Tencent

First China, now Starbucks gets an ambitious VC-funded rival in Indonesia

Posted by | alibaba, alibaba group, Android, Apps, Asia, carsharing, China, East Ventures, funding, Fundings & Exits, go-jek, Google, grab, Indonesia, Insignia Ventures Partners, internet access, Jakarta, JD.com, managing partner, mcdonalds, online food ordering, online marketplaces, pizza hut, Singapore, Southeast Asia, starbucks, temasek, Tencent, United States, WeWork | No Comments

Asia’s venture capital-backed startups are gunning for Starbucks .

In China, the U.S. coffee giant is being pushed by Luckin Coffee, a $2.2 billion challenger surfing China’s on-demand wave, and on the real estate side, where WeWork China has just unveiled an on-demand product that could tempt people who go to Starbucks to work or kill time.

That trend is picking up in Indonesia, the world’s fourth largest country and Southeast Asia’s largest economy, where an on-demand challenger named Fore Coffee has fueled up for a fight after it raised $8.5 million.

Fore was started in August 2018 when associates at East Ventures, a prolific early-stage investor in Indonesia, decided to test how robust the country’s new digital infrastructure can be. That means it taps into unicorn companies like Grab, Go-Jek and Traveloka and their army of scooter-based delivery people to get a hot brew out to customers. Incidentally, the name “Fore” comes from “forest” — “we aim to grow fast, strong, tall and bring life to our surrounding” — rather than in front of… or a shout heard on the golf course.

The company has adopted a similar hybrid approach to Luckin, and Starbucks thanks to its alliance with Alibaba. Fore operates 15 outlets in Jakarta, which range from “grab and go” kiosks for workers in a hurry, to shops with space to sit and delivery-only locations, Fore co-founder Elisa Suteja told TechCrunch. On the digital side, it offers its own app (delivery is handled via Go-Jek’s Go-Send service) and is available via Go-Jek and Grab’s apps.

So far, Fore has jumped to 100,000 deliveries per month and its app is top of the F&B category for iOS and Android in Indonesia — ahead of Starbucks, McDonald’s and Pizza Hut .

It’s early times for the venture — which is not a touch on Starbuck’s $85 billion business; it does break out figures for Indonesia — but it is a sign of where consumption is moving to Indonesia, which has become a coveted beachhead for global companies, and especially Chinese, moving into Southeast Asia. Chinese trio Tencent, Alibaba and JD.com and Singapore’s Grab are among the outsiders who have each spent hundreds of millions to build or invest in services that tap growing internet access among Indonesia’s population of more than 260 million.

There’s a lot at stake. A recent Google-Temasek report forecast that Indonesia alone will account for over 40 percent of Southeast Asia’s digital economy by 2025, which is predicted to triple to reach $240 billion.

As one founder recently told TechCrunch anonymously: “There is no such thing as winning Southeast Asia but losing Indonesia. The number one priority for any Southeast Asian business must be to win Indonesia.”

Forecasts from a recent Google-Temasek report suggest that Indonesia is the key market in Southeast Asia

This new money comes from East Ventures — which incubated the project — SMDV, Pavilion Capital, Agaeti Venture Capital and Insignia Ventures Partners, with participation from undisclosed angel backers. The plan is to continue to invest in growing the business.

“Fore is our model for ‘super-SME’ — SME done right in leveraging technology and digital ecosystem,” Willson Cuaca, a managing partner at East Ventures, said in a statement.

There’s clearly a long way to go before Fore reaches the size of Luckin, which has said it lost 850 million yuan, or $124 million, inside the first nine months in 2018.

The Chinese coffee challenger recently declared that money is no object for its strategy to dethrone Starbucks. The U.S. firm is currently the largest player in China’s coffee market, with 3,300 stores as of last May and a goal of topping 6,000 outlets by 2022, but Luckin said it will more than double its locations to more than 4,500 by the end of this year.

By comparison, Indonesia’s coffee battle is only just getting started.

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China finally grants a game license to Tencent

Posted by | Asia, Beijing, China, game publisher, Gaming, ma huateng, netease, shenzhen, Software, Tencent, WeChat | No Comments

Tencent has finally come out of a prolonged freeze on game approvals as Beijing granted licenses to two of its mobile games this month.

According to a notice published Thursday by China’s State Administration of Press, Publication, Radio, Film and Television, Tencent is one of nearly 200 games assigned licenses in January.

That’s big news for the Shenzhen-based firm, which has seen its share price plummet in the past months because the licensing halt crippled its ability to generate gaming revenues. Tencent is best known for its immensely popular WeChat messenger, but games contribute a bulk of its earnings.

Both games approved are for educational purposes so are unlikely to generate income at the level of Tencent’s more lucrative role-playing titles, such as Honor of Kings. Tencent has been at the center of government criticisms on games deemed harmful and addictive, and the firm has subsequently introduced so-called “utility games” in 2018 designed to promote traditional Chinese culture, science and technology.

That said, the tech giant could be raking in big bucks from a third-party game that also got approved this week. The title comes from China’s third-largest game publisher, Perfect World, with exclusive publishing rights handled by Tencent.

“The game is the mobile version of the extremely successful massively multiplayer online role-playing game with the same name,” Daniel Ahmad, an analyst at market research firm Niko Partners, suggests to TechCrunch. “We note that Perfect World Mobile is a core game that is set to be a high revenue generating title when it launches.”

China resumed its game approval process in December after a nine-month hiatus during which it worked to reshuffle its main regulating bodies for games. However, it left Tencent, the country’s biggest game publisher, and runner-up NetEase off its first batch of approved titles that month.

NetEase also scored its first post-freeze license in January and had better luck than Tencent, winning a nod for a multiplayer online role-playing game.

Despite the thawing, industry experts warn that approvals will come at a much slower rate than before as Chinese regulators look to more closely monitor game content, putting the burden on developers and publishers to decipher new industry rules.

“The size of the gaming company does not matter. It matters how fast the company can be adapting to the new set of rules and guidelines,” Shenzhen-based game consultant Ilya Gutov told TechCrunch in December.

“As the review and approval process for games resumes, we are confident that Tencent will be producing more compliant and higher-quality cultural work for society and the public,” a Tencent spokesperson said in December, highlighting its plan to churn out content that fits into China’s ideological agenda.

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Chinese app developers have invaded India

Posted by | alibaba, Android, Apps, Asia, bytedance, China, Flash, food delivery, india, oppo, Paytm, sensor tower, SnapDeal, Tencent, tiktok, WeChat, Xiaomi | No Comments

If you’ve conquered China, then India — the world’s second-largest country based on population — is the obvious next port of call, and that’s exactly what has happened in the world of consumer apps.

Following the lead of Chinese smartphone makers like Xiaomi and Oppo, which have dominated mobile sales in India for some time, the content behind the touchscreen glass in India is increasingly now from China, too. That’s according to a report from FactorDaily, which found that 44 of the top 100 Android apps in India were developed by Chinese companies, up from just 18 one year prior. (The focus is on Android because it is the overwhelming choice of operating system among India’s estimated 500 million internet users.)

The list of top Chinese apps includes major names like ByteDance, the world’s highest-valued startup, which offers TikTok and local language news app Helo in India, and Alibaba’s UCbrowser, as well as lesser-known quantities like Tencent-backed NewsDog and quiet-yet-prolific streaming app maker Bigo.

Citing data from Sensor Tower, the report found that five of the top 10 Android apps in India are from China, up from just two at the end of 2017.

For anyone who has been watching the Indian technology scene in recent years, this “Chinese app store invasion” will be of little surprise, although the speed of change has been unexpected.

China’s two biggest companies, Alibaba and Tencent, have poured significant amounts into promising Indian startups in recent years, setting the stage for others to follow suit and move into India in search of growth.

Alibaba bought into Snapdeal and Paytm via multi-hundred-million-dollar investments in 2015, and the pace has only quickened since then. In 2017, Tencent invested in Gaana (music streaming) and Swiggy (food delivery) in major deals, having backed Byju’s (education) and Ola (ride-hailing) the year prior. The pair also launched local cloud computing services inside India last year.

Beyond those two, Xiaomi has gone beyond selling phones to back local companies and develop local services for its customers.

That local approach appears to have been the key for those app makers which have found success in India. Rather than taking a very rigid approach like Chinese messaging app WeChat — owned by Tencent, which failed in India — the likes of ByteDance have developed local teams and, in some cases, entirely local apps dedicated to India. With the next hundreds of millions of internet users in India tipped to come from more rural parts of the country, vernacular languages, local content and voice-enabled tech are some of the key strategies that, like their phone-making cousins, Chinese app developers will need to focus on to ensure that they aren’t just a flash in the pan in India.

You can read more at FactorDaily.

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Tencent left out as China approves the release of 80 new video games

Posted by | Activision, Asia, China, Entertainment, Gaming, riot, supercell, TC, Tencent, Tencent Holdings, WeChat | No Comments

Chinese internet giant Tencent has been excluded from the first batch of video game license approvals issued by the state-run government since March.

China regulators approved Saturday the released of 80 online video games after a months-long freeze, Reuters first reported. None of the approved titles listed on the approval list were from Tencent Holdings, the world’s largest gaming company.

Licenses are usually granted on a first come, first serve basis in order of when studios file their applications, several game developers told TechCrunch. There are at least 7,000 titles in the waiting list, among which only 3,000 may receive the official licenses in 2019, China’s 21st Century Business Herald reported citing experts. Given the small chance of making it to the first batch, it’s unsurprising the country’s two largest game publishers Tencent and NetEase were absent.

The controlled and gradual unfreezing process is in line with a senior official’s announcement on December 21. While the Chinese gaming regulator is trying its best to greenlight titles as soon as possible, there is a huge number of applications in the pipeline, the official said. Without licenses, studios cannot legally monetize their titles in China. The hiatus in approval has slashed earnings in the world’s largest gaming market, which posted a 5.4 percent year-over-year growth in the first half of 2018, the slowest rate in the last ten years according to a report by Beijing-based research firm GPC and China’s official gaming association CNG.

Tencent is best known as the company behind WeChat, a popular messaging platform in China. But much of its revenue comes from gaming. Even with a recent decline in gaming revenue, the company has a thriving business that is majority owner of several companies including Activision, Grinding Gears Games, Riot and Supercell. In 2012, the company took a 40 percent stake in Epic Games, maker of Fortnite. Tencent also has alliances or publishing deals with other video gaming companies such as Square Enix, makers of Tomb Raider. 

The ban on new video game titles in China has affected Tencent’s bottom line. The company reported revenue from gaming fell 4 percent in the third quarter due to the prolonged freeze on licenses. At the time, Tencent claimed it had 15 games with monetization approval in its pipeline. To combat pressure in its consumer-facing gaming business, the Chinese giant launched a major reorganization in October to focus more on enterprise-related initiatives such as cloud services and maps. Founder and CEO Pony Ma said at the time the strategic repositioning would prepare Tencent for the next 20 years of operation.

“In the second stage, we aspire to enable our partners in different industries to better connect with consumers via an expanding, open and connected ecosystem,” stated Ma.

China tightened restrictions in 2018 to combat games that are deemed illegal, immoral, low-quality or have a negative social impact such as those that make children addicted or near-sighted. This means studios, regardless of size, need to weigh new guidelines in their production and user interaction. Tencent placed its own restrictions on gaming in what appeared to be an attempt to assuage regulators. The company has expanded its age verification system, an effort aimed at curbing use of young players, and placed limits on daily play.

Update (December 30, 10:00 am, GMT+8): Adds context on China’s gaming industry and Tencent.

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Epic Games, the creator of Fortnite, banked a $3 billion profit in 2018

Posted by | 2018 Year in Review, Android, Apps, Beijing, China, computing, epic games, fortnite, fortnite battle royale, game publisher, Gaming, Google, Google Play Store, Kleiner Perkins, lightspeed, Nintendo, sensor tower, smartphone, Software, Tencent, the wall street journal, unreal engine, wall-street-journal | No Comments

Epic Games had as good a year in 2018 as any company in tech. Fortnite became the world’s most popular game, growing the company’s valuation to $15 billion, but it has helped the company pile up cash, too. Epic grossed a $3 billion profit for this year fueled by the continued success of Fortnite, a source with knowledge of the business told TechCrunch.

Epic did not respond to a request for comment.

Fortnite, which is free to play but makes money selling digital items, has popularized the battle royale category — think Lord of the Flies meets Hunger Games — almost single-handedly, and it has been the standout title for the U.S.-based game publisher.

Founded way back in 1991, Epic hasn’t given revenue figures for its smash hit — which has 125 million players — but this new profit milestone, combined with other pieces of data, gives an idea of the success the company is seeing as a result of a prescient change in strategy made six years ago.

This past September, Epic commanded a valuation of nearly $15 billion, according to The Wall Street Journal, as marquee investors like KKR, Kleiner Perkins and Lightspeed piled on in a $1.25 billion round to grab a slice of the red-hot development firm. However, the investment cards haven’t always been stacked in Epic’s favor.

China’s Tencent, the maker of blockbuster chat app WeChat and a prolific games firm in its own right, became the first outside investor in Epic’s business back in 2012 when it injected $330 million in exchange for a 40 percent stake in the business.

Back then, Epic was best known for Unreal Engine, the third-party development platform that it still operates today, and top-selling titles like Gears of War.

Why would a proven company give up such a huge slice of its business? Executives believed that Epic, as it was, was living on borrowed time. They sensed a change in the way games were headed based on diminishing returns and growing budgets for console games, the increase of “live” games like League of Legends and the emerging role of smartphones.

Speaking to Polygon about the Tencent deal, Epic CEO Tim Sweeney explained that the investment money from Tencent allowed the company to go down the route of freemium games rather than big box titles. That’s a strategy Sweeney called “Epic 4.0.”

“We realized that the business really needed to change its approach quite significantly. We were seeing some of the best games in the industry being built and operated as live games over time rather than big retail releases. We recognized that the ideal role for Epic in the industry is to drive that, and so we began the transition of being a fairly narrow console developer focused on Xbox to being a multi-platform game developer and self publisher, and indie on a larger scale,” he explained.

Tencent, Sweeney added, has provided “an enormous amount of useful advice,” while the capital enabled Epic to “make this huge leap without the immediate fear of money.”

LOS ANGELES, CA – JUNE 12: Gamers ‘Ninja’ (L) and ‘Marshmello’ compete in the Epic Games Fortnite E3 Tournament at the Banc of California Stadium on June 12, 2018 in Los Angeles, California. (Photo by Christian Petersen/Getty Images)

Epic never had a problem making money — Sweeney told Polygon the first Gear of Wars release grossed $100 million on a $12 million development budget. But with Fortnite, the company has redefined modern gaming, both by making true cross-platform experiences possible and by pulling in vast amounts of money.

As a private company, Epic keeps its financials closely guarded. But digging beyond the $3 billion figure — which, to be clear, is annual profit not revenue — there are clues as to just how big a money-spinner Fortnite is. Certainly, there’s room to wonder whether analyst predictions this summer that Fortnite would gross $2 billion this year were too conservative.

The most recent data comes from November when Sensor Tower estimates that iOS users alone were spending $1.23 million per day. That helped the game bank $37 million in the month and take its total earnings within Apple’s iOS platform to more than $385 million.

But, as mentioned, Fortnite is a cross-platform title that supports PlayStation, Xbox, Switch, PC, Mac, Android and iOS. Aggregating revenue across those platforms isn’t easy, and the only real estimate comes from earlier this year when Super Data Research concluded that the game made $318 million in May across all platforms.

That is, of course, when Fortnite was fresh on iOS, non-existent on Android and with fewer overall players.

We can deduce from Sensor Tower’s November estimate that iOS pulled in $385 million over eight months — between April and November — which is around $48 million per month on average. Android is harder to calculate since Epic skipped Google’s Play Store by distributing its own launcher. While it quickly picked up 15 million Android users within the first month, tracking that spending off-platform is a huge challenge. Some estimates predicted that Google would miss out on around $50 million in lost earnings this year because in-app purchases on Android would not cross its services.

There are a few factors to add further uncertainty.

Fortnite spending tends to spike around the release of new seasons — updated versions of the game — since users are encouraged to buy specific packages at the start. The latest, Season 7, dropped early this month with a range of tweaks for the Christmas period. Given the increased velocity at which Fortnite is picking up players and the appeal of the festive period, this could have been its biggest revenue generator to date, but there’s not yet any indicator of how it performed.

More broadly, Fortnite has undoubtedly lost out on revenue in China, which froze new game licenses nine months ago, thereby preventing any publishers from monetizing new titles over that period.

Tencent, which publishes Fortnite in China, did release the game in the country but it hasn’t been able to draw revenue from it yet. The Chinese government announced last week that it is close to approving its first batch of new titles, but it isn’t clear which games are included and when the process will be done.

Already, the effects have been felt.

Games are forecast to generate nearly $40 billion in revenue in China this year, according to market researcher Newzoo. However, the industry saw its slowest growth over the last 10 years as it grew 5.4 percent year-over-year during the first half of 2018, according to a report by Beijing-based research firm GPC and China’s official gaming association CNG.

Fortnite and PUBG — another battle royale title backed by Tencent — have perhaps suffered the most since they are universally popular worldwide but unable to monetize in China. It seems almost certain that those two titles will receive a major marketing push if, as and when they receive the license and, if Epic can keep the game competitive as Sweeney believed it could back in 2012, then it could go on and make even more money in 2019.

Epic Games is taking on Steam with its own digital game store, which includes higher take-home revenue rates for developers.

But Epic isn’t relying solely on Fortnite.

A more low-key but significant launch this month was the opening of the Epic Games store, which is aimed squarely at Steam, the leader in digital game sales.

While Fortnite is its most prolific release, Epic also makes money from other games, Unreal Engine and a recently launched online game store that rivals Steam. Epic’s big differentiator for the store is that it gives developers 88 percent of their revenue, as opposed to Value — the firm behind Steam — which keeps 30 percent, although it has added varying rates for more successful titles. Customers are promised a free title every two weeks.

Either way, Epic is betting that it can do a lot more than Fortnite, which could mean that its profit margin will be even higher come this time next year.

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What China searched for in 2018: World Cup, trade war, Apple

Posted by | Android, Apple, artificial intelligence, Asia, Baidu, China, Entertainment, Facebook, Google, huawei, iQiyi, Netflix, oppo, producer, Qualcomm, quantum computing, search engine, shenzhen, smartphone, TC, Tencent, world cup | No Comments

Soon after Google unveiled the top trends in what people searched for in 2018, Baidu published what captivated the Chinese in a parallel online universe, where most of the West’s mainstream tech services, including Google and Facebook, are inaccessible.

China’s top search engine put together the report “based on trillions of trending queries” to present a “social collective memory” of internet users, said Baidu; 802 million people have come online in China as of August, and many of them use Baidu to look things up daily.

Overall, Chinese internet users were transfixed on a mix of sports events, natural disasters, politics and entertainment, a pattern that also prevails in Google’s year-in-search. On Baidu, the most popular queries of the year are:

  1. World Cup: China shares its top search with the rest of the world. Despite China’s lackluster performance in the tournament, World Cup managed to capture a massive Chinese fan base who supported an array of foreign teams. People filled bars in big cities at night to watch the heart-thumping matches, and many even trekked north to Russia to show their support.
  2. U.S.-China trade war: The runner-up comes as no surprise, given the escalating conflict between the world’s two largest economies. A series of events have stoked more fears of the stand-off, including the arrest of Huawei’s financial chief.
  3. Typhoon Mangkhut: The massive tropical cyclone swept across the Pacific Ocean in September, leaving the Philippines and South China in shambles. Shenzhen, the Chinese city dubbed the Silicon Valley for hardware, reportedly submitted more than $20.4 million in damage claims after the storm.
  4. Apple launch: The American smartphone giant is still getting a lot of attention in China even as local Android competitors like Huawei and Oppo chip away at its market share. Apple is also fighting a legal battle with chipmaker Qualcomm, which wanted the former to stop selling certain smartphone models in China.
  5. The story of Yanxi Palace: The historical drama of backstabbing concubines drew record-breaking views for its streamer and producer iQiyi, China’s answer to Netflix that floated in the U.S. in February. The 70-episode show was watched not only in China but also across more than 70 countries around the world.
  6. Produce 101: The talent show in which 101 young women race to be the best performer is one of Tencent Video’s biggest hits of the year, but its reach has gone beyond its targeted young audience as it popularized a meme, which made it to No. 9 on this list.
  7. Skr: A buzzword courtesy of pop idol Kris Wu, who extensively used it on a whim during iQiyi’s rap competition “Rap of China,” prompting his fans and internet users to bestow it with myriad interpretations.
  8. Li Yong passed away: The sudden death of the much-loved television host after he fought a 17-month battle with cancer stirred an outpouring of grief on social media.
  9. Koi: A colored variety of carps, the fish is associated with good luck in Chinese culture. Yang Chaoyue, a Produce 101 contestant whom the audience believed to be below average surprisingly rose to fame and has since been compared to a koi.
  10.  Esports: Professional gaming has emerged from the underground to become a source of national pride recently after a Chinese team championed the League of Legend finals, an event regarded as the Olympics for esports.

In addition to the overall ranking, Baidu also listed popular terms by category, with staple areas like domestic affairs alongside those with a local flavor, such as events that inspire national pride or are tear-jerking.

This was also the first year that Baidu added a category dedicated to AI-related keywords. The search giant, which itself has pivoted to go all in AI and has invested heavily in autonomous driving, said the technology “has not only become a nationwide buzzword but also a key engine in transforming lives across the globe.” In 2018, Chinese people were keen to learn about these AI terms: robots, chips, internet of things, smart speakers, autonomous driving, face recognition, quantum computing, unmanned vehicles, World Artificial Intelligence Conference and quantum mechanics.

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JioSaavn becomes India’s answer to Spotify and Apple Music

Posted by | alibaba, Amazon, Android, apple music, Asia, China, computing, Dhingana, digital audio, digital media, executive, funding, Fundings & Exits, india, Internet, JioSaavn, Media, New York, Pandora, pandora radio, rdio, reliance jio, saavn, Software, Spotify, Tencent, tencent music, tiger global, Times Internet, Walmart | No Comments

India finally has its answer to Spotify after Reliance Jio merged its music service with Saavn, the startup it acquired earlier this year.

The deal itself isn’t new — it was announced back in March — but it has reached its logical conclusion after two apps were merged to create a single entity, JioSaavn, which is valued at $1 billion. For the first time, India has a credible rival to global names like Spotify and Apple Music through the combination of a venture capital-funded business, Saavn, and good old-fashioned telecom, JioMusic from Reliance’s disruptive Jio operator brand.

This merger deal comes days after reports suggested that Spotify is preparing to (finally) enter the Indian market, a move that has been in the planning for more than a year as we have reported.

That would set up an interesting battle between global names Spotify and Apple and local players JioSaavn and Gaana, a project from media firm Times Internet, which is also backed by China’s Tencent.

It isn’t uncommon to see international firms compete in Asia — Walmart and Amazon are the two major e-commerce players, while Chinese firms Alibaba and Tencent have busily snapped up stakes in promising internet companies for the past couple of years — but that competition has finally come to the streaming space.

There have certainly been misses over the years.

Early India-based pioneer Dhingana was scooped by Rdio back in 2014, having initial shut down its service due to financial issues. Ultimately, though, Rdio itself went bankrupt and was sold to Pandora, leaving both Rdio and Dhingana in the startup graveyard.

Saavn, the early competitor to Dhingana, seemed destined to a similar fate, at least from the outside. But it hit the big time in 2015 when it raised $100 million from Tiger Global, the New York hedge fund that made ambitious bets on a number of India’s most promising internet firms. That gave it the fuel to reach this merger deal with JioMusic.

Unlike Dhingana’s fire sale, Saavn’s executive team continues on under the JioSaavn banner.

The coming-together is certainly a far more solid outcome than the Rdio deal. JioSaavn has some 45 million songs — including a slate of originals started by Saavn — and access to the Jio network, which claims more than 250 million subscribers.

JioSaavn is available across iOS, Android, web and Reliance Jio’s own app store

The JioMusic service will be freemium, but Jio subscribers will get a 90-day trial of the ad-free “Pro” service. The company maintains five offices — including outposts in Mountain View and New York — with more than 200 employees, while Reliance has committed to pumping $100 million into the business for “growth and expansion of the platform.”

While it is linked to Reliance and Jio, JioMusic is a private business that counts Reliance as a stakeholder. You’d imagine that remaining private is a major carrot that has kept Saavn founders — Rishi Malhotra, Paramdeep Singh and Vinodh Bhat — part of the business post-merger.

The window certainly seems open for streaming IPOs — Spotify went public this past April through an unconventional listing that valued its business around $30 billion, while China’s Tencent Music is in the process of a listing that could raise $1.2 billion and value it around that $30 billion mark, too. JioSaavn might be the next streamer to test the public markets.

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Tencent returns to profit growth despite concern around games

Posted by | Earnings, Gaming, TC, Tencent | No Comments

Chinese internet giant Tencent bounced back from a disappointing previous quarter, but for once the company didn’t have its gaming business to thank.

Tencent may be best known for conjuring up WeChat, China’s most popular messaging platform, but its revenue is driven by its gaming business, which includes top smartphone titles and a thriving PC unit. Its Q3 results, announced today, however, saw its gaming income slacken and other units, including a booming advertising business, step up.

The firm posted a net profit of RMB 23.3 billion ($3.4 billion) on total revenue of RMB 80.6 billion ($11.7 billion), up 30 percent and 24 percent, respectively. Profit growth was back on track, mainly thanks to increased net gains from investments, including a blockbuster IPO of Meituan in September.

Advertising increased by 47 percent and generated 20 percent of total revenues, marking the first time that the segment has reached that mark. The jump is in part a result of strong ad revenue growth on Tencent’s two main chat apps, WeChat and QQ.

These changes are a sign that Tencent has begun to aggressively monetize its massive network of social networking users. As of September, Tencent had 1.08 billion monthly active users on WeChat worldwide, though the app’s spectacular growth has slowed to 2.3 percent quarter-to-quarter.

Tencent underwent an internal reorganization in October that saw it merge several business groups, which have resulted in a more unified system of advertising sales platforms, the company explained in today’s report.

“Our advertising, digital content, payment and cloud services sustained robust activity and revenue growth, and now account for the majority of our revenue,” chairman and CEO Pony Ma said in a statement.

In contrast, games, which have been Tencent’s major revenue driver for years, slid four percent this quarter due to a prolonged freeze on gaming licenses in China. The firm claims it has 15 games with monetization approval in its pipeline, which means that gaming revenues could rebound when it publishes those titles, although it said the same in the previous quarter, so a lack of progress is fairly ominous.

The firm also pointed out that while mobile games continued to fuel revenue growth, PC games suffered a decline.

When asked about the situation with gaming licenses on a call with investors, Tencent President Martin Lau said the company is “waiting for the government to start the approval process.”

Tencent appears to have found a potential interim solution, which involves allowing third-party publishers who secured a license before the freeze to publish games through its platform, but of course, that has limited use.

While games are the hot topic, Tencent was keen to push the story of its cloud computing business, which it said is a key to widening its focus into IOT and other areas.

Emboldened by the reorganization in October, which seemed aimed at shifting Tencent from a consumer-facing internet company into one that’s increasing serving industries, the firm said its cloud business more than doubled its revenue year-on-year. There was no raw revenue figure released for the quarter, but the company did disclose that the cloud unit has brought in more than RMB 6 billion, $860 million, over the last three quarters.

Furthermore, cloud computing and payment-related services helped its “Others” business increase its revenue 69 percent year-on-year to reach RMB 20.3 billion, $2.92 billion, for the quarter.

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Open sourcing analysis, plus US, China and HQ2

Posted by | Amazon, Asia, Government, hq2, Mobile, new york city, oppo, Tencent, washington DC, WeChat, WhatsApp, Xiaomi | No Comments

The big news today is that — finally — we have Amazon’s selection of cities for its dual second headquarters (Northern Virginia and NYC). Then some notes on China. But first, semiconductors and open sourcing analysis.

We are experimenting with new content forms at TechCrunch. This is a rough draft of something new — provide your feedback directly to the authors: Danny at danny@techcrunch.com or Arman at Arman.Tabatabai@techcrunch.com if you like or hate something here.

Pivot: Future of semiconductors, chips, AI, etc.

Last week, I focused on SoftBank’s debt and Form D filings by startups. On Friday, I asked what I should start to analyze next. There were several feedback hotspots, but the one that popped out to me was around next-generation chips and the battle for dominance at the hardware layer.

As a software engineer, I know almost nothing about silicon (the beauty of abstraction). But it is clear that the future of all kinds of workflows will increasingly be driven by capabilities at the hardware/silicon level, particularly in future applications like artificial intelligence, machine learning, AR/VR, autonomous driving and more. Furthermore, China and other countries are spending billions to go after the leaders in this space, such as Nvidia and Intel. Startups, funding, competition, geopolitics — we’ve got it all here.

Arman and I are now diving deeper into this space. We will start to post once we have some interesting things to share, but if you have ideas, opinions, companies or investments in this space: tell us about them, as we are all ears: danny@techcrunch.com and Arman.tabatabai@techcrunch.com.

Open-source analysis at TechCrunch

Since I launched this daily “column” last week, I have included the text near the top that “We are experimenting with new content forms at TechCrunch.” One of those forms is what might be called open-source journalism. Definitions are fuzzy, but I take it to mean working “in the open” — allowing you, the audience of this column, to engage in not just feedback around finalized and published posts, but to actually affect the entire process of analysis, from sourcing and ideation to data science and writing.

I am thankful to work at a publication like TechCrunch where my readers are often working in the exact sectors that I am writing about. When I wrote about Form Ds last week, a number of startup attorneys reached out with their own thoughts and analysis, and also explained key aspects of how the law is changing around SEC disclosure for startups. That’s really powerful, and I want to apply it to as many fields as possible.

This thesis is ultimately intentional — now I have to operationalize it. There aren’t good tools (yet!) that I know of that allow for easy sharing of data and notes that don’t rely on a hacked-together set of Google Docs and GitHub. But I’m exploring the stack, and will publish more things publicly as we have them.

Amazon HQ2 — the future of corporate relations with cities

Amazon’s long process for selecting an HQ2 is finally over, and the official answer is two: Northern Virginia and NYC. Tons of words have been spilled about the search, and I am sure even more analysis will strike today about what put those two locations over the top.

To me, the key for mayors is to start using these reverse searches (where a company seeks a city and not vice versa) as leverage to actually get resources to fund infrastructure and other critical services.

This is a theme that I discussed about a year ago:

Take Boston’s bid for GE’s new headquarters. Yes, the city offered property tax rebates of about $25 million , but GE’s move also pushed the state to fund a variety of infrastructure improvements, including the Northern Avenue bridge and new bike lanes. That bridge adds a critical path for vehicles and pedestrians in Boston’s central business district, yet has gone unfunded for years.

Ideally, governments could debate, vote, and then fund these sorts of infrastructure projects and community improvements. The reality is that without a time-sensitive forcing function like a reverse RFP process, there is little hope that cities and states will make progress on these sorts of projects. The debates can literally go on forever in American democracy.

So if you are a mayor or economic planning official, use these processes as tools to get stuff done. Use the allure of new jobs and tax revenues to spur infrastructure spending and get a rezoning through a recalcitrant city council. Use that “prosperity bomb” to upgrade old parts of the urban landscape and prepare the city for the future. A healthier, more humane city can be just around the corner.

Take DC. The city has seen one of the best-run Metro systems deteriorate to abysmal levels over the past few years due to a complete dumpster fire of organizational design (the DC transit agency WMATA is funded by inconsistent revenue sources that ensure it will never be sustainable). Here is an opportunity to use Amazon’s announcement to get the tax framework and operations figured out to ensure that real estate, transportation and other critical urban infrastructure are designed effectively.

China’s mobile internationalization

Timothy Allen/Getty Images

Talking about second headquarters, the technology industry clearly has separated into poles, one based around the United States and the other based around China. Two articles I read recently gave good insights of the benefits and challenges for China in this world.

The first is from Sam Byford writing at The Verge, who investigates the native OS options that Chinese consumers receive from companies like Xiaomi, Huawei, Oppo and others. The headline is much more shrill than the text, so don’t let that frighten you.

Byford provides an overview of the lineage of Chinese mobile OSes, and also notes that what might look like design gaffes in Western consumer eyes might be critical needs for Chinese buyers:

But what is true today is that not all Chinese phone software is bad. And when it is bad from a Western perspective, it’s often bad for very different reasons than the bad Android skins of the past. Yes, many of these phones make similar mistakes with overbearing UI decisions — hello, Huawei — and yes, it’s easy to mock some designs for their obvious thrall to iOS. But these are phones created in a very different context to Android devices as we’ve previously understood them.

The article is perhaps a tad long for what it is, but Byford’s key viewpoint should be repeated as a mantra by any person connected to the technology sector today: “The Chinese phone market is a spiraling behemoth of innovation and audacity, unlike anything we’ve ever seen. If you want to be on board with the already exciting hardware, it’s worth trying to understand the software.”

Of course, while China may be a huge country, its leading technology companies do want to globalize and expand their user bases outside of the Middle Kingdom’s borders. That may well be a challenging proposition.

Writing at Factor Daily, Shadma Shaikh dives into the failure of WeChat to break into the Indian market. The product lessons learned by WeChat’s owner Tencent could be applied to any Silicon Valley company — cultural knowledge and appropriate product design are key to entering overseas markets.

Shaikh gives a couple of examples:

Another design feature in the app allowed users to look up and send add-friend requests to WeChat users nearby. During initial onboarding when users were just checking app’s features, many would tap the “people nearby” feature, which would switch on location sharing by default – including with strangers. Once location sharing with strangers was switched on, it wasn’t very intuitive to turn it off.

“Women used to get a lot of unwarranted messages from men, which was a major turn off and many of them left the platform,” Gupta says. “China probably didn’t have this stalking problem.”

And

In China, where the internet was cheaper than in India in 2012, sending video files of, say, 4 MB was not a challenge. WhatsApp compresses a 5 MB photo to 40 kilobytes. WeChat did not compress the files and took many minutes and data to send and receive media files.

Internationalization will never be easy, but the lessons that Silicon Valley has slowly learned over the past two decades will need to be learned again by Chinese companies if they want to export their software to other countries.

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China’s frenzy over League of Legends championship sheds light on esports growth

Posted by | Asia, China, communist party, esports, Gaming, league of legends, online gaming, Riot Games, social media platforms, Tencent, Weibo | No Comments

When China’s Invictus Gaming defeated European squad Fnatic in the League of Legends 2018 finals this past Saturday, China’s social media platforms became awash in ecstasy and pride.

“It’s like winning an Olympic gold, a teenage dream come true,” writes one thirty-something audience of the competition on his WeChat feed.

Many others share that sentiment. So far, the hashtag #IG冠军, which means “IG the champion,” has generated over one million threads on Weibo, China’s equivalent of Twitter with over four million monthly active users. This is a critical moment for China’s first-generation of players who grew up under parents and teachers who too easily dismissed all kinds of video games.

IG’s victory marks the first time a Chinese team has won the world championship for LoL – fondly called so by fans – the world’s most played PC game according to research firm Newzoo. The role-playing and monster-slaying title is run by Riot Games Inc, a Los Angeles-headquartered studio that WeChat operator Tencent fully bought out in 2015.

It wasn’t just gamers and the youth cheering for IG. Chinese mainstream media also rushed to congratulate. An op-ed from the communist party paper Guangming Daily called IG’s victory “an alternative path to the national sports dream.”

China has a history of obsessing over sports, evident in its generous spending on the Summer Olympics back in 2008 and the upcoming 2022 Winter Olympics. Now esports – or competitive video gaming – as an officially recognized sporting event, is gaining ground among policymakers.

Esports in China has grown from a 53.2 billion yuan ($7.72 billion) industry in 2016 into one that’s estimated to earmark 88.7 billion yuan ($12.87 billion) in revenue in 2018, according to research firm Gamma Data. Local officials across the country want a share of the booming market. In some cases, the governments have shelled out billions of yuan to turn their no-name towns into “esports hub” that would house competitions and gaming companies in hope of stimulating local economies.

lLeague of legends china ig

Private companies have joined in the game, too. Tencent, China’s largest gaming company by revenue, has invested in NYSE-listed Huya and Douyu, two of China’s leading esports livestreaming services. IG itself is an esports organization that Wang Sicong, son of China’s once richest man Wang Jianlin, founded in 2011 and catapulted to today’s stardom.

But China’s relationship with video games overall has always been murky. While the government is rooting for professional gaming, it’s tightening control over leisure ones, condemning game publishers like Tencent for “poisoning” juveniles with blockbuster titles.

“The Chinese government treats esports and leisure games very differently,” a staff in the esports division of a major global gaming studio who asks to remain anonymous told TechCrunch. “I don’t think IG’s victory will cause big changes to the government’s attitude.”

Tencent, which earns two-thirds of its revenue from online gaming, lost $17.5 billion in market valuation when China’s state newspaper slashed its popular Honor of Kings, widely regarded a mobile copycat of LoL. This year, a hiatus in game license approvals again puts pressure on Tencent stock prices and profitability.

For esports and League of Legends alone, however, IG’s glory could mean a brighter future.

“At least now we will see League of Legends’ popularity continue into a couple more years. Esports’ development may also benefit from the event,” suggests the gaming company staff.

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