China's Social Gaming Ecosystem: Talented Developers, Limited Platforms

Players in the U.S. social gaming industry are growing increasingly curious about China -- for good reason, given the size of the market, and the wave of developers building for platforms like Facebook from within the country. Today, we extend last week's look at social gaming ecosystem on RenRen.com with additional information from our conversations with Chinese game developers and industry insiders to deliver an overview of the social game developer landscape in this challenging, yet fascinating, market. The Powerful SNS We’ve previously noted that many of the major social networking services (SNS) in China do not have platforms that are open to any third party developers. These closed platform SNSs include big players like QZone, Kaixin001, and 51.com who collectively make up around 40% of the Chinese social networking market. While apps and games are an integrated part of the social networking experience on these sites, all apps are either developed in-house or, to a very limited extent, acquired from outside developers via a one-time license sale. The 'closed' nature of these limits the number and variety of apps that the platform hosts, and prevents any kind of developer ecosystem from blossoming around the platform. With so many social networks keeping their platforms closed to third party app development, the ones that are open, like RenRen.com, exert extraordinary sway. Developers no longer listed, now “From a third-party developer” In contrast to QZone, Kaixin001, and 51.com, RenRen.com / Kaixin.com (two sites owned and operated by the same parent company, Oak Pacific Interactive) have open platforms that host hundreds of third party apps. Over the past few days, we noticed that RenRen removed developer names from its user-facing application directory. RenRen previously displayed the name of the developer or publisher responsible for each app in its user-facing leaderboard, as you can see in this screenshot we took two weeks ago. Now, all third-party apps are simply labeled with “From a third-party developer.” While RenRen has not released specific information as to why they made this change, one of our sources in China suggests that it may be a nod to regulators from China’s General Administration of Press and Publication (GAPP) and the Ministry of Culture, who last October underscored an existing requirement that all developers of online games (traditional or social) must obtain licenses to operate. While it’s unclear exactly why RenRen would suddenly choose to obscure individual developer brands in their app directory, it could indicate that the social network is acting as the licensed publisher for these games, subsuming the identity of individual developers, and thus working around any licensing issues. Update: One source in touch with RenRen's platform team has told us that the change was due to a technical problem, which has now been fixed so that the app directory once again displays individual developers' names next to game titles. Barriers to entry: Approval and regulation by the GAPP and the Chinese Ministry of Culture In October of 2009, China’s GAPP reiterated an existing regulation governing China’s online games industry; among other stipulations, developers of games are required to obtain licenses to operate in order to build and publish games online. While this regulation was written for all “online games,” and most likely with more traditional online games and hardcore MMOs in mind, social games (which are of course still online games) have been bundled in as well. In the eyes of the regulating institution, social games are online games, and so should be treated exactly the same as other online games in China. This makes sense logically to the GAPP (online games are online games), but not financially for social game developers. China’s Ministry of Culture reported in January that revenues from MMORPGs climbed to around 20.38 billion RMB, or 79% of total online game revenues. Casual games - including social games - grossed 3.55 billion RMB in revenues, or just 13.8% of the industry’s total sum. Although social games aren’t making the kinds of revenues as traditional online games, they are now subject to the same rules. The GAPP requires that game operators have a minimum of 10,000,000 RMB (1,464,560 USD) in registered capital, a prohibitive sum for many social game developers themselves. Games are also subject to general approval by the GAPP before they can be considered to be in good standing. When it comes to social games, tough requirements like these have been heretofore handled by the social networks that operate the games, not by the developers themselves. But, while developers previously relied on partnerships with bigger publishers who held these licenses, it's now not entirely clear who will be responsible going forward. Added to the GAPP’s new attention to these rules is an ongoing regulatory battle between that body and the Chinese Ministry of Culture over who should control online games. For specific details on this, see our previous coverage of this regulation and of the ongoing turf wars between the GAPP and the Ministry of Culture. These shifts in the regulatory landscape have combined to create significant uncertainty for developers. For now, what's clear is that all of the big social platforms already have licenses and approvals in place, and can use them to protect - or obscure - the identity of individual third-party developer brands as needed. There is one more factor that shifts the balance of power in favor of social networks. In China, app-related revenue is collected first and foremost by the social networks themselves, who then distribute appropriate shares of revenue to third-party developers. As a result of both the increased barriers and the way that revenue payouts are currently handled, we may be seeing more leverage shift into the hands of the social networks themselves, and away from individual, and especially smaller, game developers. We'll follow up on this article later in the week with a look at revenue in Chinese social games, and what the future holds.

Social Pro Daily

China's Social Gaming Ecosystem: Talented Developers, Limited Platforms

Susan Su

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