The biggest difference from one year ago with China’s mobile startups is that the local market is actually viable.
China now has more active iOS and Android devices than the U.S., up from about 40-50 million in circulation the last time I visited in late 2011. What that means is local entrepreneurs can finally build real, scalable mobile software businesses.
iDreamSky, which started four years ago, is one of the companies riding this wave.
They started back in 2009 and have grown to about 200 people through publishing some of the West’s best-known mobile games like Halfbrick’s Fruit Ninja and Imangi’s Temple Run in China.
The Chinese market isn’t like the rest of the world. There are myriad Android app stores, run independently of Google. There are different social media channels through platforms like Tencent’s WeChat and Sina Weibo. Then there are different local tastes for music and art.
“Finding a partner that knows how to localize your game doesn’t mean just translating the game in Chinese,” said co-founder and executive vice president Jeff Lyndon. “It’s also about adding unique content.”
He said in Fruit Ninja, iDreamSky added Chinese blades for cutting the fruit and localized backgrounds.
They also changed the monetization strategy in Temple Run. The Western version of the game asks players to buy virtual gems to revive their character. But in the Chinese version, Temple Run will ask players to either buy virtual gems or directly pay 2 renminbi (about 33 cents) to revive their runner.
Lyndon said re-routing players through a separate interstitial to choose packs of gems deterred Chinese players. “It’s counterproductive to impulsive buying behavior,” he said.
While other top local developers like Chukong have revealed that they’ve been making between $6 million per month, mainly from the Chinese market, Lyndon said top foreign indie games could realistically gross $4 million to 5 million per year before iDreamSky’s take.
The company splits revenue 70-30 with the developer getting the bulk, but they graduate their take to 50-50 for better-performing games. Their network has grown to about 15 million daily actives in China.
They’ve raised roughly $10 million from Redpoint Ventures and Legend Capital and compete with companies like Chukong, which publishes games while developing its own first-party titles. Yodo1 is another publisher that recently took funding from Singtel.
“There’s a new batch of the competitors, but the market is big enough for all of us to survive,” Lyndon said.
But he said one advantage that iDreamSky has is that it doesn’t have a dual role. It only publishes games; it doesn’t make its own titles. Having a dual model can sometimes lead to conflicts of interest if a studio promotes its own games over a third-party title, or even borrows ideas liberally from a third-party studio, he said.
“We have a very strong mandate,” he said. “If we want to be a publisher, we should never be a developer.”
He added that the market is changing rapidly. Tencent’s WeChat, which blew up over the last year and grabbed 190 million monthly active users, is poised to be a major distributor of mobile games. South Korea’s Kakao has pioneered this model; games distributed by the Kakao messaging platform dominate the top-grossing charts in the country.
“WeChat is going to be one of the biggest trendsetting elements of 2013 for the Chinese market,” he said. “Once it opens up, as Kakao and Line being have already shown, WeChat will deliver the same results or even better.”
For foreigners, Lyndon said there’s a limited window to break into the Chinese mobile gaming market (which might be a bit of a self-serving thing to say.)
He said local developers are getting increasingly better at catering to the local market, and they already dominate the charts with the exception of titles like King’s Candy Crush Saga.
“The Chinese market has changed dramatically. It’s getting harder for Western developers to come in,” he said. “If you don’t come into China earlier, you might not be able to come in in after next 24 months.”