ByteDance has entered the game
An overview of ByteDance and their strategy for the gaming industry
ByteDance is taking the world by storm through its main app TikTok boasting 800m+ active users and making it the most valuable startup in the world. It's not surprising that they have been gearing up over the last couple of years to enter the lucrative gaming market, starting with their acquisition of Shanghai Mokun in early 2019.
To date, ByteDance has dedicated 1,000+ people for its gaming efforts both through hiring and acquisitions. They have released games primarily in China in both the casual and core genres. So what's their game plan?
Game on
ByteDance’s gaming operations are run under its subsidiary Zhaoxi Guangnian which has acquired multiple studios across China. They currently have 22 games released on the market, of which 4 are self developed. Their games are split primarily under 3 parts, with Zhaoxi Guangnian for the domestic market, Nuverse for the overseas market and Pixmain for independent steam games that are working with indie studios domestically and overseas. These games have generally focused on midcore to core titles, which are popular in Asia but appeal to specific types of audiences. Interestingly enough, their 4 self developed titles have been primarily for the overseas market across MOBAs, MMOs and simulation games. So far, ByteDance has generally struggled to find a big hit here and has had more success with its casual games from its studio Ohayoo.
Now, ByteDance has announced the launch of a mobile gaming platform, Danjuan Games. This is an interesting step as they aim to build on their success with casual games and create a direct gaming platform for players, competing with Tencent’s WeChat where most gamers in China access and find games. Building another distribution and community platform dedicated to games is going to be key if they are to convincingly challenge Tencent’s dominance.
However, taking a step back, ByteDance has one key differentiator that Tencent doesn’t - and that’s the first Chinese app that has dominated globally.
Leveraging their powerful platforms
Their two key products are Toutiao (a news aggregator app that uses similar technology to algorithmically show content to its users) and TikTok/Douyin, their well known short-form video app.
Looking at TikTok specifically, they have built a social media platform that pioneered in two powerful ways: firstly, their AI-powered recommendation algorithm. The nature of the For You page (the face of the app) has both multiple signals per video and multiple types of content shown per session versus other media. This has given them a deep understanding of content they should deliver. Secondly, their in-built creator tools are arguably the lifeblood of the app and what gave it its initial start. From lip syncing music and audio, to creative filters, to the ease of duetting and creating real-time collaborative unique content provides a platform that is difficult to replicate.
The success of this approach has created the first truly global social media platform, in that it is popular both in the West and the East including China, India and South East Asia. They're also dominating time spent by youth, outpacing all other platforms except YouTube. TikTok has a very unique position that has democratised content creation and allows people to celebrate any niche they have, birthing new influencer stars.
Their immediate position in the gaming ecosystem is as a publisher and distribution channel, offering game developers reach to Gen Z and millenials, tools to engage directly with their audience and as a video-native platform delivering high quality ads.
Building a kingdom
There is a clear rationale to make deeper strides in gaming. With a huge user base where they distribute content, games offer a way to further monetise and engage them. Recently, they entered in a partnership with Unity to build an instant game solution like they have on Toutiao, signalling their intent to integrate games more deeply onto TikTok.
If ByteDance is aiming to build their own gaming empire to rival the likes of Tencent, they'll need to produce or find the next big gaming hits at a relatively early stage. Much like how Tencent patiently built up its platforms and gaming portfolio over a decade before their own TiMi studios released its mobile hit Honor of Kings, ByteDance will need to pursue a similar strategy. Judging by the fact this gaming division is led by their Head of Investments and Strategy, Yan Shou, this looks to be the case.
Unfortunately just having a platform and money isn't enough to ensure success. ByteDance will need to be purposeful in how they develop and release games and ultimately use the machinery at the core of their platform to drive decisions in what games to make, which studios to partner with and how to publish them. Alongside this, pursuing equity investments and eventually M&A with strong studio partners will help secure IP and alignment for the long term. This year, ByteDance invested in Microlabs (Western casual games) and Youai Interactive Games (casual games for Japan) and have a few other investments in China - but still pales in comparison to Tencent. I would confidently say that Tencent has the best corporate M&A and investments department in the world, judging by the fact they practically own some or all of every successful gaming company. Competing with that will be very challenging.
High level strategies
The great aspect about gaming is new games and experiences can come out of nowhere and rise to popularity, recent examples like Among Us or PUBG kicking off the battle royale genre demonstrate this. The other great thing is that the opposite is also true, where a community builds slowly over time but sustains a game for years and years. My point here is that if ByteDance makes the right moves now, and effectively leverages its position with TikTok to shape the next generation, there is certainly a path to building great things within gaming. Overall, ByteDance should look to do the following:
Work closely with studios at an early stage
Typically, the latest trends and new hit games are driven by new studios that aren't tied down to prior ways of thinking. This has especially been the case with every platform shift. Getting ahead of that through partnerships and minority investments will give ByteDance better insights into gaming trends, and set up full acquisitions later down the line.
Compete on a global level
Although their core market is China, with TikTok's global presence they should hire, build out teams, and work with game developers across every key market. Their global user base gives them unique insight into what type of content is trending, including gaming.
Build relationships with gaming investors
There are now multiple gaming focused investors that are funding startups founded by successful gaming entrepreneurs. These funds will eventually look to exit and ByteDance should aim to be high on the list.
Create gaming centric product features for TikTok
Introducing game-like features to their creator tools will not only produce more engaging content, but potentially unleash the creativity of their huge userbase to create their own games. If done properly, this may become a parallel to how mini-games and mods go on to become successful games in their own right.