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Glu: On Market Platforms, China, and Angry Birds [Slides Included]

Glu, one of the globes leading mobile and social gaming developers, is carving out its place of dominance within the Apple and Android Markets.  One of the first companies to take on the Android gaming market and succeed, Glu, is hoping that its early commitment and dedication to the market will secure it a leading position well into the future.

This is part 2 of a 2 part series surrounding Glu.  The original article on scale and game engines can be found here.  Our Chinese Editor added his thoughts on platforms in China in an article found here.

GWC, as part of their GMIC Roadshow,  took a delegation to meet with Glu at their offices this past Monday, so we felt it would be a good time to take a closer look at the company given what we learned.  This article will look at the various market platforms that are available, which ones Glu uses, and how that relates to the Chinese market.  Also, “Angry Birds”.

Location, Location, Location

As with brick and mortar stores, location is everything even in the digital realm these days.  Which platform a company decides to place a product on can make or break them.  That’s what makes China so difficult.  In most of the Western world, there are 4 or 5 distribution platforms, based mainly on which OS a phone is running.  In China there are hundreds.  Outside of the traditional distribution platforms, there exist independant distribution platforms, such as the aforementioned 91.com by NetDragon.  These independant distribution platforms are often rife with pirated software, clones, and other unsavory content – not exactly exciting territory for Western developers.

However, Chinese citizens love them.  Often the first thing that happens to an iPhone is that it is jailbroken and then local market platforms are loaded onto the phone.  The culture here, because times have been tough for so long, is almost like a nation consisting entirely of the proverbial U.S. college kid.  They don’t see need to pay for things or pay full price – they aren’t wealthy like their Western counterparts, but maybe someday when their successful they’ll buy their stuff.  Pony Ma, CEO of Tencent, said last week at TechCruch Disrupt: Beijing that ideas were cheap in China, and it’s true.  You don’t compete on ideas here, you compete on execution.

This is a very foreign concept if you are a game developer from the West.  The industry in the West is built around the idea that ideas are what matters.  Intellectual Property is guarded by both the owner and the government.  Further company growth strategies are built around this concept.  To enter a territory where the core value of your company suddenly becomes worthless is, in no small way, a recipe for disaster.

Rovio, with its “Angry Birds” game, learned this the hard way.  I remember being pulled into a conference call with Peter Vestabacka, Rovio’s CMO, earlier this year discussing this very topic because of my legal background.  At the time, Rovio had not officially entered China and had decided to make the entry official at our Global Mobile Internet Conference.  As part of this announcement processs, we assisted with some business matching between Rovio and a few of GWC’s members.  Peter was quite adamant that he wanted all illegal copies pulled off the platforms before they would continue negotiations.

Now, I am a former attorney, and I believe firmly in the protection of intellectual property.  But, I’m also a realist.  I knew that as popular as “Angry Birds” might be, it wasn’t going to change an entire culture and “Angry Birds” was going to available to the Chinese public with or without Rovio’s involvement.  The only real decision Rovio had in reality was to either get in on some of the action or none of it.   I, along with BO Yiqun and Barrett Parkman, expressed this to Peter, but in a less strait forward manner that is often necessary when introducing a concept that is not going to be popular.  To keep things short, its been fun to watch Rovio’s strategy here in China evolve and adapt over time to embrace the environment, and, all things considered, I believe they will do quite well going forward.  Hopefully, things will change here in China regarding the protection of intellectual property because it will hurt China in the long run if it does not change (and the industry leaders in China know this), but for now you fight the battles you can win.

So Where Does the Glu Go?

So back on topic with Glu, where does this leave them?  They currently have products available in China on the traditional Android and Apple markets as well as the independents like 91.com.  However, they haven’t shown a great deal of commitment to these independents, so I wouldn’t be surprised to see them abandon the platforms.  Since the revenue from these channels is often low, why waste your time trying to deal with all these market platforms and the pirates and clones that come with them.  Take what you can get through the traditional markets which are still used here even though the rate is much lower.

To go along with that sentiment, the world is a big place, and, while China has the largest population of any country in the world, there are still far more people living on the rest of the planet than within China.  Plus, not everyone here has the ability to purchase such luxury goods as video games.  I think people forget that sometimes.  China looks tempting, but you might find the other 5.5 billion people on this planet are a much easier target than China’s 1.5 billion.  Further, Apple is currently fighting the crusade to right every wrong in the world when it comes to intellectual property violations, so Glu may be content to sit back and let  Apple to the heavy lifting.  If Apple pulls off a miracle, these independent sites might not be around for long – notice I said miracle though.

So we’ve eliminated the independents, what about the choice of iOS, Android, and Window Phone 7 (or 8).  Well, right now only 34% of Glu’s revenue comes from Android.  The rest is mainly iOS sales.  This will change over time though.  As early as next year we could see Android mature enough to gain parity in raw sales figures with iOS.  If that happens, it becomes a no brainer – you ride that Android train all the way to the bank because that gravy train ain’t stopping.  If it doesn’t, iOS is still a nice place to be.

Where does Windows Phone 7 and 8 come into play?  For the mid-term, no where of prominence.  Microsoft looks to finally be bringing a viable mobile OS online, but they are late to the party.  That’s not to say they are out though.  The Xbox was extremely late to the game, but Microsoft’s dedication to the system helped make the Xbox 360 the console leader in the United States.  Glu will produce for Windows Phone 7 & 8, but it will be when it is convenient to do so.

Financial Slides

 

[slideshare id=10084943&doc=request-11032011glumobileinvestorpresentationforbwire-111109043537-phpapp02]

TL;DR

Market platforms are an interesting battlefield in China.  Rovio is opening brick and mortar stores in China (Wait, that wasn’t in the main article!).  Glu is making most of its money on iOS, but Android is probably going to be where it is going to shake its money maker the most in the near future.

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