Change in China’s Social Games Industry: New Entrants, Markets, and Models

China’s social games industry—the players, games, rules, and business models—is evolving at a blistering pace. China’s Top 10 Social Games and Top Social Networks, a new report by BloggerInsight, analyzes the latest changes.

Only a year ago, social games in China were developed by individuals or a small team on a shoestring budget, destined for RenRen (then Xiaonei) or other Chinese networks. Today, buoyed (and pressured) by investment (primarily foreign), developers have formed serious teams and launch their games in more lucrative markets.

The new business model for Chinese developers is to set sights on overseas markets, with Japan as a primary target. Average revenue per user (ARPU) in Japan is up to 12x greater than in China, according to an estimate by Jia Shen, CEO of RockYou. Most Chinese developers see Japan, Korea, Brazil, and Russia as easier markets than Facebook (and head-to-head competition with the like of Zynga), although the Chinese-language Facebook communities in Hong Kong and Taiwan are still good bets. Of course, it won’t be long before the Zyngas of the world also launch in lucrative markets like Japan.

In China, monetization remains a challenge for developers, despite the massive popularity of social games. The combination of low ARPU, powerful networks (read: zero or low revenue share), and an unstable regulatory environment, makes it exceedingly difficult for developers to reap significant profits. For this reason, most foreign developers have not tried launching games in China.

Instead, the top social game firms have come to China for the comparatively cheap and abundant talent. All the big boys—Zynga, Playfish, Playdom (rumored), PopCap, Slide, and WaterCooler–are now present, with several others players eyeing acquisitions. China’s market holds enormous promise—MMORPGs and Tencent make huge moneymakers via virtual goods—but that day has not yet arrived.

In terms of the top games, restaurant and pet games are now hot, while a few older hits have fallen off the map. Since the last edition of the report in December 2009, four of the top ten titles have been replaced: Parking Wars, Slave Manor, Animal Paradise, and Small Games. Among the newcomers, three are very localized (Promotion, X-World, and 361° Basketball) while one (Happy Baby) is a knockoff of a Western game.

#1  Happy Farm

Arguably the first SNS farming game worldwide, Happy Farm, was developed by Five Minutes, a Chinese developer. Its simple “plow, plant, water, pick, and repeat” formula has since conquered the world. Moreover, the addictive, log-in-every-hour mechanics have spawned countless copycats and variants. Chinese versions are more competitive than their Western counterparts: they allow users to steal and add worms and weeds to friends’ farms.

#2 RenRen Restaurant

Renren Restaurant is a copy of Restaurant City by Playfish on Facebook. The social network Renren, despite having a mostly open API, had its in-house game developers copy the game almost screen-for-screen. The game’s relative sophistication (3D graphics, high social interaction) indicates the future of China social games. As Chinese developers become more accustomed to such features, titles will undoubtedly become more original.

#3  Happy Aquarium

Happy Aquarium = pet game + Happy Farm underwater. Fish games are rapidly growing both in China (Happy Aquarium, Bubble Fish) and on Facebook (FishVille, Fish Isle). In fact, Hong Kong developer 6waves transferred Happy Aquarium to Facebook in Chinese, where it is has enjoyed remarkable success (1.9m DAU, No. 21 game overall). Game themes and mechanics translate across China and Facebook.

#4 Happy Baby (NEW entrant)

Happy Baby is a classic pet game in a cutesy style that copies Playfish’s Pet Society. There are plenty of variants and combinations for the user to create a “dream baby.” One industry insider cited this Happy Baby as the highest-grossing title on RenRen, the biggest open platform for social games in China.

#5 Building One

In Building One, users virtually live, work (e.g., by opening a hairdresser or spa), and socialize together in a single tall tower. Visually, this creates an appealing skyscraper to explore. Stealing customers and coins from other shops is a key part of the game. You can see from the picture you can develop different parts of the building, such as a restaurant with a dining area where you can serve cakes and whatever else you want to cook for your guests. It’s like a bunch of different simulations in one game.

#6 Promotion (NEW entrant)

Based on a popular Chinese book and film (The Promotion of Dulala), this workplace simulator allows Chinese white-collars to virtually become the star employee they always dreamed of. Users start out poor and lowly, for example with an internship at a fast food company, but can pull themselves up by their virtual bootstraps to become an online Donald Trump. The game has a sharp eye for Chinese humor that appeals to local users.

#7 House-buying

House Buying is the most popular game on Kaixin001, China’s hottest social network. House Buying innovatively combines a real estate section, Happy Farm, a pasture section, and Parking Wars into a single game with a common currency. For example, grow bamboo in your farm to feed pandas in the pasture, which can in turn be sold for cash to pimp-your-house. Because Kaixin001 develops all games in-house, it offers unparalleled integration.

#8 Wonder Hospital

In Wonder Hospital, users heal patients to acquire money and fame. The game includes innovative and controversial ads: a zeppelin flies overhead promoting the Yu Ting brand of contraceptives. Moveover, in-game actions are especially nasty. When visiting a friend’s hospital, players can enforce fines, steal patients, throw rubbish, let a dog loose, park a truck to block access, and ‘mystery mischief’ indicated by a bomb icon. This could change as the government “integrates” social games into its harmonious society.

#9 361° Basketball (NEW entrant)

361° Basketball is a team-management game that is fully branded by the Chinese sportswear brand 361°. To prepare for “PKs” against other teams, players train by watching brand videos from the “Equipment Shop,” where they can also buy virtual 361° products.

#10 X-World (NEW entrant)

X-World New York is a game in the style of Mafia Wars! The game has the same “task list” mechanics, but the theme is muddled as mafia games are officially banned in China. It’s one of five new 3rd party games included in Kaixin001’s new open platform experiment.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

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Coverage of Social Gaming Summit 2009

I’m catching up on the Social Gaming Summit 2009 on the net, and here’s my bounty of news, twitter tidbits and links to further coverage.

These are misc tidbits from the backlog that stuck out.

Social Gaming ARPU’s: top games $1-2/month, good FB $0.30-0.40, good MS $0.60-.070Conversions to paying users for social games 0.5% to 1.5% much lower than traditional MMOG’Greg Tseng/Tagged: The most important social network conversion rate is # of monthly users that become daily users look closely at conversion from monthly active to daily active — and see 50% as a gold standard.Jia Shen/RockYou – 5-7% of daily returning users is good (discounting promos), Shukla – RPGs can see 40%Panel on retention/acq: use FB and provide free virtual goods at a staggered pace to bring user pack to app/gameJia Shen/RockYou: Vanity URLs help with branding and discoverability in Facebook. Finding apps is still hardSimplest thing for retention is to give incentives or alerts at a specific amount of time. Mafia Wars’ alert says New Jobs availablejnusser/vindicia: in RMT, friendly fraud 100x real, malicious fraudWomen, 34 to 50 in the US is the best audience you can get for monetizationJia Shen/RockYou: FB retention is easier. Nobody uninstalls apps, devs can always try to reingage. MS has signif churn on appsJia Shen/RockYou: News feed momentum is important metric for distribution that is overlooked now. The reciprocation must happen quicklyJia Shen/RockYou – the new FBook redesign is creating the same engagement growth as FB had during prev peak… but less spammySuper Rewards: Free-mium social game monetization rates ~5% of users playing on any given day.Zong: Fraud chargeback rates often in 5% range. Developers usually very happy with 1-1.5. Paypal: greater than 0.5% a concernVirtual goods business in China is worth $4.5-$5Bn this year. Many games have over 1 million concurrent usersPlayfish:5 weeks ago, we launched RestaurantCity with no cross promotion & grew to 5M users.MySpace interesting stats: 70MM monthly in the US, 30MM are active app usersPlayfish sold 20 million christmas trees and ornaments mirroring social behavior in real worldZynga invested $2mil in guild of heroes. Seems kind of high!on FB, there are 100 games with 100,000 players 30 games by 1 million, 3 games with 10,000,000 gamesZynga: Building social capital can go beyond your real friends” – Pincus; but 70% of the time you log into Poker, a ‘real’ friend is therePlaydom sold $100K worth of virtual pink Volkswagon’s on Sorority Life in 2 daysKeys to a successful social game by Mark Pincus at Zynga: 1) real friends, 2) self expression, 3) stored valueZynga (Pincus) games have to give you 1) feeling of playing with friends, 2) social outlet, expression 3) invest in game3rd secret to Pincus – buy items (i am paraphrasing). Result is that players has social capital. Pincus is master of buzz words2nd secret: Pincus from Zynga – social games must be playground for your personality. Express yourself (channeling Madonna)1st secrets:  Pincus:  Games must appeal to your friendsA pillar of social game is to invest in game over time and give players a sense of value. This is why virtual goods are valued.Design games as objects of social interaction, you get the benefit as a user of inviting your friends into the gamegame themes (pets, farms, restaurants) in top 10 apps – starting to mirror the over 35 crowd (similar to casual games)

Read the full backlog via Twitter search

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New Hires in Social Gaming: Booyah, GSN, Kabam, & More

After several weeks of fairly intensive hiring, things appear to finally be slowing down. According to data from LinkedIn, only six of the larger social game developers have shown new activity, as opposed to nine last week. That said, the past seven days have shown a few bigger updates. Catching word from the folks over at Booyah, Brian Cho is now director of business development and marketing; a promotion from business development. Also, according to LinkedIn updates, Navendu Chandra is now director of product management at Kabam. RockYou has also announced major hires this week in the form of Katrina Osio and John Yoo, the company’s new SVP of marketing and creative director, respectively.

As always, if your company is hiring new people or making a notable promotion, please let us know. Email editor (at) insidesocialgames (dot) com, and we’ll get it into this or next week’s post. Also, please note that most new hires presented are based on company updates from LinkedIn.

Looking for new opportunities? The Inside Network Job Board presents a survey of current openings at leading companies in the industry.

Here’s this week’s full list:

Booyah

Brian Cho — As noted prior, Brian Cho is now the director of business development and marketing at Booyah, having been a recent promotion from business development. Prior to joining Booyah, he was a business development manager for Ubisoft.Emerson Tung — Joining Booyah as an artist this week is Tung. Before this, Tung was an intern concept artist for Fearless Studios.

GSN

Matt Koff — Formerly a freelance animation producer at HBO, Koff joins GSN as a staff writer.

Kabam

Navendu Chandra — According to LinkedIn updates, Navendu Chandra is now reported as the director of product management at Kabam. Previously, he was a senior product manager at PayPal.Josh Forester — Forester also joins Kabam as a community manager. Prior to this, he was a community advocate for RockYou.

Playfish

Tiago Rodrigues — Now a JavaScript engineer for Playfish, Rodrigues was previously a JavaScript developer at Portugal Telecom.

RockYou!

Katrina Osio — Katrina Osio joins RockYou this week as their new SVP of marketing. She comes with a long and various background from various interactive companies, but was most recently head of marketing for Fastpoint Games.John Yoo — Another major hire for RockYou is John Yoo who joins the team as their new creative director. Most recently, Yoo was the design lead of CityVille for Zynga.Shona Sanzgiri — Sanzgiri joins RockYou this week as a contract copywriter. He was previously an intern at San Jose Mercury News.Suresh Bathini — RockYou gains a new head of ads. engineering this week with Bathini, who was engineering for Yahoo.

Zynga

Michelle Fontana-Garcia — Fontana-Garcia kicks off a long list of Zynga updates, joining the company as an IT project coordinator. Prior to this, she was an administrator at Sun Microsystems.Katie Corna — Now a 2D artist for Zynga, Corna was “Maverick Cinequest Film Spot” at House of Chai.Miles Sabin — Previously a localization manager (PMO) at PayPal, Sabin is now a localization producer at Zynga.Roman Akberdin — Akberdin, formerly a user interface programming intern at Insomniac Games, joins Zynga this week as a software engineer.Lacey Salet — Zynga gains a new HR generalist with Salet, a former talent coordinator for Electronic Arts.Kushan Shah — Shah joins Zynga as a software Engineer. Shah was previously a web applications intern at Social Cloud LLC.Stephanie Romo — Zynga takes on Romo as a university relations coordinator. She was previously a case management intern at Maryland Department of Juvenile Services.David Calkins — Part of the NewToy acquisition, Calkins officially moves his communications director tag from under NewToy to under Zynga.Stephen Young — Previously an internet coordinator for Williams-Sonoma, Inc., Young is now a graphic designer for Zynga.Ranjit Radhakrishnan — A former consultant at Headstrong, Radhakrishnan is now a product manager for YoVill at Zynga.Christine Hernandez — Now a tax manager for Zynga, Hernandez was previously filling the same role at Ernst & Young LLP.Shelong Yang — Previously a functional quality assurance tester for Sega of America, Inc., Yang is now a quality assurance analyst for Zynga.Amber Hiden — Hiden joins Zynga this week as an assistant producer. She was previously a production assistant at Vir2L Studios.Justing Tajchman — Now a software engineer for Zynga, Tajchman was a senior software engineer at Electric Bat Interactive.

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Targeted Positioning in the Age of Social Games

This is a guest post by Brice Morrison, former CrowdStar designer and editor of industry game design resource The Game Prodigy.

Commodities are products with no differentiation; oil, grain, and gold are some of the most common examples.  There are no competitive advantages, no deluxe features, no brand names or favorite companies that consumers like to buy from.  A commodity is bought by consumers based entirely on price; the cheaper the better.  If A is cheaper than B, then that’s all the information that’s needed to make a purchasing decision.

The early Facebook game ecosystem was made up of many commodities, games that originally were exactly the same as one another.  Farm Town and FarmVille, Mobsters and Mafia Wars, Happy Aquarium and FishVille, and countless others.  It led many players (and developers) to be confused by the early platform, asking, “Is this all this is?  Copies of cheap games?”  In the early massive user-grab time period, where virality was king and hundreds of thousands of users could be gained by clever features, it was often a race to who could get to the user first.  It didn’t matter that the games were very similar; since it was hard to tell the difference, why not just play the one that you found originally?

But as time has gone on, both the Facebook platform and Facebook players have matured, and commodity games are no longer acceptable.  As production values have skyrocketed, what used to be simple titles that could be copied in a few weeks have become massive undertakings, requiring dozens of developers, months of time, and careful understandings of the original game’s design.  With these production costs, players expectations have risen as well.

Thus, we are continually entering an age of a mature Facebook market, where game success isn’t defined by commodity rules of distribution and marketing muscle alone.  Instead, games are defined by differentiation, by a unique brand of fun, and by customer loyalty.  No one wants to play the game that is 90% as good as Cityville — they want to play Cityville.  While the games of yesterday appeared to be a crowd of clones, games of today and tomorrow look very different from one another and players are choosing what to play by comparison.

So what are today’s social game companies to do?  What kinds of games will resonate with consumers, and what kinds of games will no longer work?  Many of these answers can be provided by history, during a time when the game console market seemed very similar to today’s Facebook ecosystem.

Positioning in Early Console Days

In the early days of console games, developers for the original Nintendo Entertainment System were in a commodity-state as well.  Development was cheap, the platform and market was new, and ideas were easily copied and resold as new ideas.  All kinds of companies made all kinds of games, and early players were happy to try out whatever was in front of them…for the time being.

It’s interesting to look back and play some of the games from this era.  Many of the companies names you may recognize: Konami, Capcom, Enix.  But there are many other names you wouldn’t recognize: SOFEL, Electro Brain, or Bullet Proof Software.  While one group lives on, producing products that players love twenty years later, the other group has disappeared into obscurity, either through reluctant acquisition or bankruptcy.

Of course there are always outside factors to the success of a company, but it is telling to look at the lists of games that each group of developers made.  One group learned to focus their products into one type of game design they could be the best at, while the others continued to explore new genres with every release.  Companies that learned how to create a specific type of a game, with a style of gameplay, a common fanbase, a unique art treatment, these were the companies that survived.  They learned how to transition from a commodity-style game market to a positioning-style game market.

Companies that were unable to position themselves fell away.  ”What kind of games does XYZ make?”  ”Well, we make all kinds of games.”  This isn’t what a mature player wanted to hear.  While that absence of positioning worked during the early days of a platform, when players were still exploring and learning about their own preferences, the strategy no longer worked as the platform grew older.

Mature players wanted a positioned product, they said, “I want to play an action side-scroller; I’ll go play a Konami game.”  Or a slightly different type of player said, “I want to play a competitive fighting game, I’ll go play a Capcom game.”  Each of these positions were taken up by a company that became dedicated to their differentiation, and captured large numbers of players in the process.  And by training their development teams with each title to be able to deliver the best in that position, they allowed themselves to evolve successfully with the platform.

Commodity to Positioning Case Study: Blizzard

Blizzard is a company that is often cited as one of the most successful game companies in the world, citing massive success for titles like World of Warcraft, Diablo and Starcraft.  However, even Blizzard wasn’t always successful; in the early days of Blizzard, it was a “me too” company just like many of the others. RPM Racing, Battle Chess, MicroLeagues Baseball, and Blackthorne were all early Blizzard titles which barely managed to keep the company afloat.  These commodity titles all had similar game designs to competitors; Blizzard was mediocre at everything and master of none.

What made the difference?  Blizzard learned to position their games.  With the best selling “WarCraft: Orcs and Humans”, the game was a smash hit, far outselling any Blizzard title before it.  A less wise leadership team may have decided that it was marketing, advertising, or business strategy that had resulted in the success.  And while those undoubtedly played a factor, the key that made all the difference was the game design: what the game was, how it worked, and how players loved playing it.  And Blizzard’s team understood that.

Thus, after a string of mild successes from 1991-1994,  once WarCraft came out the company pivoted hard to focus entirely on creating one type of title: online competitive games.  Warcraft II in ’95, Diablo in ’97, Starcraft in ’98.  All competitive online titles.  By focusing on one style of gameplay and mastering it, Blizzard created a development team that was the best in the world at what they did, and a rabid fan base that loved what no one else could deliver.  By positioning themselves as the best developers of online competitive games in the world, they found their niche.  The rest is history.

The Cycle Repeats with Facebook

The cycle of platform release, commodity products, and differentiated products has repeated many times.  Each time, developers and designers that hit it big in the early stages but fail to evolve and differentiate themselves fall victim to the cycle and are forgotten.  Companies that learn to develop their specialty, their core experience, and their specific type of player find wild success in the later stages.

You can see much of this playing out now, as many social game companies are learning to find their niches and deliver experiences that no other company can.  Zynga is striving (and succeeding) to be king of the mass-market casual titles, simple games with great depth that focus on building, nurturing, and growing.  PopCap is continuing its tradition of elegant games that involve only a few player actions and lead to great depth and high scores.  Causal Collective is aiming to become a Facebook game company for violent and more male-oriented titles.

Other companies, on the other hand, have yet to understand what their “special sauce” is, the type of game that they are the best suited to make.  And until they figure their position out, DAU’s will continue to drop as players migrate to more targeted experiences.  As time goes on, more and more developers that try to copy others will burn through millions in dev and advertising costs without much to show for it.  While those strategies worked in a commodities market, it will not work in a mature market, where players are ready to settle down with their favorite game franchises and give their loyalty.

[image credit]

A game designer who has worked at EA and CrowdStar, Brice Morrison is the editor of industry game design website The Game Prodigy and has been with teams for major titles like The Sims 3, Happy Aquarium, and It Girl.

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Kabam, Plinga Bringing Dragons of Atlantis to European Social Networks

Kabam (formerly Watercooler) has partnered with European game publisher Plinga to launch its “massively multiplayer social game (MMSG)” Dragons of Atlantis to 14 new European social networks. Beginning March 1, Dragons of Atlantis will be exposed to a large audience base of new potential players on these non-Facebook platforms.

Plinga, a Berlin-based company founded in 2009, will be responsible for the customer service, translation, and distribution of Kabam’s games in Europe, beginning with Dragons of Atlantis. The game will be playable in 11 different languages and will debut on social networks such as the Dutch network Hyves and the Polish network Nasza Klasa. Chris Carvalho, COO of Kabam stated, “We are excited to partner with Plinga to bring Dragons of Atlantis to the large number of European gamers who play games on social networks other than Facebook.”

Dragons of Atlantis was launched last October by Wonderhill, who was acquired by Kabam shortly thereafter. The game is very similar in gameplay to Kingdoms of Camelot and other fantasy themed strategy games on Facebook. According to our AppData tracking service, Dragons of Atlantis currently has over 2 million monthly users and just under 250,000 daily users.

Tami Baribeau is Senior Community Manager at ZipZapPlay and a contributor to Inside Social Games.

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Social Gaming Roundup: Paramount, YooMee, Kontangent, & More

Funtactix & Paramount to Create Rango Virtual World — Paramount Pictures and online games developer Funtactix have announced a new game project this week. Rango: The WORLD is set to debut along with the film and is said to be a multiplayer online world complete with movie characters, friends, quests, and mini-games.

YooMee Games Launches Virtual Arcade — YooMee Games has announced the launch of a new gaming portal this week, YooMeeGames.com. Based around competitive tournaments, one-on-one challenges, or just beating their own high scores, players will be able to participate for real cash and prizes. Additionally, players will be able to use their YooMee accounts across multiple platforms including the noted portal, mobile apps, MySpace, and Facebook.

Raptr Grows & Secures $15 Million in Funcing — A social platform for gamers, Raptr has announced that it has secured $15 million in funding this week. Along with this announcement, the company has also released a series of new statistics in terms of games tracked, top countries, growth, and total users — which now tallies over 6.5 million.

Kontangent Tracks 100 Million Users — Social games analytics platform Kontangent has announced a significant milestone this week, stating that it is now tracking over 100 million users in social games. Additionally, that number is noted to be three times that of a year ago.

Cie Games Adds New Brands to Car Town — Social developer Cie Games is adding a whole new slew of exotic cars to its Facebook title, Car Town. The brands come from the new partners of Ferrari, Aston Martin, Lamborghini, McLaren, and Pagani.

FTC Asked to Investigate Mobile-Social Games — According to EngageDigital, Representative Edward Markey of the House Energy Subcommittee on Communications and Technology, has written a letter to the FTC asking for an investigation on free-to-play monetization in games on mobile devices. The concerns regards promotion and delivery towards children in games such as with Smurfs’ Village and incidents where children end up spending large sums of money, unknowingly, through virtual currency purchases.

Ask Partner Network Teams Up with Social Game Devs — Ask Partner Network (APN) is teaming up with social developers Booyah, LOLapps, and Social Point this week to create browser add-ons for their games. The add-ons will allow players to play games, view game information, and earn virtual currency.

United Prototype Secures “7 figure” Investment — German developer United Prototype has closed a second round of funding says TechCrunch. The developer of the social and browser-based Fliplife, it has secured a new “7 figure” investment from HighTech Gründerfonds, Rapidshare Entertainment, Mountain Super Angels, and United Prototype Ventures.

Disney Reports First Quarter Revenues — Disney has reported its first quarter revenues this week, including its interactive media segment.  Revenue increased 58% to $349 million with segment operating results decreased by $3 million for a loss of $13 million “as higher sales of console games were more than offset by the inclusion of results for Playdom in the current quarter, which reflected the impact of acquisition accounting.”

PayPal for Digital Goods Launches — PayPal has finally launched its “PayPal for digital goods” system. Now consumers can pay for digital content without ever leaving a publisher’s game or site and offers the same security PayPal has always had. Fees for these purchases are 5% plus 5 cents for purchases under $12.

[image via PayPal Blog]

GSN Digital Awards $60M in Prizes Across PopCap Games — GSN Digital has announced it has awarded GSN players a total of $60 million in prizes to players of its cash-game-adaptations of popular PopCaptitles. Games include Bejeweled 2, Zuma, and Chuzzle.

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China’s Top 4 Social Networks: RenRen, Kaixin001, Qzone and 51.com

Originally posted at VentureBeat

There is no single dominant network, no Facebook for all of China. The actual Facebook.com is blocked by government censors (Chinese sites all obediently and quickly remove “objectionable” content). No single social network will conquer the China market in the immediate future, least of all a foreign one.

Instead, there is fierce competition between the top four:

RenRen (formerly Xiaonei) copied the Facebook model: it started with students and has since opened to all.Kaixin001 attracted white-collar office workers by focusing on fun, addictive social games.Qzone gained young teens and rural users via cross-promotional traffic from QQ Messenger.51.com started strong in lower tier cities, but growth has since slowed.

This post will assess market share, profile the top four, and boldly predict the future.

In addition, there is a long tail of social networks in China, which will be covered in part 2 of this series. Most Chinese are members of multiple SNS, on average 2.8, according to the Chinese Internet Network Information Center. A number of smaller SNS target niche demographics: the elite, females, techies, etc. The Chinese social network scene is crowded and competitive, though clear separation exists between the top four and ‘the rest’ in terms of mass-market viability.

Market Share: Lies, Damned Lies, and Statistics

There is no trustworthy data on users or revenues. Every social network in China claims to be the largest: Qzone, RenRen, Kaixin001, and 51.com. The short and sweet is this: Qzone has the most users, RenRen has the most active users, and Kaixin001 has the most highly active users. 51.com user’s are the most rural.

In addition to the rankings from Alexa and China Rank, the Chinese Internet Network Information Center conducted 3007 telephone interviews on SNS with respondents across China in July 2009. It found that Qzone has 22% market share of social network users, RenRen has 17%, Kaixin001 12%, and 51.com 12%.

Kaixin001’s users are highly active. It averages 34 pageviews and 33 minutes spent on the site per user, numbers that are about twice as high as the competition. Kaixin001’s white-collars love surfing the site at work, and occasionally in their free time too.

As scant as the user data is, that on revenues is even worse. The little data that the networks do release is questionable. Only rough snapshots are available of the positioning in China’s social network race.

Renren (formerly Xiaonei)

Renren’s design and business model are copied from Facebook. RenRen beat out a number of competitors at China’s elite universities and spread from there. It is aggressively courting the mass market.

Users: The majority of users are students, although RenRen strives to retain those users after graduation. In the fall of 2009, it launched a massive advertising campaign—both traditional and digital—urging Chinese to reconnect with old friends and classmates. The emphasis is on connecting with real-life friends online, just as on Facebook. As RenRen grows, it is encroaching on the turf of its rivals: teens (Qzone), white-collars (Kaixin001), and lower-tier cities (51.com).

User Interface: The user interface is nearly identical to Facebook (though it has not copied Facebook’s latest redesign). It has a few unique features, such as a “footprint” of who last visited your page and recently added game mechanics or 'funware' so that users can reach 'higher levels' for interacting on the site. It also allows custom skins, though the majority of users stay with the basic theme.

Platform: The application programming interface is open to 3rd parties, but revenue share is a capped at 56%. It boasts about 250 applications (almost all games) and is China’s most popular open platform. Foreign game developers are just starting to test the approval process, with FooMojo, RockYou, and PopCap leading the way. Access for foreign developers is certain to be a hot topic at the upcoming 2010 China Social Games Summit.

Games: RenRen has the most and best games, in large part due to its open platform. But RenRen also develops games in-house, leading to concerns that RenRen will favor its own games over those of outside developers. Other networks often copy the most popular games on RenRen.

Financing: Softbank purchased 35% of RenRen for $430 million, valuing the company at $1.2 billion. The company intends to hold an initial public offering as soon as 2011.

RenRen’s parent company is Oak Pacific Interactive, which also owns Mop, a smaller Chinese social network, forum, and humor site.

Revenues: Annual revenue was over 100 million RMB ($15 million) in 2009, according to one source from the company. The primary revenue channel is advertising (brands, games, and e-commerce).

Analysis: RenRen is the most popular, most open, and best-financed social network in China. Its management team is also the smartest and fastest-moving. It is actively developing advertising, gaming, and e-commerce revenues. Its user growth is impressive, in large part due to its aggressive marketing campaigns. The August 2009 name switch from Xiaonei (inside-campus) to RenRen (people’s web) signaled its ambition to become China’s dominant popular social network. By comparison, China’s other social networks are asleep at the wheel.

Kaixin001

While RenRen was still concentrated on students, the upstart Kaixin001 was able to attract white-collar workers (in large part via spam).

Its social games got entire offices addicted to parking cars, stealing crops, and other top games. Its white-collar workers are the richest and most monetizable demographic of social network users. Kaixin001’s critical battle is ensuring that the next generation of students “graduate” to its site upon entering the workforce, rather than remaining with RenRen.

Users: White-collar workers who can secretly farm crops and check friends’ photos from their office desk. Its users spend twice as much time on site, as compared to users on the other social networks.

User Interface: The interface is clean and very simple—Kaixin001 is a pared-down version of Facebook. It eases first-time users into social network: the most popular applications, like the popular “Buying a House,” even come pre-installed. Advertising is minimal.

Platform: Kainxin001 is a closed platform, although insiders say that it will eventually open up. It has about 50 applications, the majority of which are games.

Games: Kaixin001 launched the social games craze in China and its users are game-crazy. But its games now lag behind RenRen in quantity and quality, because it’s attempting to develop everything in-house. For instance, it took Kaixin001’s developers 6 months (an eternity in social game years) to copy a popular restaurant game on RenRen. That will damage Kaixin001 as it aims to attract new users and retain and monetize its existing users.

Financing: Kaixin001 has received a total of $23 million through two funding rounds. Investors include Sina, Qiming Ventures, and Northern Light Venture Capital.

Revenues: Kaixin001 has reached monthly revenues of 7 million RMB ($1 million), but is not yet profitable. Advertisers at ad:tech Beijing told BloggerInsight that Kaixin001 is the hottest site.

Analysis: Kaixin001 has seen rapid growth and has captured a desirable demographic of white-collar workers (appealing to advertisers), who spend tons of time on the site. But its management team is far more conservative and slow-moving than RenRen. It’s far behind in terms of its advertising and monetization channels. Its site design has changed little and its application programming interface remains closed. If Kaixin001 fails to innovate or at least keep up with the curve, it will lose out. Sudents will stick with RenRen rather than “graduate” to Kaixin001.

Qzone

Qzone draws traffic from QQ Messenger, which boasts 523 million active users and is also owned by Tencent. Qzone targets teens, rural, and casual users and claims a whopping 388 million active users, a highly suspect number. Tencent’s internet services, QQ Messenger, QQ Show, QQ Games, QQ Pet, and Qzone, do connect a huge number of Chinese people.

But the classification of Qzone as a social network is questionable. It has tons of dormant, skeleton profiles that are pulled from QQ Messenger. In that regard, it’s similar to MSN Spaces, which also has a ton of “users,” but low value and retention rates. Qzone users often use nicknames or aliases rather than real-life names.

Given Tencent’s awesome advantages and synergies in social networks, Tencent’s forays into “real-identity” social networking should be seen as a squandered opportunity.

Users: Teens and rural users. Qzone is attempting to funnel its older users towards its other social network, Xiaoyou (classmates), with limited success. It already failed with an earlier attempt called QQ Campus.

User Interface: Qzone is a lousy website: it’s ugly, unintuitive, and buggy. The site is very basic (for a social network), but not in a user-friendly way (like Kaixin001).

Platform: Qzone is a closed platform, though it is experimenting with licensing. It has about 50 applications (mainly games). Benjamin Joffe, Tencent expert and CEO of internet market research firm +8*, comments: “Applications are all copies or licenses or bought from social gaming companies, generally with terrible revenue share or poor valuation. Why? Because Tencent is a closed network and because they can. Problem is: operating social games is not the same as instant messaging or massive multi-player online games and there is a learning curve - even for Tencent.”

Games: Although Qzone should have a natural advantage (Tencent also owns QQ Games), the games, like much else on the site, are of low quality. Qzone develops in-house copies of popular games, but it lags way behind and prohibits users from adding games without paying at certain times. Perhaps Qzone’s comparatively young and rural users are so naïve that they pay Qzone when they can play the same—or better—games for free on the other networks. But it's doubtful that this a successful business strategy in the long run.

Financing: Tencent, Qzone’s parent company, is massively profitable and can employ incredible resources should it so desire.

Revenues: No public figures are released. There is a lack of advertising and quality games, so virtually all revenues must come from Qzone “Yellow Diamond” memberships. It is difficult to estimate that revenue stream, but it’s hard to imagine that too many Chinese users will stay loyal to Qzone in the long-run if they continue to offer lousy services.

Analysis: Tencent with Qzone is like Microsoft with Windows Vista: a near-monopolist (in instant messaging) that can thrive despite a terrible product and lack of vision. Tencent is still massively profitable: 2009 revenues were $1.8 billion, about three times Facebook’s estimated revenues. It’s unclear how much of that is attributable to the Qzone social network though.

Benjamin Joffe comments, “Tencent is definitely not the best in terms of products or innovation - similar to Zynga in that sense - but their ability to deliver a "good enough" mass market service and integrating it within their ecosystem is impressive.”

It holds the teen demographic, but poor site design and management have cost it ground against its competitors. Qzone is shut out of the market for older students and white-collar workers, and RenRen is now encroaching on its core demographic of teens. Qzone could still turn things around though, as its parent company Tencent is an 800-pound gorilla in the Chinese internet.

51.com

51.com was an early favorite with significant backing, but is now struggling. Growth has slowed and it has the lowest traffic rankings of the top four. In early January, the site was briefly blocked for “objectionable” content, so management is trying to clean itself of lewd users and content (it’s rumored to be a platform for the world’s oldest profession). Its Chief Strategy Officer recently resigned, citing illness.

51.com is a borderline mass-market contender at best. Urban and educated demographics have all turned to its competitors. It’s now in the precarious position of defending its core user base in lower tier cities.

Users: Users from lower tier cities.

User Interface: 51.com is a simple social network. It’s far more functional than elegant. Several popular applications are pre-installed and the skins are customizable.

Platform: 51.com offers an open platform. It has attracted about 50 applications (mostly games). It is expected to offer more favorable revenue share terms than RenRen.

Games: The games on 51.com are decent, though not as numerous or high-quality as on RenRen. 51.com also develops its own games in-house: it’s investing $15 million in a gaming portal, in an attempt to reduce its reliance on advertising and value-added services. It will also soon connect into the gaming platform from Giant Interactive, one of its investors.

Financing: Giant Interactive, a publicly-listed Chinese massive multiplayer online gaming company, invested $51 million for a 25% stake. Earlier backers include venture capital firms Sequia Capital, SIG, Redpoint Ventures, and Intel Capital. In early 2007 there was premature talk of an IPO in 2010, but nothing has been heard since.

Revenues: 51.com claims to have turned a profit in 2009, with advertising revenues of about 200 million RMB ($29 million). Its open platform generated roughly 12 million RMB ($1.8 million) in revenues.

Analysis: 51.com was likely doomed to the mass-market by its rural roots. Its lower tier cities approach initially allowed for quick user growth, but the site now has a low-brow reputation and is scorned by more sophisticated netizens. RenRen’s approach of starting with the elite students at China's top universities, BeiDa and Tsinghua, and then spreading outward (copied from Facebook), appears to have been far more successful.

Second tier social networks worldwide are falling to Facebook. Will China’s more “sophisticated” networks push into 51.com’s territory? BloggerInsight is inclined to think so. 51.com’s stagnation in user growth relative to other networks is not a good sign; spreading outward from elite users has been successful for social networks worldwide and for RenRen in China too.

There are certainly differing opinions though. Beijing-based internet guru Kaiser Kuo told BloggerInsight, “I wouldn't write them off at all: They've got a real hold in sub-secondary cities and with their tie-up to a major game company (Giant Interactive), they've got plenty of cash, and as far as I know, loads of traffic. It's also been cleaned up quite a bit within the last year, from what I've heard.”

51.com may or may not hold its ground in lower tier cities. But one thing’s for certain: 51.com stands little chance in China’s top-tier cities.

Future Predictions: One RenRen to Rule them All?

The competition is open and fierce between the top four networks, but BloggerInsight’s bold crystal ball sees RenRen’s on the rise in the future. Its management team is nimbler and more aggressive than its competitors. Where other networks are dabbling (licensing games), RenRen is blazing ahead (open application programming interface).

Because of its high value, RenRen is starting to push outward from university students into both younger and older demographics. As teens become savvier on the internet at younger ages, they will start to abandon Qzone for RenRen. As students move into the workplace they should remain loyal to RenRen, encroaching upon Kaixin001. 51.com, meanwhile, faces a difficult fight to retain its users in 2nd and 3rd tier cities and rural areas. China’s social network universe, though fractured by different demographics for now, may gradually coalesce around RenRen.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

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Are Social Games a Bubble? Future Growth Lies in Vertical Social Games

The moderator of the Financing for Social Games panel at ChinaJoy challenged panelists, “Is social gaming a fad? If so, let’s wrap this up in the next five minutes. Then we can all go home and start a Groupon clone instead.” Responses were mixed on the future financial fortunes of social game developers, though no one foresaw a collapse.

A consensus did emerge that more social games will target niche audiences. Panelist Atul Bagga, Vice President at ThinkEquity, commented, “So far we see horizontal applications, that is games that everybody is playing: your mom, your granny, your niece, your daughter. I think there is a lot room for vertical applications, for the smaller niche, for example, Watercooler’s Kingdoms of Camelot. It does not have huge usage, but the game kicks butt because the ARPU (average revenue per user) is very high.”

Chinese developers recognize the trend towards originality and verticality, but it’s a far greater challenge than producing farm game derivatives. First, they have to develop for a foreign audience, as revenues in China are still insufficient. Most Chinese developers see Japan, Korea, Brazil, and Russia as easier markets than Facebook (and head-to-head competition with the like of Zynga), although the Chinese-language Facebook communities in Hong Kong and Taiwan are still good bets.

Second, capturing a niche often requires an unfamiliar game design and appeals. Hans Tung, a partner at Qinming Venture, comments, “The hurdle for these developers to come up with very good vertical games… is much, much, much harder. In China all the massive multiplayer online game developers all know that social games are big. They all know that women are playing games now. But they don’t how to make those games for women. We talked to 11 listed game companies in New York and Hong Kong and most of them suck at making games for women.”

The growth market in vertical social games is a worldwide trend that will require still greater innovation on the part of Chinese and foreign developers alike. But the rewards could be rich: if developers are able to deliver, even the more closed Chinese social networks may open up their platforms—and valuable users—to third party developers.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

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