Yodo1 Interview: China Mobile Localization
APRIL 22, 2014 • Yodo1 Interview: With 3G and 4G mobile networks spreading coverage throughout China it is no surprise that overall smartphone penetration is growing significantly with a corresponding demand for mobile game content. That is a very tempting scenario for Western mobile game studios looking to expand revenue. Yet China is a very different market. There are a dizzying number of players in discovery and billing on top of picky consumers with distinct expectations and tastes. Android devices dominate the market but there is no Google Play, forcing developers to deal with multiple distributors.
Yodo1 is an example of some relatively new Chinese publishers that have sprouted up in the last few years to help overseas content make a bigger splash when they arrive on the mainland. The need for excellent localization in global markets is nothing new, yet China can often be one of the most difficult territories in which to get localization right. That’s why DFC went to Yodo1 chief executive Henry Fong to explain how his still young company arrived at its localization model, and to learn more about the services his firm provides its clients.
DFC: How did Yodo1 get started? What was the opportunity that you saw and why did you think Yodo1 would be different?
Henry: Yodo1 was founded in late 2011. We saw multiple industries that had billion dollar potential, all merging on a single point – namely smartphones, gaming and China. With fast growing smartphone penetration just entering the growth phase in China and games being the predominate and most monetizable content, we decided to dedicate our focus on the China smartphone gaming market.
One of our biggest differentiators from the start was the multi-national background of Yodo1’s executive team, with more than a decade of experience each in bringing Western startups and technology companies into the Chinese market and a native understanding of Western tech culture. We were confident that we could bridge the gap between East and West in this extraordinarily complex environment – for distributing and monetizing smartphone games in China.
DFC: Please give us the big picture: what are your services and products, who are your clients, where do you have offices and how many employees do you have?
Henry: We’re a full-service co-production mobile game publisher, initially focused on the Chinese market but now expanding into Korea and Japan. All these countries have different tastes in gaming, different monetization, and different distribution channels. Instead of having game developers work with a whole bunch of companies to monetize and distribute and repatriate their revenues from each of these markets, Yodo1 can simplify the process for them with our end-to-end turnkey partnership model. With China, Korea and Japan, we now serve three of the top four grossing markets in the world for smartphone games.
We have offices in Beijing, Shanghai, Nanjing, Seoul and Tokyo – we’re currently at 250 employees and counting.
DFC: How many games have you published so far, and what is the breakdown of total DAU and MAU?
Henry: Over 50 games. We first started by publishing many games every month starting in August 2012. But we learned more doesn’t mean better, and started to focus on quality. Now we review over 200 games a month but only publish about two.
Our average DAU currently ranges from between 3 million to 4 million and we expect this to grow at 25% to 50% quarter over quarter for the foreseeable future.
DFC: Do you worry about over saturation? Does quality stand out or is it more about distribution reach? How picky are you about choosing games to publish?
Henry: Not really – with a potential market of over a billion users, the Chinese smartphone gaming market still provides a lot of upside potential. The market continues to grow quickly, and the growth is more than enough to cater to a range of players.
That said, quality definitely does stand out now more than ever with so many games competing – and that’s going to become even more true. As the industry continues to mature, the 80/20 rule will become more apparent, with 20% of the games attracting 80% of the market. It’s one of the reasons our game review process is so stringent and why we choose one out of 100 games. Quality is important and the amount of work we put into each to add culturalization elements, new art, music, etc. requires a significant investment in resources, time and marketing spend.
DFC: What do you estimate the market size of mobile games in China was for 2013? How much do you expect that to grow in 2014 and beyond?
Henry: In 2013, revenue-wise, the market was about US $1.6 billion to $1.8 billion. We anticipate that to double in 2014, so anywhere between $3.2 billion to $3.6 billion. The depth of consumer penetration is expected to continue to grow, so if you look at smartphone penetration and 3G/4G penetration in China, we’re not even at the halfway mark. There’s quite a bit of growth left in the market.
DFC: What are the trends in platform market share?
Henry: Two major trends: First, historically in the Chinese market, there have been hundreds of app stores, especially on the Android side. On iOS there has been a lot of jailbroken app stores. More recently there’s been a consolidation of low to mid-tier companies. Second, we’re also seeing massive players entering the market, players with tens of millions of DAU, such Alibaba and YouKou, along with the traditional PC players like Perfect World, Shanda and NetEase. Overall this will help grow the market faster. So it’s consolidating and growing at the same time.
DFC: How big is Android versus iOS in China?
Henry: Android has taken a more dominant role in terms of growth. Two years ago in terms of distribution and grossing, iOS was dominating the market, and it was very difficult for Android games to monetize. A lot of that was due to the immaturity of Android’s discovery, distribution and payment infrastructure, which has since been resolved. Android is now the faster growing platform with unit shipments exceeding iOS devices by roughly three to one. Android’s monetization capabilities continue to grow as well with more mature and frictionless payment methods. We still see the iOS market experiencing solid absolute growth and as Apple adapts to the intricacies of the Chinese market, they still have a chance to turn the tide to regain some market share over Android.
DFC: What is the difference between distribution and discovery on Android and iOS?
Henry: For iOS, if you discount pirated and jailbroken app stores, discovery and distribution is all done inside the App Store.
With Android, it’s significantly different: Discovery is across a whole slew of app stores, messaging apps, websites, etc. Distribution can be on handset pre-loads, downloads, and search – it’s so much more fragmented and varied on Android.
DFC: Since Google Play is not in China is there a comparable alternative for distribution?
Henry: Too many, really, is the answer there. There are hundreds of app stores, handset preloads, a dozen different payment methods ranging from carrier billing to Alipay. The Chinese ecosystem is quite different from Google Play outside China.
DFC: What do you see as the major changes to discovery, distribution and payment options coming in the near future?
Henry: The major changes will be the number of players dominating discovery and distribution, which will get smaller as the big players increase their market share. There’s going to be one to two dozen players dominating discovery and distribution.
In terms of payment, we’re going to see more variety – carrier pay, Alipay, etc. Today, carrier billing is the easiest and most frictionless method available, especially for casual games that depend on micro-transactions. Part of the reason is because carrier billing works whether or not you have a network connection. The second reason is it’s frictionless: You don’t have to bind your credit card to your account. All you need is a phone number.
This will change: Always-connected devices and always-connected gameplay are becoming more prevalent, and as the market matures, more people will have bound their payment details to popular payment methods like AliPay, and use those.
DFC: Please define “deep culturalization.”
Henry: Culturalizing every aspect of a game to the target audience – not just the language, but the art style, music, story, monetization mechanics etc., and determining whether all of those are a popular fit with the gaming audience in China. It requires rewriting all the narrative so it reads and plays like a locally made game. You also have to take into consideration monetization, so it’s in line with the way Chinese players like to spend. It’s also about changing the gameplay design so it’s more natural to the local player. It’s literally taking a game foundation and modifying all aspects to cater to the local market.
DFC: How much does it cost to re-script storylines, provide professional Chinese voice overs, and add full cinematic cut-scenes in AAA F2P online games, mobile games, and casual games for the Chinese market?
Henry: Every game is a different situation. If you work with Yodo1, it costs nothing for the developer – we have already built up significant production capabilities. Close to 200 of Yodo1’s 250 employees are production resources – game design, sound engineers, artists, etc. If you were to outsource each separate part of that – it really depends on the quality you’re looking for – you could spend a couple thousand U.S. dollars or in the hundreds of thousands.
DFC: How involved is the process of taking a paid mobile app from Western markets and transitioning it to F2P for China?
Henry: Extremely involved. Not every game is able to convert successfully to free-to-play. We literally need to rebuild the monetization model from the ground up, so it fits naturally into the gameplay, and that takes a significant amount of work and tuning. We prefer working with games that are built for the free-to-play market, but in some cases, premium games can be converted to FTP – especially if it’s a well-known brand. Not every game will work, but for others, it takes significant design effort.
DFC: How much additional revenue can be realized by content Yodo1 adds to a Western game?
Henry: Significant amounts of revenue. For instance, see our Ski Safari case study. When Defiant Development launched the international version of its casual single player game as a paid iOS app in China, they averaged $69 a day. Our first co-produced Chinese edition of Ski Safari grew that to $1,351 a day. Our next update with Yodo1-produced Chinese content increased that to $4,200 a day; an update with additional Chinese content boosted that to $14,500 a day. See my GDC 2014 presentation for more details
DFC: What is the state of paid mobile apps in China today, and do you see any changes coming?
Henry: Very niche, probably 1% of the market if not less, and we don’t see that changing any time soon.
DFC: How has the emergence of chat platforms such as WeChat as distribution platforms affected the game industry, and how have you had to adapt?
Henry: WeChat works on the same mechanics as KakaoTalk in Korea and LINE in Japan; it’s a disruptor in the Chinese market. We think it’s good and bad – it creates a new way for games to be distributed and monetized, and the social network aspect increases virility. The bad part is WeChat is a closed platform; if you’re not on the platform, you don’t have that choice. We’ve actually built our own social game engine called KT Play, and are launching it into the Chinese game market. We’ve spent the last few months adapting our games to the platform.
DFC: What are some of the unique challenges of operating in China from an Internet infrastructure perspective?
Henry: From the perspective of Western developers and publishers, the Great Firewall is a challenge – gamers will have slow, unreliable connections, or no connection at all if the game has a server outside China. The only way to get around that is to have a server infrastructure inside China. When you do that, obviously there’s licensing and regulations that need to be complied with. So either you need a Chinese subsidiary or a trusted local partner to distribute and manage that.
The other challenge currently is migration of the user base off legacy (2G) mobile networks and ultra-low end handsets – you need to optimize your games’ download size and performance for these slow networks and low-spec phones. We see this improving over the next 12 month as Chinese consumers continue to rapidly upgrade to newer handsets, and the mass adoption of 3G/4G subscribers continue to drive down the cost of data plans for consumers.
DFC: Out of the 800 million smartphones users expected for 2014 in China, how many of them will play games.
Henry: Most smartphone users in China will play some kind of game in some kind of time frame – so that percent is fairly high. Depending on what research you cite, the mobile gaming market in China was between 300 million to 400 million in 2013, and we expect that increase. So in 2014, upwards of 600M will likely play some kind of game with their smartphone.
DFC: Please give us an idea of what mobile game genres are popular in China and whether any of those preferences are changing.
Henry: There are many types that are popular, so it’s probably easier to answer what’s not popular: That includes games that have very strong cultural requirements that the Chinese population doesn’t understand. If your game theme and narrative requires an understanding of U.S. and Western culture, it’s not likely going to fly.
Game genres attached to popular IP are getting more attention – cross media assets from TV shows, movies, comics, manga. If that content is already popular in China, the mobile game versions tend to do well in China. We think that casual social gaming is going to be a massively monetizable market as first-time smartphone gamers enter the market. And there will always be a high-value market of hardcore gamers that monetize well. The monetization mode will remain free to play with very little premium download content.
DFC: How does Yodo1 deliver discoverability in China? What are your methods and why do they work?
Henry: It’s never one thing – and the thing about China is the way you market your games and optimize them is rapidly changing. How we did it six months ago versus one year ago has been significantly different and we expect that this aspect of the business will continue to morph rapidly.
One of the key foundations is a broad distribution network. Today we work with more than 300 distribution channels, ranging from app stores to handset preloads. On top of this foundation, we need to build comprehensive online and offline marketing campaigns that are coordinated for maximum discovery. For the Chinese edition of Cut the Rope 2, for example, not only did we launch over a foundation of several hundred app stores, but we also ran a broad swath of marketing with carrier store retail coverage. Where you see Cut the Rope 2 posters and soft toys we also ran in-store competition with key Android app stores, optimized SEO based on the game’s keyword search, as well as ran PR across dozens of game media sites and apps. It’s quite a variety of marketing methods to drive discovery and coverage.
DFC: What are the most successful ways to monetize games today in China, and why?
Henry: For Android it’s almost all in-app purchases. For iOS, a combination of IAP, offer walls and interstitial ads depending on the game type.
DFC: How effective are in-game ads?
Henry: On Android, not really. With hundreds of app stores, the market is too fragmented to build a consolidated ad network. There’s a small niche of ad networks. Most Android app stores will not even allow ads in free to play games that monetize through IAP.
On the iOS side, interstitials and offer walls are the primary ad methods today. Offer walls are good for burst marketing, but the quality of the users you gain from offer walls are extremely bad, basically due to predictable consumer behavior: People who are downloading your game because of an offer wall often are only doing it for the benefit of the game they’re currently playing.
For non-incentivized interstitial ads, costs are getting much higher – the cost for ads in general has quadrupled in the past years. The cost of user acquisition in China is growing astronomically.
DFC: How do you effectively leverage the huge litany of app stores in China?
Henry: Net-net, it is getting more difficult for new players to enter the market. At Yodo1, we’ve spent the past two years building out a network of hundreds of app stores and other distribution partnerships so when we launch with a game, we have all of these processes and relationships already in place.
DFC: What is different about Chinese social networks compared to those in the West, and what needs to be done differently to leverage them?
Henry: From a technical perspective, integration is obviously completely different. You have to integrate with the local SDKs. Registering and applying to integrate your apps with these social networks is also a different process – so you need a local partner to integrate effectively. All the documentation is in Chinese and partnership agreements typically require a Chinese business entity.
Functionality-wise, there are similarities. For example, Sina Weibo is most commonly compared with Twitter, even though the functionality is slightly different. WeChat is compared most commonly to KakaoTalk and LINE. Then you have the traditional web- based social networks like RenRen that are currently in decline. New social networks continue to pop up as well, so you need to be on the ground to know how to adjust to these changes in the market.
DFC: Please give us a run down of what it takes to manage payments over various carriers in China?
Henry: There’s only three carriers: China Unicom, China Telecom, and China Mobile. In order to bill in China, there’s two ways – small to medium players go through a third-party that processes payments on their behalf. For Yodo1, we work directly with the carriers on billing – we basically have a nationwide account and all our billing codes will work anywhere in the country. Third-party solutions sometimes work only with a subset of regions in the market. The pre-requisites for working directly with a carrier requires a local business entity, and attractive enough content for the carriers to onboard you, otherwise they’ll push you to a publisher or a service provider. So scale matters when you’re working with a carrier.
DFC: What opportunities do you see in Korea and Japan that led you to open branches in both nations?
Henry: China, Korea, and Japan are the top grossing markets in the world, and highly monetizable, but the hardest markets for Western games to break into because they’re so different. So we always lead with local game designers optimizing a game for those markets, and not foreigners looking in, guessing what to change. One of the primary reasons we decided to expand into Korea and Japan was because our existing games studio partners were looking for trusted partners in these countries and asked Yodo1 if could help them in these markets.
DFC: How do you protect IP in China? What does it take and are there different schemes for different classes of game apps?
Henry: Lots of different ways to skin the cat. A lot of developers try to use a kill switch-like DRM. But if you can design a technical way to protect content, someone else can find a way to undermine it. DRM technologies often cause friction for consumers and often have unintended technical consequences that cause users inconvenience while trying to achieve bullet-proof protection. Games that have an always-connected element are easier to protect, but again, you need a multi-prong strategy – you should use technology if it’s not disruptive to the user experience, but you also need to protect IP at the source of distribution.
We believe that the best protection against piracy is at point of distribution – so working with different distribution partners against infringing content, and replacing that content with legitimate, authorized versions is the most effective way. I wrote a detailed blog post on this topic.
DFC: Tell us more about how you set up and support in-game communities. How much staff do you apply per title, etc.?
Henry: We are quite different to other publishers in that we have our own tech for in-game communities as part of the KT Play social engine. We do all of our customer support and user management inside the engine.
Number of staff varies – it can be one full-time manager for several games, including running events and community moderating. For hardcore games, it can be several people per title. The number of staff depends on the game, but the management method is still done primarily through KT Play, including customer support and live operations.
|Employees||250||200 in production|
|Website||www.yodo1.com (corporate) www.yodo1games.com (consumer)|
|Executives||Henry Fong||Co-Founder and CEO|
|Jung Suh||VP Global Publishing|
|Business Model||Co-production rev share with developer partners|
|Game revenue from IAP and in-game advertising|
|Number of Products||50 mobile games for iOS & Android|
|Type of Products||Smartphone games for iOS and Android published in China, Korea, Japan and global market|
|Top Products||Top global hit: OMG:TD!, tower defense game with nearly 4 million playersTop China market hit: Ski Safari, casual infinite run game with 100 million+ players|