus outbreak: Facing boredom with humor and digitization is the first one to appear on Daxue Consulting - Market Research China.

• 3:37 Falafel Games’ current business model
• 6:18 Midcore vs Hardcore vs Casual
• 9:42 “China is part of the recipe!” – why Falafel Games was founded in China
• 19:03 Micro-transactions in the freemium model – what do people actually pay for?
• 34:22 When it comes to the gaming market “China is a bloodbath”– how cheap is talent really, in China?
• 37:17 Initial investment – what did it take to get Falafel Games off the ground?

 How to leverage China’s gaming industry

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We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 86: Bringing Chinese gaming innovation to the Middle East is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Matthieu David: Hi everyone I’m Matthieu David, the founder of Daxue consulting, China market research company, and its podcast China Paradigm, and today I am with Navin Williams, you are the CEO of Mobile Measure and director of FuguMobiles and in partnership with Prediqt. You’ll have to tell me how you can do so many things, especially in international research business in India and China, and that’s one of my questions.

You’ve been in China since 2008 so more than 10 years – 11 years. Just before the Olympic Games, and I feel there are two types of people who arrived in China. People who arrived before the Olympic Games and people who arrived after the Olympic Games. You arrived just right before, so you saw all the changes which happened after the Olympic games and I’m talking about the crisis when China became more and more important, bigger, and more paradigm. If I want to use the name of our podcast.

Mobile measure is a research company. I feel you do a lot of panels as well and you are very tech-oriented. Actually, when reading your powerpoint and your presentation, I saw many things that were hard for me to understand how to present Mobile Measure. One thing I share is outstanding, different from many others. That you have many products with online community, moderating a community online, with a diary, getting information in the daily life of people. That’s something I would be very interested to dig in, for example, how you conduct Chinese customer data management. So, thank you very much for being with us today, this morning.

The first question, I always have this question, what’s the size of your business, if you can share some metrics?

Navin Williams: Right, so actually as you said, we have three different businesses. So, the scale of each is very different, and two of them are companies that I don’t manage directly but I’m involved in a capacity as either consulting or managing part of their business.

So, I can tell you Mobile Measure, because that’s figures that I control and I am happy to share and so Mobile Measure we are depending on the year, anything between $750,000 going up to 1.5 million US. So, that’s the scale, it’s not huge, it’s not small, but we are very focused on technology-enabled market research. So that is the niche we have picked and we also do, you know – bread and butter research which is maybe just online, or SGD’s, but we are known and our strength is technology-enabled research.

Matthieu David: What does it mean?

Navin Williams: Yeah?

Matthieu David: That thing, what does it mean? Because you said it could be anything, how can you be in the technological world? How can you be anything, because you have to build a product, you have to deliver a solution? How can you manage to have so many things? How can you do an international research business in India and China at the same time?

Navin Williams: The product I built very early, in around 2010 and we called it TPV – which stands for Text, Photo, Video. So, at that time it was simply an app which allowed you to capture text, photos, and video. So, you know, very easy to use from a research perspective for communities. So, allowing consumers to go and collect real-time data and share their opinion real-time. So, it’s basically that’s what we built and it’s not that – so that is the core platform. Around it we do a lot of things, so it could be we layer it with survey data, we layer it with maybe an in-depth interview because that data is very fragmented because it’s just videos, shot videos, photos, and just comments and views. Similarly, we could – we do FGD’s so we have a larger group as well. When I say that we are a traditional research company, but enabled by technology. So, if a client came in and told me they want to do FGD’s, I would say yes sure, let’s do FGD’s but in addition to that for a few of our consumers, we will also gather some additional data and thing. And it could be even just scraping the web to see where a category is at the moment. So, otherwise it’s hard for us to compete at our size.

Matthieu David: I see, I see. Do you develop any internally a software or you also sold the software?

Navin Williams: When I started … A bit about myself in the sense that I came here as the head of consumer research for Nielsen China and within a year – that was the worst time to be in China, you know – the market tanked and effectively within a year I was being relocated to India  on another job assignment within Nielsen. But my family was having too much fun in China so they didn’t want to leave. So, I decided to leave Nielsen and then I joined FuguMobile. A digital agency in China which has many cases of Chinese customer data management.

So, I joined them and while they’re a digital agency, my background is in research, so within FuguMobile I started Mobile Measure and then – and in fact even today we are collocated with FuguMobile who have their own development team.

So, we ride on their development team and designers to build and maintain our digital products for Chinese customer data management. (In 2009 I designed it and started building it out and 2010 we launched it and in those days it was like really no one wanted to touch it because they didn’t feel that it had the scale.  We actually partnered with Kantar – TNS and we did a lot of international research business in India and China, and other countries in Asia Pacific, and Africa as well.

So, in the early days it was more about concept selling and trying and getting people to actually believe that mobile would actually rule the world and it’s funny to think that actually 10 years ago, that was a hard job.

Matthieu David: Exactly, I interviewed someone who has the same intuition, the founder of Mobile Now, 10 years ago – and this name, the word mobile, as for you there is the word Mobile, but 10 years ago, it was pretty new. Could you tell us first to understand, in your international research business in India and China, why a company like Kantar would use your technology? They’re so big, what did they find in your technology that they cannot find internally?

Navin Williams: Right. So one is that I have been – before I started Mobile Measure, I was in research for almost 15 years. So, I have been in research and in those 15 years, around 5 years I worked for a telecom company as well. So, I have a strong grounding in technology and market research. So, I knew the players, I know the market, I know where the gaps are and maybe I was early into the game. I was actually. So, it’s not that – so when I talked to researchers who wanted to evolve, they got what I was saying, but maybe – you know if you’re early into the market then you need to do a lot of concept selling. So, for them yes, it’s not like they were like just adopting our technology whole house, but they were definitely willing to try it, and that definitely helped. Especially in the early years.

Matthieu David: I see, because you believe that you were early, that’s what actually brought them to your software, your solution because it didn’t have – they hadn’t developed yet or it was too early to make it mainstream. To make it big enough for them to do it internally.

Navin Williams: Yes and no, because now the situation today is again, you know I still work with Kantar and other big groups in international research business in India and China but the thing is that research companies, especially the large ones, work in silos. So, either they understand research or technology and the technology part if there is within the company, it is secondary, in the sensitive part of operational services. So, getting these two together is not so easy. So, a company, a research company especially large ones where they see an opportunity or they have a desire to move into technology-enabled research, they need someone who understands both the technology world and the research world, to distill that for them and that’s where we come in. Otherwise a lot of companies, they can go to technology providers to help them say with the research product. However, if the technology services company does not understand research and there’s no one who can convert research into technical language and the other way round, it’s hard to build something that is actually usable.

Matthieu David: I see, I see. So initially you had this app called TPV, I don’t know if you changed the name or not after, it was an app?

Navin Williams: Correct, correct. It’s still there yeah.

Matthieu David: And how has it evolved now? It was about Text, Photo, picture, and video. How has it evolved now? Again, in your – you’re talking about Mobile to me, so I want to know more about how much we can do with your solution and what’s was your leverage?

Navin Williams: Right, right. So online communities actually are quite established and work well. Now like Chinese mobile communities – so our tool works well on that but there are certain things which because of the size of the screen and attention levels in mobile, you might not be able to do. So, you get larger screens of data, but in smaller chunks. Yeah. So, think of it as me writing a letter to you detailing what we want to do. So, I can do an introduction. But in mobile, it’s just bits right.

So, for example when we did the audio check, I would have sent you an email saying this is the problem and you would have sent back a response saying this is the answer, but because we were trying to resolve it on the Chinese mobile community like WeChat, we were not communicating the whole problem properly, so the solution also was coming in bits. Right. So mobile has this thing of continuity. You can have a discussion for longer periods but it’s coming in chunks. So it’s very useful for – if you’re like – day in the life of, you know – so you say Sunday is your shopping day and I request you to mobile connect through our app and engage with us and the moderator through the day, and I give you tasks. So, when you go, I want you to take photographs or videos and give us context to whatever information you’re giving. And then that’s very useful data, and it’s easier to think. So, when it comes to real-time and instinctive kind of responses that we want, intuitive responses – mobile scores way over online communities and that is a way of Chinese customer data management. So I think both have their strengths, so it all depends on how deep you want to go or you’re looking for something way beyond – if you’re looking for surprises I would think mobile would give you more, because you can actually have people go out and surprise themselves, forget about the researcher.

Matthieu David: How does it work? So, with a client you have, when he used your product, your tech product, they make their Chinese mobile community, so you pick some of the clients, they download your app, I mean the clients of the clients – the end clients. They download your app and then you moderate through an app, interactions with this Chinese mobile community. And it could be on Sunday as you said, take a picture of like what is happiness for you? It would take a picture of the blue skies. Could you describe a typical mission and how it works step by step?

Navin Williams: Right. So, say we recruit ten people, and then if we – if a moderator were to live chat with all ten and communicate with them, it can get very heavy. Even if you’re talking about just ten people. So instead what we do is, we break it up into tasks, so there are defined tasks. So, what we call mini-surveys, but actually they say simple three questions. So first tell me where you are? So, it could be a drop-down because we are only looking at type of retail outlet, yeah. So, you select the type of retail outlet and then it says take a photo, video or video. Yeah. So, once you enter you take a photo or a video, and then it gives you an open-ended allowing you to give context to the photo or video you have given. Yeah. Or take an audio recording if that is easier for you. So that’s it. So effectively it is three questions, right. If you want to simplify it. So that we would call one mini-survey, and that mini-survey say would be titled retail. So, every time they walked into a retail space, they’re expected to tap on retail, identify which retail outlet they are in, then, of course, you take a photograph or –

Matthieu David: I see, and send to you? Do you get an incentive when they answer each question?

Navin Williams: No. No, generally it is for the exercise, so say we tell them that we want you to work with us for a week, so generally, they are incentivized for that period of participation.

Matthieu David: Per week?

Navin Williams: Not per upload. So, then we get all these feeds, so it could be retail, it could be consumed, it could be whatever. So, it could be different things that we are evaluating, or it could be simply communication. So, we can send them videos to view or tell them identify ads in the market out there in your daily life. That you can relate to this ad and tell us. Give us your feedback. To see what concepts work, don’t work.

Matthieu David: Okay I understand. So, you have an app, this app has notifications. Its pop-up notification for the people in the Chinese mobile community, in order to achieve Chinese customer data management, people who have the app, different notifications with different communities, to say open the app and now look at the video, what’s the video. Survey on the video, like a 15 seconds video of coca cola and then a small survey to say what do you remember of the video. Or, if they are in retail, they should actually open the app, because you already told them to do that before, and then they use that app to take a picture to shoot a video or to write up text. Am I correct? I have a good understanding?

Navin Williams: Exactly. Exactly. And it could be like – one could be ad relationship. So as you said, there’s a 15 second TVC that you’ve exposed the consumer to because when he clicks it plays that video and after they view the video then they are asked – how can you take a photograph or a video of a scene in your daily life, in your immediate surrounding, that you feel you can match with this video in your life. That it makes sense. Or they don’t want to do it and they just need to write an open-ended – I don’t see anything that actually – that this ad is showing me. Or they say that yes – this is very similar to me doing this, or they take a photograph of something that they see and say that, yes this resonates with me.

Matthieu David: I see, do you have the function of a chat room in your app?

Navin Williams: So, we have not added chat, we have the option of doing it but we just found it very stressful –

Matthieu David: For you or for the users?

Navin Williams: No, not for the users, for the moderator.

Matthieu David: Yes. Very time-consuming.

Navin Williams: Because from their perspective it’s a bit stressful, so we don’t normally use it, but it’s not something that we cannot layer in.

Matthieu David: So, you created your own app. It was a native app right, one for IOS and one for android. So, two app, native apps and like seven years ago, WeChat – how did you think about integrating with WeChat and using the API of WeChat, have you done something with WeChat or other Chinese mobile community? Are you still running it independently and asking the users to download your app?

Navin Williams: We are still adhoc largely. We have integrated with WeChat and however we have not really been able to sell it effectively. So, I think because the protocols are not there, even in fact for our app-based research protocols are not there and qual research alone I believe is a very hard business to scale, so in fact that’s one of the reasons that I started this company with a partner of mine called Prediqt and Prediqt is a mobile-enabled panel and that’s a global panel and in that we plan to add a lot of qualitative functionality. So actually, having consumers from our learning’s of TPV, so have consumers who are doing surveys and polls to actually also capture media on our behalf. So, videos, audio recording, photographs. So, it’s still early days because there we are already getting scale on the panel side. Online quant studies, so that’s a new kind of experience and learning for us, but we will add these features on it. So hopefully we will be able to not only conduct Chinese customer data management but also scale qual as well, using this huge panel we have.

Matthieu David: So, correct me if I’m mistaken, but what you are saying is that because you work with this panel company called Prediqt, you use your app and you don’t connect with WeChat because Prediqt is worldwide and WeChat is China-centric. So, it wouldn’t make sense? Am I correct or -?

Navin Williams: Not that, I think one of the reasons we don’t use WeChat is – one is that we have our own platform and WeChat is not scalable beyond China. You are right about that. That is one part and the second part is that I am not sure if we were to focus on the WeChat based community for Chinese customer data management. If we would be able to compete with some of the very basic ways that research is sometimes being conducted using WeChat. So, sometimes where clients are not willing to spend, you can actually just create a WeChat group of consumers and run a small Chinese mobile community for a small period of time and you don’t really have to build the client for software or anything like that, and there is no development. So, it’s just the data that you collect during those sessions and take that and analyze it and you deliver. So, I think that that’s a tough fight unless you’re building a much wider offer of a long-term community base and panel – a community-based solution sorry, for clients – and I haven’t seen yet a really fleshed out requirement for that.

Matthieu David: So, we understand what the users have, the app, I will say in China, where they can upload documents, they can interact with you, what about the client? What do you get as a Chinese customer data management system? You moderate yourself, you interact with the users, but the client is seeing the results live. Could you describe a bit more about the – do you call that CMS or -?

Navin Williams: Yeah so, the CMS has two functions. One is for the setup of the survey as the mini-surveys we spoke about to actually have those sessions go on and then the reporting part where you have those data feeds coming in life. So, we have a client view CMS, so clients can view only the data coming live. They cannot edit, they have no reading or writing rights, so that is there and then they get a few other metrics like how connected the consumers in Chinese mobile community are. Who is the most active, inactive? Things like that. But yeah – and what we would be able to do the Chinese customer data management at our end is we can download all that feed on a daily basis or an hourly basis, how frequent we want to analyze that data. c

Matthieu David: Okay, you struck on the CSV.

Navin Williams: Yeah exactly, and all the data gets sorted by topic, by the grouping. So, if we have a mini-survey on retail, all the videos, and pictures that come can be sorted by that topic or by user or by date. So very often we want to see maybe on a weekend – what the output was or we want to see by topic whatever was done in retail, or at consumer in-home – so based on that we can sort the media as well and once you sort the media, it’s easier to analyze as well.

Matthieu David: Would you mind sharing one or two or three cases to illustrate how it has been used. I saw on your document you’re talking about Coca Cola which uses your platform. You talk about many other companies which are a part of – especially for mobile community interaction and diary as well. Would you mind sharing two or three cases?

Navin Williams: Yeah, so the coke case you’re talking about actually was our first client customer. That was I think 2010 and it was so long ago that we actually created the solution on blackberry’s – so nobody even probably remembers Blackberry. So, we actually built it internally for the coke team globally. So, coke global, the team globally could actually in a way build a community of their own of people they identified in different countries coke operated and they all had Blackberry’s which is company phone and then it moved to IOS as well.

So, they allowed these employees to look at coke global objective and feedback very quickly. So, what happened was – say there was the Olympics and there was a campaign going globally, but that campaign did very well in Chinese mobile community, that same campaign didn’t do well in India. By a couple of weeks. Because the global insight team had these people who used the app to walk in to a store and say that the display is – the retailer is hiding because he feels it is not doing well, or they are very proud of it and it seems people are crowding, and those photographs were uploaded using the app and sent centrally. So, the team could quickly look at the results and go to Chinese customer data management and tell them that working in China, not working in India- things like that. So that project we did for around two years for Coke before it was disbanded.

Matthieu David: Two years.

Navin Williams: Yeah, we did that for two years, I think 10 and 11 I think or 11 and 12.

11 and 12 yeah and then we have also done food tracking– so day in the life of – so we don’t realize the amount of snacking we do and you know we were trying to find out for a dairy client of the snacking, how much was milk-based and we saw people were having a lot of milk-based drinks, yogurt and then mixing it up with chips, biscuits and other – and a lot of traditional food as well and the snacking pattern is throughout the day. So, it’s not like there are fixed mealtimes. And we did it at actually quite a large sample size and we found that snacking was literally a 24-hour process, except when you’re sleeping, you’re not snacking. And a large portion of that is milk-based products. So that was quite revealing for the client.

Another one we did was in the retail space, so we know that natural foods, organic – that is a big theme and packaging companies want to get out of – get into that space. So, when health becomes more heightened, their products – they are there to offer products for clients. So, one of the things we did for a beverage company was actually go into – consumers went into stores and they went to the fresh produce section and then they identified fruits and vegetables they considered to be fresh. Yeah. Fresh and clean.

Now, we matched that with another exercise they did, where they went to the packaged goods section and identified products and goods and brands that they thought were natural and refreshing and pure and then we could see what is working, what competition is doing. Are we in the considered set? And are there any gaps for innovation in products?

Matthieu David: I see. You’re talking about passive tracking of Chinese customers in your PPT and for me passive tracking is related to localization, so it’s the GPS or the mobile or so on, so you can know what people do but also, maybe what people browsed on their mobile. Could you tell us more about that? What is passive tracking? What do you do with passive tracking of Chinese customers? And is it the same app you are using or it’s another solution? How many solutions do you have by the way?

Navin Williams: Okay. So, our main product is the on the quality side, we use a lot of TPV, WAP-based. On the quant side we do a lot of online surveys in Chinese mobile community. And then – actually my partnership with Prediqt started with passive tracking of Chinese customers, so they initially had built this passive tracking solution and them – I started working with them to fine-tune that. Over time what has happened is that passive tracking of data has – so apple doesn’t allow you to do the Chinese customer data management and now android doesn’t allow you to do it as well.

Matthieu David: How do we find passive tracking?

Navin Williams: So, you can monitor all browser activity on the mobile phone. You can monitor all activity of apps to manage Chinese customer data, what app is being used, how long it’s being used, when its being used and of course location services will allow you to know that where they are using these apps, where they are at a given point of time and yeah – so that is effectively it.

Now the really powerful data from passive tracking of Chinese customers is if I can tell you if you’re using a shopping app and within that app – you know what I browsed, what I bought, what I did not buy, but considered to buy, you know this is powerful information in Chinese customer data management and that is something that clients are willing to pay for. And that, unfortunately, is the gap in passive tracking on the mobile because unless you have cooperation of these apps itself, you cannot know that data.

So, as I told you, there are a lot of security restrictions now. So, you can get how long, the session you had in a certain app, say a shopping app and you spend half an hour on it. You know between so and so and so and so but I cannot tell you what you browsed, what you bought and things like that. So, while passive tracking of Chinese customers the same thing can be done online. Online you are getting that information. So that data of Chinese customers are actually with Prediqt – in the US they have some clients where we sell it. We have consumers, so you will be able to know the basket that the consumers on that panel study, have done, bought in a week.

What they bought, categories, scales, like that, those details and also which online platform they bought it on. So that is slightly more evolved on the online side but I think for the developing world where we are generally one device users, so most people do not have tablets, or your PC’s, and laptops, but penetration of mobile is very high and that is increasing and all their lives and all their interactions are happening on the mobile phone. So, if you don’t get that depth in mobile, then passive I think is very tough and also, I think with the whole privacy concerns some of our clients in fact, when they went back to their legal teams and said that no you cannot do this with consumers. So even if we offered it from our largest clients wouldn’t do this research.

Matthieu David: Even with the consent of the consumers. You said that passive tracking of Chinese customers was more possible on online, on PC and more difficult on mobile. So technically speaking on mobile, you were using the API or CLDK on the phone or the company OS and for online or for computers you would basically add a plugin to the browser, on chrome and then explore the data of Chinese customers? And then you get the consent of the user and you will be able to track Chinese customers. Am I correct?

Navin Williams: Yes, yes, that’s exactly.

Matthieu David:  I See I see I understand. Ok, I got it. So, you are partnering with this company called Prediqt and I looked at your data. And what is funny, is, it’s more of inside and something very deep I am going to talk about but is that the gender balance between men and women, it didn’t vary a lot. And in India, I think you have 65% of male and 35% of women, as it is same in Japan. How can you do the international research business in India and China with such an unbalance when China is pretty, the panel you have is like 55 – 45%. How do you explain that?

Navin Williams: I think that social differences are very high in international research business in India and China, and usage and access differ largely. So, 60-40 is not so bad. If you went to say, some other countries like Bangladesh, and I think where we are opening panels now, the difference is even starker, so you know –

Matthieu David: Access to mobile.

Navin Williams: Yeah, so I think it depends on the country and society. If you go to Indonesia, penetration of smoking is very high, but not amongst women. So, you know, it’s just demographics differ and acceptance and penetration within those societies differ. Very often, it’s a single phone household and the male member of the family; he is the one carrying the phone. And everyone else, if they wanted to use it, they had naturally had to request usage of that.

Matthieu David: I see. We just talked about the panel in India and you have been working in India. You are from India?

Navin Williams: Yeah, I am from India.

Matthieu David: How would you compare these two countries, regarding international research business in India and China? That’s a broader question here but – I remember when I was studying in Peking University, there was this book called Chindia – like china-India together. And I always, I knew there was this book that was saying – is it really a concept? Can we really put those two countries together in international research in India and China and think it’s like an economic zone? I felt that very different. The only point in common they have that it’s a very big population. It’s the biggest population in the world. How do you compare both of India and China which are rising countries, economically speaking but my point of view that I don’t know India as much as you do, is that they are still very, very, very different?

Navin Williams: Yeah, it’s very different and if you take China, there is a lot of strength in term of infrastructure support,  Chinese consumers have access to a lot more resources. While in India, a lot of the country is still underdeveloped and rural. And even in urban there is a big divide between, the socio-economic classes. So, because of that, in some categories, they are very mature and there are a huge history and legacy of brands and things for decades. You know almost a century old. While brands here may not have that legacy. Maybe 10 years, 20 years, 30 years, 40-year-old brands maybe if you are lucky. But I mean, take coffee consumption as an example in international research business in India and China. Traditionally not a coffee-drinking country but coffee sales in China has such huge growth and for Starbucks, it’s their number one market. And in India they barely have a few stores at airports and select few cities. So, it’s a very rare thing to see, that’s because coffee has been in India for a hundred years and a consumer knows their coffee.

And they can get a good coffee for, half a dollar or less. So, what will make them pay $5 for a coffee? Do you know how many people are there to do that? So very valued conscious consumers, and so it’s not just the power of the brand but the product as well. Not that it’s any different here, but I am saying new categories I think have acceptance is far greater in China than say in India where you already have a lot of these categories established for long periods of time.

Even if it’s small pockets. So, in India we have coffee preference regions, tea preference regions, and so distinct markets. And even within the tea market, how the tea is drunk in one part of the market is different from another part of the country. So, we have officially over 22 languages and even doing research is a challenge because you need to have that much if you really want a national perspective, it’s very hard to get in it in India. It’s like literally you have 22 plus different distinct cultures out there to deal with.

Matthieu David: I have a question actually about international research business in India and China. India is known to be able to develop a lot of techs; I think Sapiens has a lot of his team in India. Have you been able to experience for your own company this and to develop in India your solution to be able to leverage for China and for the world? Or you have done everything in China locally?

Navin Williams: No, the early days we did everything in China but we do maintain a team in India. We find that development in China is more efficient and faster. That maybe just our experience because we sit here, I guess we can put more attention to it. In India we do a lot of the RND work in India. So, you know, so if we are talking about 3D imagery, how to add it for the product testing or things like that. Something like that is not mainstream but we think that you know that –

Matthieu David: I see.

Navin Williams: So, we will have our team. Anything that is a non-critical thing we use our India team. Or if here there is overflow of work we use the India team. And increasingly, I think for a lot of the operational work, research, scripting of surveys, and things, that again we have started to use the India team more.

Matthieu David: So, Mobile Measures you have a part of your team in India. I didn’t ask you the size of your team actually.

Navin Williams: We are still actually very small. So, in China, actually only five, because we don’t count any of the developers as our team. They are all Fugu and Fugu is around 50-55 people, and so together we are around six teams and in India it’s around 12 people. So total 17-18 people.

Matthieu David: Ok, ok. But you are mixing with Fugu mobile and working within Mobile Measure. How many in India working for Mobile Measure or its mixed?

Navin Williams: Oh, the India team is Prediqt and Mobile Measure. Fugu has another team as well. Which is again the same size.

Matthieu David: Okay, okay, I see, Interesting. That is actually linked with another question I have with international research business in India and China. I think there is a lot of calamities in India in research. There are so many research companies that are contacting us. We are in touch with a firm in India which are doing market research all over the world. And I don’t know if you have foundered, but they are very, very, very value-conscious. I mean they want the lowest cost possible, And I don’t even know it’s possible to run research with such cost structure. How do you react to that? Did you have the same experience?

Navin Williams: Yeah, so, in China – again I think it comes down to – let’s just talk about Kantar’s Research Company in India (IMRB) has been in the operation since the 20’s or 30’s. Yeah, so, almost 100 years of operations. So, research has formerly been conducted for that long. While in Chinese customer data management again, the industry is not that old, from an industry perspective but its evolution has been actually very rapid. So, you have a market which is huge, so almost a billion is what the research market in China is, and where it is still fine-tuning. While in India, very savvy researchers because they have been used to it for a long time.

But the project value is very low and if you are not doing volumes, it’s very hard to sustain in India. But for an international research  business in China and India or you are doing a lot of multi-country studies, India works well because it’s a good low-cost base with high talent. So, you could do some processes in India, do other processes that you need more hands-on and be there where ever you are located. That’s actually been India’s strength for many, now I would say a couple of decades, with a lot of the multi-nationals moving their RND centers, their development centers, their entire – even customer relationship, a lot of things, the non-face to face have all moved there. But I think that also is evolving because costs are not stagnant, that’s also rising. So, there is a shakedown in the Indian market as well.

Matthieu David: Last question for you, especially again relationship between research business in China and India. we have seen Chinese companies going overseas, and when they go to Europe and they see so many countries, so small countries like some countries are not even the size of the city of China. Like Belgium is smaller than Shanghai and France is the size of one province in China. It’s difficult for them to be massive, to sell a brand, to sell a specific product like Xiaomi, like Oppo and some apps as well are going overseas. And we found out from someone on research that Chinese companies are doing pretty well actually in India, some of them. Some of the top apps in India are Chinese. A third – 1/3^rd or maybe 25% I maybe, it may be less but its massive. Do you see this trend? Are you living it? Do you have some Chinese clients who are asking you advise you to go to India?

Navin Williams: We have ad hoc work for local clients but more active kind of relationship at the moment. In fact, in India, the number one phone company is actually Xiaomi, so I think as I said, India is very value-driven and if they see value in a product or service, I think they would give it a shot. So in the early days I would say not the top end products really reached the Indian market.

So, from international research business in China and India we could find that there was a low reputation for the products coming from China and they didn’t do well. But now, increasingly some of the companies are investing and offering their services, which is being bought. So, I think localization, how well the Chinese companies continue to do in India would be driven by localization. Because India is not one victory, it’s like, could be a thousand, a million Belgium’s. So, it’s a very diverse country and you have to win all those battles. It’s a very tough market referring to international research business in India and China.

Matthieu David: Let’s not fragment it by what we think.

Navin Williams: Very, very much so.

Matthieu David: Interesting, thank you very much for your time, I really appreciate. That was very interesting, we went depth in technology, in cases and I really liked to share with you about the differences between research business in China and India. The other question I would like to ask about blockchain, about surveys, about maintaining your panels that would be maybe another podcast because we went a bit off time, it’s already one hour of interview. Thank you very much again and hope everyone enjoyed the talk.

Navin Williams: Thank you, thank you, Matthieu. Ok, good talking, ok buy-buy.

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This article Podcast transcript #56: How to develop international research business in China and India is the first one to appear on Daxue Consulting - Market Research China.

AI in the video games industry in China: usages and opportunities

Of course, the first application of artificial intelligence in China’s video games aims at improving the gaming experience. For example, Tencent, NetEase, and Changyou, who are the leaders in the Chinese video game industry in 2019, have all used a speech recognition system to improve gaming immersion. This allows players to convert their voices into texts or instructions in the game and keep their hands free. 

As far as mobile games are concerned, the advances in artificial intelligence are rather the same, and fortunately given the size of the mobile game market in China. According to the iResearch Institute, the size of the Chinese mobile gaming market was more than 100 billion RMB in 2018. 

Recently a small AI mobile game went viral on Wechat. The game called Caihua Xiaoge (猜画小歌)is based on image recognition. The challenge for players is drawing pictures accurately so the games image recognition algorythm can recognize what the picture is. If the computer can correctly identify your drawing, then you move onto the next stage. A little game experience that many Chinese people have enjoyed, and that would not have been possible without the image recognition technology.

Finally, intelligent recognition can be used in another way. Not to improve the experience for gamers, but to improve the standards of the video game industry in China in general.

Tencent announced last year that it would use facial recognition to manage the hours players spent in front of the screens, especially the youngest ones. This artificial intelligence system aims to limit the playing time of children under 12 to two hours per day. Tencent thus records the players’ faces and thanks to national data, blurs the game screen or blocks the connection. This system has been implemented on the multiplayer online battle game Honor of Kings, also known as 王者荣耀 (Wángzhě Róngyào) in China, one of the most popular video games in China.

After several trial phases where Tencent realized that thousands of Chinese children were trying by all means to divert the limit, the company decided to apply this age restriction system to 10 of its most popular games. 

AI in esports in China

Artificial intelligence is also used in the esports industry in China.

In 2018, China’s eSports industry was worth more than $13.8 billion, an 18% increase over the previous year. According to the Chinese Gamma Data Institute, the total number of players has also exceeded 400 million.

Indeed, AI in esports in China can help to improve the playing tactics of professionals gamers. This is the case of the artificial intelligence designed by Tencent’s AI team to beat the professional players of  Starcraft II.

Starcraft is a very popular game in China (星际争霸) and has four teams of well-known professional players who participate in international tournaments representing the country. Thus, the defeat of the professional players TLO and MaNa (German and Polish) against artificial intelligence shocked the gaming community in China.

But it also means that today, artificial intelligence in China’s video games has advantages for the professional industry: it is a new way to train players.

AI in video games creation

In China, artificial intelligence is also used to accelerate or improve the video game creation process. First, when it comes to working on NPCs (nonplayer characters). Artificial intelligence in China’s video games, therefore, makes it possible to make the behavior of these fake characters more natural and reactive to the players actions.

NPCs can either have simple reactions based on a predefined sequence by the computer or react differently to each player’s action.

However, we know that today’s great adventure video games, even with a large budget, do not always use this type of AI. The risk is that artificial intelligence makes NPCs too unpredictable and that it ruins the game’s history written by creators. Thus, until creators have found a middle ground for the use of artificial intelligence in China’s video games, NPCs that are smarter than players are yet in store for  tomorrow.

For the moment, artificial intelligence is mainly used to make the graphics and movements of characters as realistic as possible, like in the Tencent video game, Ring of Elysium, known and loved for its very high-quality graphics.

In addition, the use of AI in video games can reduce some production or testing costs.

Evaluating artificial intelligence with video games

Finally, and even more interestingly, artificial intelligence in China’s video games is not only used to improve the game or its creation. It can be used to test the power of AI because video games are a good reality test.

Researchers around the world are working with video games to help machines develop. The aim is to use the virtual schematics of video games to test the skills of intelligence systems when it comes to, reacting to the environment and learning from their mistakes. Some examples where algorithms for other real-world practices, such as using a virtual driving game to test an AI for autonomous cars, are used.

Tournaments between gamers and artificial intelligence are also organized to test the power of an artificial brain against a real human brain. In China, in 2016, Google’s AlphaGo algorithm faced one of the best players in the world’s Go game, Ke Jie.

The victory of this artificial intelligence is proof that games and video games are an excellent way to test, because they provide structure, repetition, and reinforcement.

Therefore, video games have ,been used for decades in China as a means of testing and evaluating the power and performance of artificial intelligence systems in situations that mimic reality.

The success of VR games in China

A large market expected to reach 45.09 billion USD

Of course, artificial intelligence is at the heart of the latest success of the video game industry in China: VR games.

According to Grand View Research, the virtual reality game market size in China is expected to reach USD 45.09 billion by 2025. An  ‘immersive’ game experience where players put on a VR headset and use controllers to maneiver around the virtual world. Horror, adventure, strategy, dance, and even flight or travel simulations are available.

Recently, a VR game in China went viral on Weibo. A game that allows Shanghai residents to practice sorting waste just before the new law on waste sorting is implemented in July 2019.

The principle of the game is probably one of the simplest in the world. However, it was a great success; some people even made long queues to play.

VR facilities on the rise

Despite the success of VR games in China, the purchase of personal headsets is too expensive for most Chinese people who are not big gamers. People who want to try VR games in China must find places where it is possible to play at a lower cost. This can be in shopping malls where more and more activities are offered in VR, in cafés or even in cinemas.

Amusement parks are also an excellent place to test VR activities, as highlighted in the HTC Vive report, which showed that 70% of respondents were interested in attractions with VR in amusement parks.

This success has also resulted in the opening of VR facilities, spaces dedicated to VR activities and VR games in China. According to a recent report by the iFanr Institute, in 2018 there were 50,000 VR arcades in China.

Among them, there are two big names which have made their fortune thanks to this VR arcade concept: Seekers VR, which is based in Wenzhou and owns a franchised chain of 200 arcades in more than 70 cities across the country and Xigua which has nearly 100 “Player No. 1” VR arcades across China.

In Shanghai, players have many options of VR facilities, so competition is becoming more and more tense, and the criteria are often price-oriented. Here is a list of the best competitors, with an idea of the price for each:

• MacHouse: A sizeable bright space which looks like an old bowling alley from the 1980s, equipped with the HTC Vive. Price: 388RMB for two people for an hour

• Mofamen: Friendly atmosphere, equipped with the HTC Vive Pro, in bonus the green background to record yourself in the game. Price: 119RMB per person for an hour

• Joy’s VR: Large choice of VR games and VR headsets, HTC Vive Pro, Oculus and PlayStation VR. Price: 170RMB per person for an hour

• VR+: An arcade with rooms adapted to the game you want to play (example playing a horror game in a bloody fake prison). Equipped with the Oculus Rift. Price: 48RMB for a 20-minute game

• Star Trek: A VR facility around the StarTrek theme. Price: 98RMB for an hour

• Chuangyi Zhigu VR: An arcade built in a large apartment with a wide choice of VR systems. Price: between 98RMB and 128 RMB for an hour

• VR Better: A VR facility on the theme of science fiction in an apartment where you can also drink and eat. Price: between 100RMB and 128RMB for an hour

• Qingxing Mengjing VR: A place at the forefront of the latest VR innovations in a more natural environment. Price: between 87RMB and 138RMB for an hour.

Top VR headsets in the video games industry in China in 2019

However, the VR headsets market is still growing and unfolding many opportunities. In its Global Entertainment and Media Outlook 2017-2021, PwC found that China’s demand for VR headsets will reach 85.9 million within five years, overtaking the US’s projected 68 million.

When asking Chinese gamers what criteria they consider when choosing a VR headset, comfort comes in first place with 46%, then following screen resolution with 44%, convenience 40%, good content 40% and precise control 40%.

Thus many international players are fighting to win the hearts of Chinese consumers, including  HTC, Oculus, and Sony.

For example, the best-selling headset in China is the HTC brand, which alone takes 33.1% of the market share of the Chinese VR headsets market. However, major international brands such as Oculus and Sony are finding it more difficult to penetrate the Chinese market. Oculus only launched its VR headset in China in January 2018. Aafter HTC, the market is dominated by domestic players.

The second and third most popular VR headset providers in China are Pico and DPVR with 28.5% and 13.3% of VR market share, respectively.

More recently, the Chinese video platform iQiyi also released a new VR headset called Qiyu 2S.

How to partner with an AI company in China in the gaming field?

AI partners in China for gear

• ANTVR

ANTVR is a Chinese company dedicated to VR and AR systems. After a round of investment, thanks to Sequoia Capital, the company founded in 2014 has sold more than 1 million VR products worldwide. Several collaborations with brands such as Lenovo, One Plus, and Motorola make it an excellent AI partner in China. One of its flagship products is its technology made for VR game in China called ANTVR Cyclop, which features the latest technological innovations and is compatible with Steam.

In addition, ANTVR open sources its hardware for developers to create games for the kit.

• DPVR

DPVR is today considered the world-leading VR technology company. Based in Shanghai, its products have been sold across more than 100 countries. Since its foundation, the company has received investments from many listed companies and investment institutions such as Xun Lei technology, Kai Ying technology, and Ao Fei which prooves its potential as an AI partner in China.

Through research and innovation, DPVR aims to build user-friendly VR Products and solutions for everybody to easily enjoy the VR gaming experience.

The company develops headsets for video games, movies, and music but also complete kits dedicated to playing VR games in China such as the E3 Polaris:

According to the research institute Canalys, with 24% market share, DPVR accounted for the largest market share among the mainland China VR brands. So it is also a very good choice if you want to partner with an AI company in China.

• Pico

Pico develops innovative VR products which enable users to experience VR easily.

Founded in 2015, Pico is now huge all over the world (US, Europe, China, Japan) with over 300 team members. The company has developed its own platform called the Pico Digital Platform, which features games, apps, and videos from a variety of developers and publishers. They have around 150 apps and games available and can work directly with developers who want to create a game or app for Pico devices, convenient for an AI partner in China.

One of their best products is the Pico, which is an all-in-one VR headset which offers real freedom in the gaming experience. It enables movements in all directions, which is perfect for games with total immersive VR experience without wires or phones.

AI partners in China for technical savoir-faire

• Dgene

Dgene, founded in May 2016, is a VR solution provider based in Shanghai. The company has worked in different industries such as real estate, education, tourism, healthcare, and of course, digital entertainment.

Dgene develops VR solutions with light-field technology to provide 360 3D reconstructions. It’s an imaging technology which would be very useful as an AI partner in China to work on ultra-realistic reproduction of real-world for video games.

The company won 100 million RMB funds from IDG Capital in 2018 and also received 1 billion-dollar fund, from Alibaba (co-investors: Safran Fund; GSR Ventures Venture) and angel funds of 45 million RMB from Shanghai United Investment. It means that today Dgene has a lot of plans to develop and invest: they plan to expand the 3D reconstruction technology into our mobile phones via the camera.

• Realis

​Realis offers an optical camera tracking system for virtual reality. It works like a target tracking software which can be based on multiple cameras to obtain the right two-dimensional data and real-time calculation. Their system uses cameras to capture the data to identify the trajectory of tracking objects. They can be a beneficial AI partner in China because their cases include gaming, and they offer installation as well as packaged equipment rental program.

With years of research and development overseas, their team is able to develop independently low-latency and high-accuracy VR solutions.

As a potential AI partner in China, Realis has previously worked in the video games industry in China producing PVP games with multiple players at the same scene. They are now working on the future of VR games in China: offsite online VR gaming. Players in different cities will be able to play together in the same VR battle.

The use of artificial intelligence in China’s video games is expanding rapidly. Its interest is that it can be used for many different things, whether to improve the gaming experience and game creation or to help machines learn and grow. Gamers in China still see AI in video games as something very innovative and therefore attractive. Additionally, the recent wide-scale adoption of 5G networks is expected to further boost the VR development.

This promises to be a great time for VR video games and AI applications in China’s video games industry.

Author: Steffi Noël

See our report on AI in China:

This article Artificial intelligence in China’s video games: opportunities for international businesses? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

Matthieu: Hello, everyone, thanks for listening to China Paradigm, the China business podcast sponsored by Daxue Consulting. Today we interview a strong entrepreneur in China Thomas Meyer. Thomas, you are the co-founder of Mobile Now group which is if I read correctly on LinkedIn, a full-service mobile development studio with a focus on branded apps and games, set up in 2009, you are in Shanghai, Hangzhou, and Changsha (so that’s for China) and also Singapore, you are about 50 people now as I understand and you worked on more than 80 product. And actually your website is full information about all the cases you have worked on, I would have a lot of questions on them and also a lot of information on how you started a mobile company in China. So thank you very much for being with me and us actually, the listeners.

Thomas: So thank, Matthieu, for working with me, and it’s very nice to be here and also to have the opportunity to share and hopefully some interesting information.

Matthieu: To give an idea to the people listening to us about the size of your foreign business in China, could be in terms of revenue, a number of people in the team could be number clients, but to give an idea of the size of the company contract.

Thomas: Yes. So Mobile Now Group is today about 50 people, 48 to be exact, with a couple of people joining students so, you know, still 50, and it’s been a very stable number for a few years now. It’s… which is great because we can focus on projects and not so much on growing teams and skill set. From a revenue perspective, we’re very happy, but I’d rather not give too many specifics for various reason, China is pretty competitive markets start all right.

Matthieu: In terms of clients are you work on return on linking 80 product, you say a between 80 to 100, right?

Thomas: Yeah. So I think we’ve done probably over the course of the 9 years about close to 100 projects for the mobile industry in China so that’s roughly around 20 projects per year and there are fairly large projects, there are a platform, mobile platform projects.

Matthieu: Yeah, from what I saw, if we dig a little bit on some of your product, I saw that for TRL, you created a marketplace for the real estate.

Thomas: Yeah, that was a fantastic story. So they basically it’s their online marketplace, so they have a China Mobile first websites and that website has been going across the region at the moment and replicating various versions in Australia, New Zealand, India, Singapore, Japan Korea, and so on. So it’s a typical story for China firsts that are now spreading around the world, just because China is actually quite advanced these days in terms of mobile technologies, mobile platforms and mobile experiences and it’s also big business market, it’s major markets. So we see clients more and more adoptees China first strategy international; clients I’m talking about.

Matthieu: And you are developing for the other countries, for Singapore, Australia, and the other countries?

Thomas: It’s more marginal but it happens more by accidents because of the nature of our clientele or the clients, they are themselves international. So most of them really want us to stay focused on the Chinese mobile market, and it makes a lot of sense, but in some cases such as JLL, yeah spreading across the region can often become an option.

Matthieu: For people listening JLL is Jones Lang LaSalle, so they’ve been doing real estate for decades. It’s a major real estate company in the world, and I didn’t know they would be doing anything with China and their marketplace for that, I didn’t know but…

Thomas: Yeah, you need JLL when you need to find a very fancy office for your staff, and they serve mostly MNCs and large clients looking for office and commercial space.

Matthieu: Well, I’m surprised, my question was, you are China-focused, you started your mobile company in China, you seem to be very centered on China, you are in Changsha, Hangzhou, I guess that shows how centered you are in China and you are actually following clients to go to Australia and Singapore. But I feel as far as I understand by being in China for 10 years, China is very specific and from very often, you don’t work with the same players, the same agency or when you go out of China if you have worked on this case for the entire marketplace?

Thomas: Yeah, I think you’re absolutely right. I think some agencies networks are international ones and so they have the benefits of having offices in markets all around the world, but they may not have the specific skill sets that we have from a design and development and technology perspective. And I think we are in a sweet spot where we understand the China market and the mobile trends in China and can deliver on the China market but also on an international team. So we can bring whatever we learn in China in other relevant markets. And in the global economy, we live in today, that could potentially mean a much wider region. But I have to say that most of our work is still very focused today on China, yes scenarios in China challenges.

Matthieu: Talking about what you just say, it is very interesting for everyone who is living in China or with connection with China, you say that we can leverage innovation in China to go global to adapt it to the world instead of the reverse we saw like 10 years ago. You’re in China long enough to see the change, could you elaborate more on a couple of cases where you have seen an innovation which is Chinese or made in China, I’m thinking about QR codes in China of course, but linked to mobile in your industry with your cases that you have been able to leverage the fact that it’s a very mobile first industry and mobile first economy sorry in China? I know if you have a couple of cases that he would be very interesting to know.

Thomas: Sure. So actually in my case, I’ve been a mobile specialist in China, a mobile innovation specialist for 17 years, I started in Japan. And when I was in Japan working for operator there, I discovered already 99 QR codes, recovered mobile wallets and code screen phones with rich media content which we could do a lot of things with that. And of course it was on a totally different sets of technologies, different phones, Japanese phones, and I constantly say that QR codes were invented in China, but I can definitely say that adoption, and there is ash and what people do, what companies also do with those is that it’s probably where the innovation really lies and where you can really talk about China first.

So through both the scale of the markets and the inventively of the businesses involved here because they’re working from a y-shaped basically so how they look at their daily problems to solve and they look at it differently from a different angle, the innovations are really there. They have not invented QR codes, but they use QR codes more and better than pretty much anyone else on the planet.

Matthieu: Do you have other cases that you feel China has been served to use so still innovation to adapt to use something?

Thomas: I can think of a lot of things, but perhaps one that will be the most interesting for everyone here is mobile payments. You just have to look at share size of peer-to-peer online to offline or mobile commerce payments, wherever it comes from, China’s really leading the way. And in terms of numbers, I mean, just comparing China versus the US, totally dwarfs the US when you look at those graphs if you compare to China, so you see you create big transactions happening over mobile and going super fast in China.

In the US, it’s kind of like still stagnant in comparison to that. So it’s very sustainable that perspective it’s not a… you know, it’s not an important point to look at because mobile payments define transactions, define business, and they helped to define experiences and customers, and shoppers experiences in there are different ways than what happens to the rest of the world. So social commerce in particular on a platform such as WeChat is what our clients and our teams are thriving on and working with and for quite a few years now and for about 4, 5 years. And it’s just amazing what can be done with social commerce and social CRM and how it can help really our business, our clients, develop their business.

Matthieu: When you’re talking about social commerce and social CRM, is it about selling through social networks? Is it creating, as you said, apps iteration on social networks? What is it exactly what you call social commerce? Is it to leverage KOL to sell social marketing?

Thomas: Yeah, no, it’s always something that is super clear that anyone understands when they live in China, but something that’s nobody quite understands when they live outside of China. Because the other social networks such as Facebook, Instagram, and the others, LINE, Kakao, are not really geared the same way as WeChat is in China, right? So let me just summarize in this way by explaining that WeChat in China, it’s postal of services. It’s not just a social network; it’s my mobile wallet, it’s my postal services. I buy my train tickets through WeChat; I buy my groceries through WeChat. And the reason really is that WeChat has built an app that’s actually an operating system for building services on top.

So as a mobile company in China, what we see is clients not asking us anymore to build native apps, iOS or Android apps, they ask us for building WeChat mini-programs. And for us, it simplifies my life a lot because WeChat provides us on this API, all these tools that enable us to build really quickly very, very smart mobile services, but on top of that can deploy it and share it really easily over social networks.

So if you’re doing the right thing, if you’re building the right services or selling the right product over WeChat, then it spread like fire because of word-of-mouth because of the shared shareability of many programs over the social network. It’s a bit like if Facebook wanted to become an operating system where we could be those applications to do pretty much anything. It kind of did that in your desktop days where you might remember the Facebook apps, but it missed totally the boat of mobile.

As soon as we move our app of Facebook appeared and all these applications disappeared, and at the same time, WeChat which was of course protected in the Chinese market, is well-protected market as far as the internet, you know, is concerned. WeChat developed a mobile wallet, developed API to anymore anybody in a very open way it’s open to anybody to develop any services that it like, and it kept doing that year on year on year, improving their platform at superfast speeds. So from this site being in China, when you look at Facebook, we’re finding them pretty slow at developing the right features and the right tools to become something like WeChat. So now when we meet international clients that have to explain to them what WeChat means in China, it’s quite difficult to download the app to live in China, that’s really what you have to do to interact with people and to really understand what it means from a customer perspective, from a user perspective to use WeChat and to do things on WeChat.

Matthieu: So when talking about social commerce, is mainly basically leverage an app or social app and going through this app to sell and to use the payment system. And so that what you can much social commerce because I guess in the West when you talk about social commerce, they will think about KOL, they will think about how to drive traffic to your website, and the transaction will be on your website on the platform like Amazon whatever.

Thomas: Correct. So I think if you compare to Facebook, Amazon and other platforms, WeChat functions very differently. I don’t think… I think it’s fair to say that they haven’t been trying to be a master team media promotion platform, they’ve actually trying to preserve privacy for their users from the start, but they’ve developed a lot of functions and features that enable users to interact with offline, scanning QR codes that’s one thing we’re talking about, paying for food, restaurants, splitting the bills, collecting coupons and it could show, at the stores, but also buying directly through WeChat.

So if I go to a fancy restaurant or maybe more of a fast food restaurant for sure, today I could scan the QR codes as I arrive at the table and basically order and get either staff or maybe even a robot in some restaurants, you know, bring the food to my table and, you know, split the deal with my friends, and all these pictures over a mini program that sits on WeChat. So this is what I talk about WeChat with the portal of services that enables my life, my offline life, through a digital enhancement or digital tool that’s super powerful. And I think everybody else that’s, you know, doing social media outside of China should really be inspired by what happens in China because I think otherwise, they are risking to miss the boat, and that’s basically what as professionals we expect to see and looking forward to seeing because it’s always interesting to see newcomers coming in with new ideas, with innovations that really transform people’s behaviors and lives.

Matthieu: So as I understand, social commerce is pretty much WeChat commerce in China, and would you have some best cases, some best practice to share on how to do e-commerce through WeChat? You’ve talked about coupons, you talked about using the API of WeChat, you talked about word of mouth, so word of mouth is KOL I guess, European leaders, as far as I understand so far, it’s very difficult to use the system of WeChat advertisement to get a good ROI on it.

Thomas: Yes.

Matthieu: The targeting is not as great and precise as Facebook. I think Facebook may have been better on this point. And so the still the pending question for a lot of marketers, a lot of companies, how do you seven WeChat? Is it through the mini-app you produce, you create? Is it really interaction? Do you have best practices to share?

Thomas: Yes. I think our approach is really starting from innovation, starting from users, what really are the published source for users in a particular business context or in a particular life scenario, whether it’s for example shopping, whether it’s participating to events or to anything really or booking a trip to a specific place. Innovation on native apps iOS tablets, we come in and define and design those services, those interactions using our processes and tools.

And the promotion components is something we don’t worry so much about because I think in our business, we are in the business of expectation management and we focus on delivering the best experience we can so that we, you know, we make the user happy and in consuming the digital destination. And we are less focused on the marketing side, which is actually a very different way of thinking. I always used to joke to my friends from the marketing agencies that they overhype.

Matthieu: I see. So how do people… how do you… the users of the app you are creating, how do they do find out for the app? Do they go from search of WeChat or do you actually leverage the existing client base applying on your clients and you leverage then better interaction and the way you are saying, you’re including interaction of existing database of clients and at least for this specific case when you leverage existing database of clients and to interact better with them, would you have some cases to share with us about interaction which have been successful or which you see some momentum through mini apps to H5 you have developed or progressive apps as you said?

Thomas: So let me come back to the example I was explaining earlier. For example, so one of our clients, Pizza Hut, for which we delivered a whole WeChat experience, is called a super app, super WeChat app just because it’s an app that delivers all of the functionalities you would expect if you’re going to interact with Pizza Hut digitally. So you can of course order the food right to be delivered at home, you can also order a table when you’re on the way to the restaurant, find where the closest restaurants, and you can pre-order your food and be able to validate your payment as you scan that QR code on the table.

And the pre-ordering system as well as on a table or any system is just, you know, really convenience. It makes people save time; it helps also share and view what my friends may be ordered as they can also the table… A QR code on the table, sorry, and it also helps to redeem coupons so I can click purchase which is huge business for Pizza Hut, it’s really transforming the way Pizza Hut interacts as well with customers and do business with them. And I even get to split the bill at the end and decide which, you know, how much somebody to spend on to this amount.

Other apps that are very public e-commerce I’ve seen in WeChat for example, one’s called Pinduoduo, very fast growing marketplace within any program that itself sits within WeChat, right, if you follow me, leveraging not only an enormous catalog of products, we featured products pretty much every day, limited edition products that people care about and may buy, but also a lot of very user-friendly and unified functionalities. To find the volume is active a day, I get a little free cash that I can spend on buying product, so it makes… it builds enough stickiness into it, or if I share a specific product to friends who buy this product, right, then I will get rewards, I will get points or some free cash as well.

And so that kind of social commerce activities that are not just about posting on social media product, but really believes name social communities to buy together or to interact together around products and services and content and games even are WeChat have managed to achieve to do. Very interesting, very, very complex, very rich, very sophisticated and I think the rest of the world is probably 10 years behind where China is today.

Matthieu: Talking about Pinduoduo, it’s independent of WeChat, right?

Thomas: Yes and no. It is an independent company and service to WeChat, it was actually an app and the mini-program, and today we believe that from the numbers we see that the most of that growth comes from there WeChat mini program by far and that’s because the service is thriving and developing through the social network and on assured unity features and also supported by the fact that Chinese people spend their life on WeChat.

Recent numbers show that WeChat represent 34% of the mobile Internet data network in China and I feel if we compare for example what Facebook means in Europe or in the US or in other parts of the world in Southeast Asia, Facebook is nowhere near half of that. So Facebook is very important, it’s really already impressive what Facebook does manage to do and what Facebook is elsewhere, but it’s really a media where WeChat is a portal of services and new operating system to build social services.

Matthieu: The name of the company Mobile Now group and you created a company in 2009. I think the iPhone was created in 2007, right?

Thomas: Yes.

Matthieu: So you were very early in naming your mobile company in China ‘mobile’ when I guess it was pretty early when people thought that everything will go through mobile. Could you talk about it, about how you saw it quite early actually that you would call your company Mobile Now with this direction on mobile?

Thomas: Yeah. I mean, I… I mean, my personal stories after leaving a school and university both in France and in the UK, I landed somehow in Japan as I mentioned earlier, Tokyo of all cities, just a fabulous city to be in; still today, but it was a family city to be in the 90s just because of many things including mobile technologies. And I guess as I was looking for what to do in my life is just hit me on the face.

And I’ve again, been a mobile specialist in China and mobile innovation professional for 17 years, working for large agencies, communication, and innovation agencies around the world, first helping evaluators then helping handset manufacturers or banks or FMCG start to look into it. And then today, we basically see uses for pretty much anything. And digital has become mobile, or mobile has become digital. When I start to Mobile Now, it was really hard still to envision that people would use websites less, that they would be using mobile phones more, but it’s really Apple and Android that made us believe that that was possible back there.

And it’s true; I started a mobile company in China super early just when iPhones were not really selling officially yet. I remember there were about 1 million iPhones in a country of 1.X billion people so it was a very low penetration rate and China Mobile was not ready yet to officially sell the iPhone. And we’ve been very lucky because of year on year iPhone and Androids… Apple and Android developed amazing products and technologies, China became number one market in the world in no time, they sold phones like pretty much like shortbread, and Chinese people started to learn to use their phones and develop services that made sense for themselves.

And probably got faster because the leap forward merely from somewhere and, yeah, so I think that’s the way and I see how things, the mobile trends in China, you know, looking back have developed and I guess in a way unlucky, but in another way, we saw it coming, and so that’s what we call a company Mobile Now.

Matthieu: In such an industry where things are changing fast, I guess when in 2009 you still had a lot of BlackBerry, you may have tried to work with Windows as well, and then you had Android and iOS taking over. And think actually fast, you talk about Pinduoduo, you talk about WeChat, WeChat is about, I guess 6 years old, I mean, the momentum is about 5 years something like this, even it may be older actually the creation of WeChat.

So how do you keep being up-to-date? How do you keep knowing what is good to develop? You said that now you don’t develop the local estimating app, you develop more many programs and also progressive websites and apps. Is it the clients who are actually coming with questions and then you actually react? Is it yourself, you’ll do your own research, and you investigate? How does it work? Maybe it’s both of them. Could you explain it to me how do you manage this constant change?

Thomas: Yes, sure. From my perspective, of course, clients and every stakeholder bring their inputs into your spectrum of things, but it’s really when you look at users, and when you are user-centric that you’re able to catch those, I would say those threads of opportunities and innovate on top of that very early stage. It’s pretty easy, and as an innovation agency, we always have to represent the users, our clients, customers when we meet our clients and let them realize really what is innovation meaning for their customers or their users.

So this user-centric enables us to catch for example things like when WeChat explodes in terms of usage and opens up services to be able to catch them then and then develop the right strategies or the right destinations and the technologies and the platforms that come behind that. Of course, that’s one of the other aspects is to be very agile from a technology perspective. So we have a very strong focus on technology and restaurant team that when you see people using certain technologies, they are super curious, they go in there, they check the frameworks, check what can be done to keep it simple. And that’s how we can then enable our designers and employees, so they were also so.

So it starts really from users from the user perspective. Clients are of course initiating these projects, and they themselves have to deliver a mandate first, they have to have a strategy that says, “I want to be doing something great on mobile,” or, “I want to do a fantastic platform to solve my clients or my customers problems,” so that used to come from them. But they are not really coming up with those strategies early stage, that generally happens when they have been convinced somehow that, “Yeah, oh, something is going on there, let’s get on board.” We act earlier than that, we, you know, follow the trends much earlier. And I think it’s pretty typical of an innovation agency, yeah.

Matthieu: Following what you are saying about the team that learning new ways of actually developing, you have offices in Changsha, Hangzhou, could you elaborate a bit more? I think you’re one of the only agencies I know that have offices in Changsha.

Thomas: Yes. The reason why we want to spread this across various cities in China, and it’s, you know, very modestly is just 3 cities, we’re not really spreading across the zillion of cities and opportunities that are to tap into fantastic talent in China. But the reason why we are doing it is to… there are 2 reasons really. The first one is to access talents that are not always available in one city, and there are many different skill sets that are needed to deliver the kind of work that we do.

And the second one is to ensure that we stay relevant to a large market like China. So a Chinese person from Shanghai and the Chinese person from Beijing on Hangzhou, Dali, and Changsha, think very differently actually differently and live very differently and it’s very important for us to stay in touch with the different type of City, Tier 1, Tier 2, Tier 3 you have in the market. So talent access and relevance to the market are one of the key reasons. The reasons why we need specifically Hangzhou and Changsha are pretty much led by our teams.

So the way it’s happening outside is we have a developer based in Shanghai wants to go back home in Changsha and we, this was years ago, 8 years ago trusted him to build a team around him back home. And that team is grown over 8 years to be extremely skilled and bigger and stronger and delivers amazing work to us. Hangzhou is a slightly similar situation; there’s actually absorption that happens, so we absorb the team, we acquire the team in Hangzhou that has also amazingly specific interesting skill sets on agile development and backing full-time technicians. So don’t want to bore you with very technical things but those are the things we need to perform for our clients and those are the real reasons why we operate in those specific cities, yeah.

Matthieu: How is it to work with 3 offices? I mean, you are 48, so it’s not like 100 people, how do you work with… how is it to work remotely and with different offices? I guess it is adding complexity, but it’s adding so some better life/work balance at the same time, how does it work?

Thomas: So we… yes, we… I think we can move in many ways because we work in mobile technologies in China and we work in design so actually the work we do scales very fast. So we do not need to grow our teams members to be 100, 200, 500 people, and actually to me, this is a good thing because it makes my life a lot easier in terms of managing the human side of things, managing teams and ensuring they are happy thriving for the kind of work that they do at Mobile Now. You were talking about work/life balance I think it’s my biggest learning as an entrepreneur in China and a leader to my team that work-life balance is an essential thanks for retention for keeping people in my company.

Perhaps because of the type of people we hire smart skilled and senior and they themselves appreciate immensely being able to evolve and develop their after the skills or their science, you know, in a place that helps them do that but also where they can live their life and have a personal life and great work/life balance. So I think this is something that we appreciate and that we get our clients to appreciate as well and, you know, it’s basically where we will get it. So it’s a lot fewer growth prospects for us from a number of people perspective so that we can keep the right growth balance and ensure that we do things right and quite important in our trade.

Matthieu: Only 2 managers are Street offices and your being in Shanghai, are you have you read the thing? Have you there are a lot of books talking about working with different, different places remotely when you have your team spread over the world, I think about a book called we ‘Remote’ actually. Have you read things or it has been quite normal for you to manage this way?

Thomas: I think it comes with its challenges for sure but somehow with the union, we’ve built the process, the tools and I think people build a different skill set to communicate. So face-to-face communication and mobility being able to meet as in when face-to-face and travel from one place to another helps example a lot. I think this is very often, you know, something that people forget; it’s very important to do that.

And I think that the world is moving, I personally have to believe, it’s a personal condition that the world is moving towards more and more mobility and remote work. I would love to be able to work from the beach, you know, and just send emails and do video calls like here, I’ll give you a fantastic background, you know, and being able to be maybe smiling even more and be happier and anything bad work. So we’re not quite there yet but I think that’s a great goal, it’s a great goal to go for, right, to be able to offer this kind of work environments to your team, yeah.

Matthieu: To continue on your team, on your profile link, it says you’re a co-founder of this mobile company in China, but I’m not seeing the other co-founders, how many of you are you and how did you find your co-founders? How do you work together?

Thomas: Yes. I think one of the most important things for foreign businesses in China is to select partners and work with partners that can help you grow and can help you basically deliver on your vision and you’re your dream, and I’ve been very lucky on that perspective. So I’ve met my partner, my business partner through work actually in one of those large agencies we used to work with. So I think we met in Singapore back in the day and he just like me had spent even a few more years of Asia and me, about 20 plus years and I spent know about 17 years myself here, and we have the same outlook on life and on what the great agency should be.

So what made us really click is by being fortunate to meet and interacts in the previous business where we found each other and could work very well together, we decided that further down the line, we decided just to start a business together and that was just an amazing adventure to be able to do that with him. And I think… I don’t know what advice to give actually to find the right partners, I think it’s a matter of our feeling it, it’s a matter of trusting, it’s a matter as well of complementarity of skill set, so there’s a rational side to it. But I want to say. First, it’s about trust and being able to see eye to eye and have empathy for each other because that needs to last a very long time. Building a business is not easy and being able to yeah and, you know, rely on each other and trust each other is essential.

Matthieu: How long have you known each other before partnering?

Thomas: I think about probably 8 years, 8 years before starting in the mobile industry in China with Mobile Now group, yeah.

Matthieu: Okay, oh 8 years you have known each other, okay, I see. I think your partner is called Liam, right?

Thomas: Yes, it’s Liam Winston, yeah.

Matthieu: Yeah, and I saw him on your profile, he joined you 1 year after you started.

Thomas: That’s correct.

So when I started a mobile company in China, it was a 15 people agency, it was much, much humbler, it was me plus 1 plus 1. And actually, I have another business partner I started with originally called Jerry who was more focused on games. And we when we started our business, we’re having this dual business model, which is not necessarily the best thing to do but it worked very well for us. So we built our own IP and mobile games very early on. We had some amazing successes from a download and usage perspective, and we started to work with brands as well and delivered fantastic work for the likes of KFC and Coca-Cola and so on gaming and mobile game platforms. And when the market started to shift a little bit more towards transactional and e-commerce type of activities or service based activities, this was less of the liking of my business partner, so he… my other business partner, so he decided to take his own and focus on what his vision is.

And you have to expect that, you know, that’s part of this trust and empathy I was talking about. You know, as partners are not really locked to each other, I think that concept is completely crazy, it would be a really sad situation if it’s the case. I think you’ve got to be your own man and keep your own dreams, and when they’re alive, then it’s fantastic, you can keep on going for a very long time. So perhaps the last advice to give on finding your partner would be to make sure that there’s really a complete fit of goal and that you’re ready to do the same thing together for a very long time, not just for the first few years.

Matthieu: And how easy is it? Because you said you changed, so Jerry turned into the beginning and change then left, how easy is it to manage those changes? I feel as an entrepreneur in China as well that it is very difficult to have to choose to partner with someone then to un-partner with someone, how do, you know, a value? How do you sell the share? Do you give up on the share because you say you do not come, you are investing? What advice would you give to set up good like a shoulder agreement or agreement with as in a very early stage?

Thomas: Yes, I think a good agreement template early stage is necessary. So, you know, and the principles are pretty much established in the markets, the standard practices of course. So an active partner is rewarded in certain ways, and if a partner decides to spit out, that often comes up with a bunch of conversations and discussions. But I think it happened pretty well in our case since perhaps, again, in lucky there, but I think my business partner was very lucky in his other professional ventures as well, and I think perhaps that helped. And he respected also… again, back to trust and respect, he respected what I wanted to do, I respected what he wanted to do, and that helped us to move forward. I think sometimes new entrepreneurs in China get a bit scared, a bit too scared about that. I think, again, if you choose partners that have empathy and also the rights business sense, you can function in ways that are smart and that works for both sides, yeah. Perhaps also change is a good thing, right? It’s not always a bad thing to see change. So as an innovation agency, a mobile company in China, we embrace change, and as an individual living in China which is super fast changing, I almost have no choice than to love change or else, I don’t know, I should do something else.

Matthieu: One question about you, you know, your story before you started your mobile company in China you are not a tech person.

I saw on your profile you went to business school, when you are not a tech person, how do you start and how do you get enough knowledge without being a developer to start basically a mobile agency in China which is based on tech and development? How do you feel about that? I feel there’s a lot of changing concerns, questions that peoplfearlye want to go into tech but we don’t have this background, do you partner with someone with some who’s from tech? Do you hire people? And then how do you hire good tech people when you don’t even know how to check if they’re good? I mean, do you have this challenge?

Thomas: Of course, you know, I think it looks through learnings and making mistakes to be able to then do the right thing and surround ourselves with the right people with complementary skill sets. There are processes to do that, and those processes get developed over time.

So in the beginning when you start a business in China, things are super chaotic, you know, oh you managed to get the first temporary, you convinced one person to join and share your dream and get maybe underpaid for actually help you in doing that, and then a second one and then the third one. And things are really imperfect, but as the team continues to grow and as people by themselves decides to stay or go and develop the skillsets to work together, then things eventually work out really well. I think the luck that we’ve had is to be trusted by my clients that give us a chance. And I think the reason why that happened is they didn’t have many options to work with agencies like us in China back and then and still today.

I think that finding this type of skill sets and is not easy and also today it’s a very different story actually than when we started the business because we’ve got so much experience and learnings and libraries of codes and not so much design and design research and not so much about users and mobility that we are like, you know, quite, you know, what we do and we know our trade but, yeah. No, it is very hard to start, and I have to admit there’s been a lot of very hard nights this means blood, tears and amazing times. So it’s a life worth living because its intense in the right sense of the term.

Matthieu: Talking about the future of the mobile industry in China and I think that will end the China podcast soon, how do you see the next devices and next… the next platforms? We have talked about VR and AR in China, and then now not many people are talking about it. We’re talking about AI now, what will be the next platform you get ready for as you were ready for mobile in 2009?

Thomas: I think all the technologies you’ve mentioned are still in the early stage actually in terms of maturity and what it can do for people and when they can… and tools they can deliver for us. I’m not saying that AR isn’t cool today, but I think it’s going to get even cooler and it will feel the be and serve different purposes in the future than it does today, similarly with Al and with VR and with so many other technologies with mobile phones that keep on getting better.

But I think in general the concept of mobility, it’s a very long-term and forward-looking concepts in a sense that’s and we’re talking about devices, in the sense of think devices are going to get even closer to us, to our bodies, and she may be using, you know, glasses of course, implants things that get into my skin. I am absolutely not scared about any of these things because I believe they’ll help me live actually a better life, provided of course that the data and data privacy is managed properly.

But I’m an optimist; I think this world is very often doing the right things in those cases.

So mobility, to me means how an individual who’s mobile was basically urban or not urban actually living their life, and I think the personal and personality aspect of mobility is very strong. For me, mobility also means now instantly, it also means, you know, services that are super enabling and perhaps we talked about some of it philosophical, but I have no issue with the concept of a company’s name and being focused on mobility and mobile, whether it’s for apps or WeChat or mobile internet or another type of data-driven and service driven stuff in the future.

Matthieu: It’s very early, and we are still pretty much into mobile currently and on the phone.

Thomas: I think so too. I think China’s mobile industry is bound to continue to surprise us year on year. I read a lot about this and I, of course, experiment a lot about what can be done, and I just see the power of mobility as being just going beyond what could be done with books or with TV or with another type of media or concepts. And I think mobility is the style of living, it’s not just a mobile phone, and that’s what I meant. I meant that more and more technologies and devices would help us and we talk a lot about IOT in China, but, you know, we’ve also seen some successful, some less successful glasses based technologies and often meets people that already have implants and tell me about the functionalities that are brought to them and this just amazes me. And I know that so much more will happen and what’s currently happening.

Matthieu: Thanks so much for your time.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article Podcast transcript #8: How can businesses keep up with the changing mobile market in China? is the first one to appear on Daxue Consulting - Market Research China.

A huge gaming population gives a solid foundation for the rapid growth in the Chinese e-sports market. Consumers of e-sports products and services (including games, in-game purchases, e-sports merchandises, and other related products and services) contributed the largest single country spending in the world in 2017. In the same year, China (US$32.5B) and the United States (US$25.4B) account for half of the world’s total consumption on games.

E-sports is still considered to be a controversial topic in China. Public attitudes towards gaming has largely affected the promotion of e-sports as a type of competition. Fortunately, the Chinese government and Chinese social media recognized the legitimacy of e-sports and a neutral view is now taking the advantage against the traditional negative views on e-sports in China.

Now is the best time for the Chinese e-sports market

China has an enormous domestic gaming and e-sports market

The Chinese e-sports market size doubled in only two years, growing from 30 billion RMB to more than 60 billion RMB from 2015 to 2017, and is expected to hit 100 RMB in 2019. The year-over-year growth rate kept growing from 2015 to 2017 and reached its highest level of 59.4% in 2017. This figure showed a slightly decreasing trend as the expansion of the e-sports market in China slew down recently. However, the 31.6% annual growth rate from 2017 to 2018 still represents around 21 billion RMB in net growth. This amount is only 3 billion less than the amount grew between the year 2016 and 2017, when this market was on the full growth acceleration.

China now consumes the most e-sports goods and services in the world

China is now the second largest e-sports economy in the world, only after North America consisted of Canada, the United States, and Mexico. In 2018, the Chinese e-sports economy contributed 16% of the worlds’ total e-sports industry revenue. As a country, China and Chinese e-sports consumers show a huge desire for e-sports goods and services. Data shows that China has the largest consumer spending on e-sports related goods and services. In 2017, Chinese consumers spent 32.5 billion USD on goods and services. In the same year, the once leading e-sports consumer, the United States, only generated 25.4 billion USD, considerably less than China. Together, China and the United States generated half of the world’s total e-sports related consumption and hold dominant places on market size and market spending.

China has a huge e-sports-ready gaming population with an unrealized potential to consume

The e-sports market’s growth is mainly driven by the large gaming population in China.

According to Daxue Consulting’s research, the population of e-sports users (defined as those who play e-sports games, consuming e-sports related goods and services) grew from 100 million to 260 million in only 3 years from 2015-2017. The yearly growth rate between 2016 and 2017 has even reached 104.9% per annum. The total gaming and e-sports users population doubled between 2016 and 2017 and will reach 350 million in 2019 by expected estimation. The similar growth pattern is observed in e-sports consumers population like that in the e-sports market. The expected annual growth rate in e-sports users population is expected to slow down in 2018 and 2019 as the e-sports economy starts to mature in 2018.

Mobile gaming is the future of the Chinese e-sports market

Mobile gaming was not a threat to PC before 2015. The largest leap on market share of mobile games happened between 2015 and 2016, which resulted in an 18 percentage point growth on market share and enabled mobile games to exceed PC games to share the most of the Chinese games market at 57.2% in 2016. Researchers on Chinese e-sports and gaming industry set high expectations for mobile games in the next three years. In 2020, mobile games are suggested to consist of more than 2/3 of all types of games in the Chinese market.

Social attitudes starting to favour e-sports in China

2018 witnessed several major breakthroughs in Chinese e-sports history. In the presence of ubiquitous internet connectivity, every social event can be viral in a second. Chinese social media and search engines significantly contribute towards the promotion of a neutral view on e-sports as a type of competition. Meanwhile, the Chinese government is trying to build a stable and healthy environment for digital production by issuing new guidelines and regulations on contents, publication and distribution. These efforts now see the returns in terms of more objective public attitudes on gaming and e-sports.

Major breakthroughs on e-sports promote the awareness of the Chinese public

Besides professional leagues events such as League of Legends Professional League in China, Mid-Season Invitational and Rift Rival, the major international game for the first time took e-sports as part of its competition system in 2018. The 2018 Jakarta Asian Game held an e-sports demonstration game in four games. Among those games, League of Legends got the most attention, and the Chinese team finally won the gold medal. This news generated intensive Internet search and heated up the biggest microblog social media platform Weibo. According to the data from Baidu Index, the search intensity of ‘league of legends’+ ‘Asian Game’ almost caught up with the search intensity of ‘basketball’+ ‘Asian Game’ when China won the first place in LoL demonstration competition on the same day.

The public holds mixed views on e-sports in China

Though e-sports activities and events are gaining more and more attention among the Chinese public, the overall trend is still unclear.

The public attitudes are all at their infancy with both positive and negative comments on Chinese e-sports. The government has made self-contradictory moves by making new regulation and plans in pursuit for more quality digital publications including new games while stopped issuing new publication allowances for a new video game in early 2018. Social media and traditional media both call for fair views on e-sports and the separation of e-sports from simply gaming. However, the international professional sports games organizations such as the International Olympics Committee still regards e-sports as violent and inappropriate to be involved in Olympics.

The government’s official view boosts the confidence of Chinese e-sports

When the Chinese team won the gold medal in the League of Legends demonstration game, the Chinese government official media Weibo account CCTV News has immediately announced this news. This microblog post gained 15,572 comments, 25,801 reposts and 51,562 likes in the first several hours after posting and most of the comments are congratulating and praising Chinese e-sports teams on their outstanding performances. In the following days after the gold medal, topics of social media posts and articles started to diversify with different focuses on e-sports industry, player’s characteristics, the distinction between e-sports and gaming and so on. In short, the public focus turns gradually from the negative side of gaming towards a more diversified spectrum of views on e-sports and estimated as overall neutral.

Games as cultural and entertainment products gain more attention from the government than before

Managing regulations on digital products including video games have been refined during recent years. These refinements did not only add more detailed classification and corresponding rules of operations but also diversified the related punishments for different offences within the practices during the process of production, distribution, and management of various video games. The aim for these actions of frequent updates on regulations potentially means the Chinese government is now seeking more qualified gaming products. Meanwhile, the Chinese government is trying to create a healthy and lively environment for quality game production, distribution, and management.

Business potential is evident: an LPL example

Among all major professional e-sports leagues in China, the League of Legends Pro League is the most recognized one and leads the development of the entire professional e-sports industry.

In 2017, LPL announced that they will promote a ‘home-away’ competition system with current LPL participating clubs. In 2018, there are already 6 clubs announced their League of Legends team home city. These clubs are most prominent clubs in Chinese e-sports histories such as LaoGanDie (LGD – Hangzhou), Edward Gaming (EDG – Shanghai), OH MY GOD (OMG – Chengdu), Royal Never Give Up (RNG – Beijing), SNAKE (Snake – Chongqing) and Team WE (WE – Xi’An). The purpose is to attract local audiences and promote the localization process for LPL competitions. This creates a great opportunity for cross-industrial investments as the localized ‘e-sports +’ model will generate more opportunity than ever before.

Mobile gaming: a China-unique phenomenon

In 2017, the total trading value of Chinese mobile e-sports market in first time exceeded PC e-sports to become the largest in China. Chinese mobile e-sports market now shares more than 46.33% of the total e-sports market trading value in China, contributed 30.3 billion RMB in 2017.

Mobile MOBA games delivered the best performance

Among all mobile game types, mobile MOBA games perform the best. Mobile MOBA games deliver nearly 25% in both in-game sales and in-game time spending. Compared with other types of games (such as leisure games, which share 27% of in-game time spending and only 4% of in-game sales), MOBA games deliver the best outcome and continue to be the most welcomed game type by producers and consumers.

Honour of kings: a successful mobile MOBA example

Honour of Kings by Tencent Games is the most successful mobile MOBA game in China. In 2017, this mobile game, and its professional league King Pro League (KPL) ranked in the first place among all mobile e-sports professional competitions with 10.3 billion full-year content viewers in 2017. Among those, its official broadcasting and videos on various platforms had 9.1 billion full-year content viewers, means nearly 90% of their views are either watching their live professional games broadcasting or videos from the KPL official operator Tencent Games.

In early 2018, Tencent teamed up with VSPN to promote a home-away system like LPL, and established two home stadiums in Chengdu and Shanghai for the Western and Eastern Conferences.

The unexpected surge of tactical-FPS mobile games

After the success of PC-based tactical first personal shooting (FPS) game PLAYER UNKNOWN’S BATTLEGROUND (PUBG) in early 2017, many mobile game producers managed to imitate this new game type and produced various similar mobile versions.

In December 2017, FPS (including tactical FPS games) users increased by 178.6% compared with the previous month, making it the biggest surprise in the mobile game market in late 2017. Tencent Games, the biggest mobile game producer in China, has gained authorization from Bluehole Studio, the original publisher of PC game PUBG, and launched the official mobile version in both domestic and international app stores. NetEase Gams and other domestic producers all produced own similar versions to compete in the domestic market.

Market trends and opportunities for future development

Games are getting more entertaining with lower barriers of entry

Currently, dominant PC and mobile e-sports games are showing a trend of being more entertaining with diversified playing mechanism, while the requirement for entering game playing is becoming much easier. For example, PUBG, the game combined FPS and team tactics into one, has created an entirely new concept of competitiveness with 100 players competing for one last surviving title in one game. The Honour of Kings, on the other hand, has lowered the barriers of entry on skills, gaming gears, and team paring mechanisms. Based on large Chinese mobile population with a web connection, everyone can quickly pair up with other people and play a game which only consumes 10-20 minutes. Less gaming techniques are needed as Tencent Games updates the game frequently with new features providing more conveniences.

Lifted purchasing power means e-sports consumers are willing to pay more

More than 70% of the Chinese e-sports consumers are willing to pay for one or several types of e-sports goods and services. The major consumption will come from online live and content streaming. Among all online e-sports consumption types, consumers mainly focus on the quality of their online experiences including high definition (HD) streaming (29.0%), ads-free services (25.3%), professional commentators (18.4%), Multi-perspective streaming (16.7%) and high-speed video streaming (12.1%). The off-line e-sports market is being realized gradually in recent years. Now about a quarter of the e-sports consumer population is willing to pay for off-line events tickets and also more than 1/5 of the same population is willing to buy merchandises related to e-sports games, events and professional e-sports clubs.

The new ‘E-sports +’ business model can attract cross-industry interests

The off-line potential of professional e-sports leagues, tournament, and participating clubs and players can be realized by integrating online and offline operations. To realize the offline potential of online events, a business can team up with traditional industries such as manufacturing, retailing, food and other goods and services which have abundant offline promotion experiences and resources. Meanwhile, traditional industries can also be benefited from the online promotion by e-sports industry operators to reach a wider audience for their promotional activities. One example of an online-offline cooperation is Giant Networks’ Battle of Balls professional league and Tongyi Ice Black Tea.

This cooperation combined two unrelated brands into one entity and Tongyi has reached its promotional purpose via a full spectrum of advertising activities including the specially-designed in-game skin, theme song, special product design of Tongyi Ice Black Tea, in-game special tools and other online and offline activities. Battle of Balls, on the other hand, has reached Tongyi’s large consumer population that could be potentially turned into their gaming consumer in the nearly future. In 2017, more than 60% of the Chinese e-sports users agree that the advertisement showed during e-sports events is related to e-sports spirits and themes.

Industry needs will drive social changes

The growing demand for entertaining gaming experience and easier access to playing will drive the expansion of the market. And the expansion of the market will reciprocally boost the demand for an understanding of gaming and e-sports activities. Governmental attitudes are now changing, and e-sports now need objective justification to reach a harmonious social understanding. This requires more talents in the industry, also needs a comprehensive regulation and supervision system to maintain the healthy development of the market. Overall, preliminary findings suggest that there are already tendencies of development in this direction, and the continuing expansion of the industry will further accelerate such tendencies.

Author: Jiameng Hu

Daxue Consulting can help with the analysis of any market in China, including the e-sport market

Daxue Consulting, as a market research company, provides the adapted data in one of the most challenging markets in the world, China.  We have a wide range of services to deliver a competitive market research. To know more about the personal data market in China, do not hesitate to contact our project managers at dx@daxueconsulting.com.

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This article [Podcast] China paradigm #8: How can businesses keep up with China’s changing mobile scene? is the first one to appear on Daxue Consulting - Market Research China.