PopCap’s Slow and Steady Investment in Asia May Be Starting to Pay Off

PopCap Games has long adopted a “What happens in Asia, stays in Asia,” approach to its business in the region, giving the unit an unusual level of autonomy to experiment with and localize its titles.

That hands-off approach may be starting to pay off.

The Asia unit is set to contribute about 10 to 11 percent of PopCap’s overall earnings, up from about 5 percent in previous years, according to James Gwertzman, who heads the unit for Electronic Arts. Before it was acquired by EA, PopCap said it made more than $100 million in revenue last year so a back-of-the-envelope guess means we may be looking at a runrate of about $15 million for the Asia business alone.

PopCap’s recent release Plants Vs. Zombies Social also reached close to a half-million daily active users on Renren this past week, thanks to an aggressive marketing campaign by the Chinese social networking platform on behalf of the gaming company.

This traction didn’t come easily however. It’s the product of more than five years of investment and relationship building in the region.

The idea for an Asian PopCap office started in 2005 when Gwertzman, who had worked in Asia for Microsoft during the first tech bubble, went back to the region on a trip and discovered that Chinese consumers were passionate about PopCap titles like Zuma.

“We had this huge existing brand awareness in China. People knew our games and thought they were fun despite the lack of localization,” he said. “But the question was — how do we make money?”

Lessons From Other Western Mistakes in China

He started traveling to the region every month or two to study the market. “There were already several cautionary tales in the gaming space,” he said. “We were resolved that we weren’t going to spend PopCap’s money until we could really coherently explain the mistakes by Western companies. And I wanted to make new mistakes, not old ones.”

Some of ways in which other Western companies had erred included:

  • Not giving the local team enough authority or power to make their own decisions: Companies would insist that decisions have to be approved by upper management in the West.
  • Not hiring a local enough team that really understood the Chinese market: Gwertzman said many U.S. companies would bring in expats and not listen to local staff when they made recommendations.
  • Or they’d do the opposite and hire a Chinese head or GM who was relatively unknown to senior management: Because they didn’t grow up in the culture of the company, their decisions might be second-guessed by central management which was thousands of miles away back in North America or Europe.
  • Over-investing too early: Companies would set up extremely high revenue expectations right away and when revenue didn’t meet those targets, they would ramp down their investments. “You’d see these huge over-investments and rapid collapses,” he said.
  • The leadership they chose wasn’t stable enough. “Companies might go through four different GMs in four years,” he said, making strategy unpredictable.

In response, PopCap and Gwertzman set up a framework to run the local office and he moved over to Shanghai in 2008 to open up the studio. They agreed that the Asia unit would have total autonomy and the only decision where upper management would be involved was the annual budget. The PopCap Asia staff would be given relatively free reign to modify the company’s best-loved brands for the local markets.

They also agreed that what happened in Asia would stay in Asia. “If we want to do crazy business models, it stays here in Asia,” Gwertzman said.

They also chose not to bring in talent via acquisition as many other gaming companies like Zynga have done in China (although Gwertzman said Zynga’s XPD Media deal was probably one of the smarter acquisition decisions).