Pop Cap’s First Year In China
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Originally presented at LOGIN 2009, this is a fast-paced and colorful trip through PopCap's first year in China, with advice for any company considering the challenge of entering the Chinese market (or any developing country, for that matter).
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Pop Cap’s First Year In China
- 1. PopCap’s first year in China: work-in-progress A post-mortem James Gwertzman Vice President, Asia/Pacific
- 4. 1P- 37P2F3 1.1GWERTZMAN/JAMES.MR*ADT 1 UA 977V 13SEP TU SEASFO HK1 710A 911A/O $ E 2 JL 1M 13SEP TU SFONRT HK1 100P 340P#1/O $ E 3 JL 795M 17SEP SA NRTPVG HK1 705P 905P/O $ E 4 CA1856Y 19SEP MO SHAPEK HK1 755P 955P/O $ 5 CA 123Y 22SEP TH PEKICN HK1 855A 1150A/O $ 6 JL 962M 24SEP SA ICNKIX HK1 1220P 200P/O $ E 7 JL 60M 24SEP SA KIXLAX HK1 530P 1155A/X $ E 8 AS 513Q 24SEP SA LAXSEA HK1 215P 449P/O $ E P- 1.P8F206-652-0888 ASA TOURS/YIHRU
- 5. Casual Games: QQ Mini game platform Tencent launched QQ Mini game platform since 2003. it is so far the biggest casual game platform in the world. So far, QQ mini game platform provides 50 mini games from 5 main categories. Market share 55% Registered users 156MM PCU 2.5MM
- 6. QQ Show –Global #1 Virtual Fashion Community 200 million+ registered accounts, each has paid experience User generated fashion,includes clothes,decorations, hair style,etc. Customize your own style and show yourself Subscriber 25,000,000
- 10. Our existing games were already very popular in China. But, our existing business models could not work.
- 11. Success would require mastering an entirely new set of business models.
- 12. Was Asia worth it? It’s HUGE (3.3 billion people, more than half under 30) The number of Internet users is growing FAST (20% CAGR since 2000, from 121 million to 411 million) Broadband connections are growing FASTER (28% CAGR since 2003, more than 292 million by 2010) Incomes are RISING (only 6% of Chinese are “middle-class”, but that’s more than all of Germany) Casual games are HOT (50% growth in China last year, projected 39% of market by 2010)
- 13. By the numbers… Population Internet Users Penetration Growth (2000-2007) China 1,317,431,495 137,000,000 10.4% 508.9% Japan 128,646,345 86,300,000 67.1% 83.3% India 1,129,667,528 40,000,000 3.5% 700.0% Korea, South 51,300,989 34,120,000 66.5% 79.2% Indonesia 224,481,720 18,000,000 8.0% 800.0% Vietnam 85,031,436 14,913,652 17.5% 7356.8% Taiwan 23,001,442 14,500,000 63.0% 131.6% Malaysia 28,294,120 13,528,200 47.8% 265.6% Pakistan 167,806,831 12,000,000 7.2% 8861.9% Thailand 67,249,456 8,420,000 12.5% 266.1% Philippines 87,236,532 7,820,000 9.0% 291.0% Hong Kong 7,150,254 4,878,713 68.2% 113.7% Singapore 3,654,103 2,421,000 66.3% 101.8% Australia 20,984,595 14,729,191 70.2% 123.2% New Zealand 4,274,588 3,200,000 74.9% 285.5% Asia 3,346,211,434 411,830,756 12.3% 240.0% North America 334,538,018 233,188,086 69.7% 115.7% European Union 493,119,161 252,818,939 51.3% 167.8%
- 14. Clearly we could not be… “The World’s Leading Developer and Publisher of Casual Games” … without a presence in Asia.
- 15. Timeline
- 16. “Homework” Phase
- 22. “Lobbying” Phase
- 26. Fiscal Results $300,000 40 35 $250,000 30 $200,000 25 $150,000 20 15 $100,000 10 $50,000 5 $- - Jan-06 Jan-07 Jan-08 Jan-09 Headcount Expenses Revenue
- 27. Travel Impact 25 20 15 10 5 0 Jan-06 Jan-07 Jan-08 Jan-09 Days outside the US
- 29. The study also revealed that multinationals face a severe and growing talent shortage in China. This is a bottleneck to growth that will only worsen as they compete with each other and domestic companies for Holding on to skilled staff in China is getting as employees with critical skill sets needed for the mass hard as protecting intellectual property for market. Candidates lacking English language skills and Western technology and media quot;softquot; skills, such as communications and managerialfirms, executives told an industry summit this capabilities, were the top two reasons cited by week. multinational recruiters for the current talent shortage for multinational positions. Poaching is rampant. -- IBM Institute for Business Value (2007) biggest problem we have there is that quot;The they are taking people -- Chinese people we train, people we send,quot; Robert Lerwill, chief executive of UK media group Aegis AGS.L told the Reuters Global Technology, Media and Telecoms Summit in Paris. quot;The current HR challenges in China include recruiting, training and qualification, integration and -- Reuters (2007) retention, and the introduction of HR policies and procedures,quot; Schoof told the audience, with a particular emphasis on retention of local Chinese managers. -- Mercer’s 8th annual Expat Management Forum
- 35. Sept. 1 Finally hired Studio Head Cao Long (EA Pogo China) $300,000 40 35 $250,000 30 $200,000 25 $150,000 20 15 $100,000 10 $50,000 5 $- - Jan-06 Jan-07 Jan-08 Jan-09 Headcount Expenses Revenue
- 37. Chinese office stereotypes you won’t find at PopCap
- 38. Getting to here…
- 39. ... from here…
- 40. ... Involved this temporary appt….
- 41. … lots of iteration on the plan…
- 42. … and finally 3D renderings.
- 43. Tokyo Singapore Beijing Seoul Shanghai
- 44. We knew protecting Intellectual Property in China would be a challenge
- 46. (but verify)
- 50. Reprinted with permission of the author
- 52. Regulatory Issues • Game companies must work with: – General Administration of Press and Publications (GAPP) – Ministry of Culture (MoC) – Ministry of Information Industry (MII) – State Copyright Bureau – Ministry of Public Security – Bureau of State Secrecy – State-owned Assets Supervision and Administration (SASAC) – State Administration of Radio, Film and Television (SARFT) – State Administration of Foreign Exchange (SAFE)
- 53. Vs. Vs.
- 54. China Will Punish Foreign Internet Game Companies Who Break Rules Posted By ChinaTechNews.com Editor On March 18, 2009 @ 5:01 am In Internet, Law & Policy | No Comments The General Administration of Press and Publication of China will soon fix a new measure to regulate the cooperation between Chinese and foreign online games service providers and the new measure may focus on punishing foreign game operators who adopt arbitrary rules during the cooperation with their Chinese partners. According to news on Sina.com, GAPP will hold a seminar featuring attendance of top game executives on March 18 when it will announce a range of new measures. GAPP says that foreign companies in China must comply with China's laws and regulations. To protect Chinese companies' rights, concerned departments have rolled out these measures with the purpose of creating a fair environment for online game operations. Under the new measure, if a foreign game operator is involved in a lawsuit as a result of their unfair clauses against their Chinese partners, their game products may be suspended in China. In addition, GAPP will strengthen the approval procedure for online games, which is believed to be a heightening of threshold for foreign games to enter the Chinese market, though Kou Xiaowei, deputy chief of sci-tech and digital publishing department under GAPP, stressed that GAPP would treat both Chinese and foreign game service providers equally without discrimination during the approval process.
- 58. Looking ahead… • First products launch end of this year – Modest expectations… – Validate our thinking, team, etc – Gain experience • “real” products launch next year – The real test… – That’s when we know if we are on the right track
Hinweis der Redaktion
- Thank youFun presentation to assembleNot right to call “post-mortem” since patient is not dead yet – in fact, the end has not yet been written.
- Chinese proverb – “diamond is not polished without rubbing, nor is a man perfected without trials”. Yùbùzhóu, bùchéngqì; rénbùxué, bùzhīyìA thousand-mile journey starts with the first step qiānlǐzhīxíng, shǐyūzúxiàthe past few years have been very excitingSetting up APAC is most challenging but also most rewarding things I’ve done yetToday I’m going to share our story in two parts:first, describe how we spent the last few yearsSecond, share some of our lessons from that timeShould be fun for anyone:Thinking about expanding overseas to any country interested specifically in china just like a good storyTime for Q/A at the end
- It all started back in 2005 when sprout was acquired by PopCapI became PopCap’sBizDev director
- Few months later joined my first ever trade mission to ChinaAt that point, PopCap’s global revenue was < 5%, and we knew there were opportunities to expand overseasI had lived in tokyo for 2 years for microsoft, and decided to revisit my old stomping groundsFascinating trip. thanks again to Wistar and washington stateIf you ever wonder where some of your tax dollars go….We met some great companiesFirst time I learned about item-buy models, avatar items, etc.
- And then the same trip, we visited an internet café… and 2 people were playing popcap games!No marketing, no localization, but here were people enjoying our games!
- And then later, in a subway.. I heard the sounds of zuma…
- This was my huge “light bulb” moment…. Clearly people enjoyed our games.However, we could never build a business here with the same models we use in NAM and EUR.
- To build a business, would require following very different business models.We would need to look a lot more like QQ, and much less like PopCap.We would need to think about games as a service, instead of games as a productFree to play, instead of pay to playSell items instead of games.Today in 2009, this is not a crazy idea anymore.But back in 2005, when PopCap had only 35 people total, it seemed heretical.
- Clearly this was going to require a big investment. So was it worth it?Clearly, yes.
- These numbers are already several years old, but even then the velocity was clear…APAC was already a bigger market than NAM or EUR, and still had lots of growth ahead.
- We had to build a presence in Asia… the only question was how and when.
- This is my attempt to break down the past few years… roughly 4 chunks:Homework – trying to figure out a strategyGetting buy-in to that strategy, and figuring out how to execute itExecution around our existing, legacy business Execution around these new, exciting business models
- The homework phase frankly isn’t that interesting… I basically started travelign over to APAC as often as I could, for several weeks at a time, visitign as many companies as I could and learning as much as I could.It was a really fun time – hired Wei MingThen hit the roadI thought about the best way to communicate that year, and decided if this was a TV show then this would be the montage segment with a catchy sound track.
- Here’s what I learned during that year…We were not the first western game company to notice Asia. In fact, EA was there ahead of us, and in fact was trying to launch their Pogo service in China throughout that year.However by the time that year ended, it was clear that Pogo was a failure. Why? What went wrong?I treated EA as if I was a b-school professor… what mistakes did they make?I interviewed everyone I could find associated with it… finally I figured out a pattern.And then I realized that other western companies struggling in China fit the same pattern.So out of this year of homework, came our strategy…
- Build vs. license --- because our IP wasn’t worth anything. Only finished products mattered.Shanghai w/ local team – because that’s where the expertise was, and that was the only way to avoid distractionsPartner for operations – critical. Operations is HARD, and very competitive, and very local. Plus legally, as a foreign company, we couldn’t even do it ourselves if we wanted.Stay in Asia – politically sensitive. We needed 100% local decision making. No approval by HQ. well, the only way we could get 100% local decision making was to keep everything.
- Around this time I finally got around to reading innovator’s dilemma.. Very relevant.Free-to-play is clearly a disruptive technology. But most established companies have a history of not adapting disruptive technologies – they wait till it’s too late, and let startups do it instead. Why?Lots of reasons.. But ultimately the only solution is to create your own startup, as far away as possible.Shanghai, anyone?
- Another point – this was NOT about saving money“outsourcing” is a fundamentally different businessIt’s very hard to start with outsourcing and then shift to building new productsEntirely different team skill-set and expectations
- So then began phase 2… building internal support for our strategy, and at the same time figure out some of the details for execution.This was the hardest phase, by far.
- We tried LOTS of different ideas.Acquire team? Couldn’t find one we liked at a reasonable price.Find the right partner? Made lots of contacts, but nothing real.Try to hire a china GM? Couldn’t find the right person.Take local investor? Couldn’t see the value.But actually, we were making steady progress all year. Each trip = more contacts, more comfort, most experience.Finally, after a year of hard work, we saw the way forward.
- During this time I came across this phrase from “Mr. China”, himself, Jack Perkowski. I love this phrase. It sums up China perfectly.
- Finally it was time for execution phase….We spent last year setting up our office, hiring our team, and investing in our legacy businessThen this year we’ve been finally working 100% on the new business models that brought us here in the first place
- Some interesting graphs..Steady rise in headcountRevenue/expenses are even more interestingNotice we’re cash-flow positive already in 2009, and revenue is continuing to grow.That’s a happy outcome of the investments we made last year
- As a side note, it’s interesting to look at my own travel scheduleLast year was the hardest, since I didn’t move my family out until the summerBut now I’m traveling by comparison much less.This sort of thing is not for the faint of heart… you can’t do it with just a few trips out.
- So let’s talk about what we’ve learned along the way.Expectations were reversedThings I expected to be hard, were easyThings I expected to be easy, were hard
- Going in, HR was my biggest concernHard to retain staffHard to find good managersHard to be successful as a western bossPeople did a good job terrifying me. I was convinced my whole team would walk away.
- Hiring was easier than we had thoughtBenefit of great timingWe have a good “pitch”Build great products for local marketBenefited from timingTake advantage of early pioneers like Ubisoft & EAAs well as successful local companiesWould have been MUCH harder 5 years ago
- Here are some highlights from a recent survey we did… really good.The only negatives were about compensation – and who is ever really happy about compensation? And lack of promotion opportunities, which is more of a communication problem than anything else.
- The key is really my management team, shown here. They’re all rock stars. Really terrific.Used a mix of:LinkedInLocal recruitersReferralsIndividuals we encountered during our “homework” phaseI’ve relaxed a bit as the bossNo longer worried about doing everything wrongManagement 101 really mattersBuilding loyalty = trust & respectI manage here the same way I manage back home – not too many lessons.
- I don’t think I realized, however, how important my own role would be as overall head of the region.Most important part of the job – bridging cultures and offices.you can’t hire someone for this role – must be an old-timer at the company, which ironically, I am.Pushing to improve communications Newsletters, calls, etc.Regular visits bringing out key people
- Most important hire is probably our studio head…Originally we thought we’d hire this person first.We looked for a long time, didn’t happenEntrepreneur – do it himself. Risk-averse – won’t join until you have more traction
- So we needed to wait until we had more traction, which was fine.He came on board last fall, and immediately helped us hire the rest of our studio as well as finalize our product strategy
- Another component to our strong culture --- having funFrom the very beginning I’ve spent a lot of time really pushing this.Team bonding isn’t what happens on once-a-year offsites, it’s what you do every day.
- We work hard to create healthy culture… turns out being western helps because people come in with open minds and expectations that things will be different. Open to being creative. In turn, we need to deliver.Challenges still exist:- Getting team to say “no”- Hearing what really is going on
- Office was harder than expected… took longer, was more painful.I took it very seriously.Communicate culture to teamShow our commitmentHelp with hiringDifferentiate ourselvesGetting the quality I wanted was hardLots of companies available…But had to push really hardFinal punch list was very longBut speed & price were still very competitive
- This is where we started… in china, all offices come as empty boxes.
- In the meantime, we actualy started out in one of our employee’s apartments. Rented a table and started work.
- And of course the plan itself went through LOTS of changes. I was a real stickler for this.
- One crazy thing about the process --- it was easier for them to mock up a design in 3D than to show me paint chips, renderings, etc. so we communicated the design in 3D.
- The decision to go to shanghai was easy, and has worked out wellGood talent poolRelatively easy city for westernersCost structure is still reasonableWe considered other cities, but ruled them out.
- One area that beat expectations was IP protection, at least so farThis is another area where people terrify you. so many horror stories.
- So at first we set up our office like a fortress.No communication in or outDon’t trust anyone localReally went against my judgement; how can you manage if you don’t trust your own managers?No way to run a businessIn the end, I gave up. I decided we couldn’t. we were in danger of becoming a self-fulfilling prophecy
- swung to other extreme – trust the teamShare early versions of new gamesOpen flow of informationShare dataWe need to trust them eventually….EtcBig dose of education.. Why it mattersMuch better…We’ve had no MAJOR issues, luckily.Even now, I’m here, the entire office is there, 100% local. And I have full confidence in the team.Not without issues, however.
- We did have one big problem. Screenshot of a future product got leakedPromise of more,sourcecode, etc.Who was it???? Terrible – really hurt trust and morale. Took very aggressive stanceManaged entire process through local staffApproached BBS…They wanted letter… got lawyers involvedPushed hard to get IP addressFinally got information taken down and IP addresssSent a message – we take this seriouslyNo problems since…
- As a result, we pulled back a little bit, but just a little.Top employees, held to global standardAccess to same information, same sources, etcGiven admin access to their PC’s, allowed USB ports, etc.Interns or certain junior staff, limitedPC’s not on network…We don’t dangle temptationWe don’t distribute unlocked builds of new games too far out in advanceManagers don’t want too openAfraid of repercussions in the event of leaks
- So much has been written about doing business in China… telling other people how to succeed in china is a huge industryNot just books – consultants, experts, etc.
- Pleasantly surprised dealing with Internet companiesVery different than traditional SOE’sCompared to Chinese companies, we’re the slow onesYounger, more international, increasingly familiar dealing with western companies, willing to hire western lawyers to help them
- Business in China is treacherousImportance of working with local partnersOther parts of asia much easierVery hard for western companies to compete directly with local companies…“by the book” vs. “gray area”We’re no different
- We’re used to “everything is okay, unless illegal”Here everything is illegal, unless it’s licensedBiggest issue is getting the license… not easy
- Some recent high-profile cases…Setting precedent
- This is a very interesting example of the kind of thing that we all need to parse very carefully
- One area of relative success I want to highlight… our localization effortsGood example of “investing in our legacy business”But results are paying off --- japan is a big market; here is one of our HUG’s listed as #1 on JP casual game portalTakin the time to localize with high quality23 different japanese fonts for Twist!!!
- Family is having a great timeThat’s really important…Now, want to close with a video my team put together… give you a good feeling for our office and the team. Short.
- Looking ahead… big test comes this year and nextLaunching first set of products…Signing up first set of local operators