Behind the Tencent Huawei battle, an era is coming to an end

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The uproar between Huawei and Tencent is not a struggle at the level of the two companies, but a microcosm of changes in two industries and an era.
Chinese entrepreneur reporter Cui Peng
In September 2020, at the Huawei Developers Conference, Yu Chengdong, CEO of Huawei’s consumer business, announced that Huawei’s mobile phone shipment in the first half of 2020 will be 105 million.
More than half a month later, Tencent, a brother company in Shenzhen, sent Huawei a large gift package. On the second anniversary of the founding of PCG (platform and content business group), Ren Yuxin, the COO of Tencent group, announced that all PCG employees (more than 10000 people) would be rewarded with one Huawei mobile phone per person.
The prize is mate XS flagship mobile phone. According to the market price, the total price of this large-scale purchase exceeds 100 million yuan. Ren Yuxin, who also manages IEG (interactive entertainment business group), is the behind the scenes commander of Tencent’s booming games.
Dramatically, less than 100 days after the big gift package was sent out, Huawei game center announced on January 1 that Huawei app store would take Tencent games off the shelves because “Tencent unilaterally made major changes to the cooperation between the two sides.”.
Although Tencent’s game was back on the shelves in Huawei’s game center on the same day, the confrontation between the two sides did not last long, but it still exposed the interdependence and game relationship between game companies and mobile app stores.
Content companies invest a lot of resources in R & D of game products. When they put them on the market, they heavily rely on channel recommendation and diversion, especially the “hard core alliance” app store channel.
This Android App distribution camp, which is composed of eight mobile phone manufacturers, such as Huawei, oppo and vivo, is all apps. The 5:5 sharing standard set by it has also become a common rule for Android stores in China.
A developer close to Tencent games told “Chinese entrepreneur” that powerful products such as Tencent’s “King’s glory” and Netease’s mobile version of “dream journey to the west” have a high bargaining power. The share ratio with the app store is 3:7, and the developers get most of the income.
Most of the games need to abide by the sharing rules of hard core alliances. After deducting the payment of channel fees, the game companies get less than half of the revenue, and the channel providers share more in the revenue of game products than the developers.
Tencent may be able to say “no”, but many companies can’t. For a large number of small and medium-sized companies, in the policy environment of tight number, the high “toll” of channel side will make the survival of game developers more difficult.
At the end of last year, Liu Chiping, President of Tencent, said on a conference call that the sharing ratio reflects the equal cooperation relationship. If the platform can bring more new users to the game company, the service will have great value. On the contrary, the value will be small. “The future of channel distribution industry will be more detailed, which is more beneficial to everyone.”
At present, Internet traffic is converging to the head products of social networking, information and short video. New buying platforms represented by Tencent advertising and byte beat (massive engine) are becoming the mainstream. New channels such as taptap, which mainly focus on zero share and user growth, are also impacting the market share of mobile phone stores.
In 2020 alone, epic, a well-known overseas game company, and apple and Google went to court, demanding to change the 3:7 sharing of app stores. In China, the two popular products of the well-known game companies, MIHA you and Lilis, refused to be put on the shelves at the same time. Huawei and Xiaomi chose Apple stores and taptap instead.
The event of Tencent and Huawei’s being taken off the shelves has made the conflict between game companies (as well as super application platforms) and hardware distribution channels gradually move from behind the scenes to the front stage. The golden age of app stores is passing, and the unbreakable market position has quietly disappeared.
blasting fuse
Usually, from project development to player experience, a game has to go through several key nodes, such as product development, game distribution and channel promotion. In a long period of time, the head platform holds the absolute voice of channel promotion. Content companies invest a lot of resources in R & D products. When they put them on the market, they all rely heavily on channel recommendation and diversion.
The application market is essentially a traffic business, with functions similar to browsers, security software and various installation assistants in the desktop era, except that the objects distributed have changed from PC software to app.
According to reports from IDC, canalys and counterpoint, in the third quarter of 2020 alone, Huawei, Xiaomi, oppo and vivo delivered more than 150 million smartphones.
Each of these mobile phones is pre installed with its own app stores. With the wave of smart phone upgrading in the past two years, it has entered the hands of hundreds of millions of users and acted as an entry-level product in the era of mobile Internet. This is the source of the confidence of mobile phone manufacturers represented by the “hard core alliance” in facing application developers.
When users don’t have much sense of independent choice, they usually rely on the recommendation of the app store to download apps, so mobile phone manufacturers are in a strong position, while application developers are relatively weak. When the development of mobile Internet has come to an end, users are becoming more and more mature. As long as the products are good enough and do not worry about users’ word-of-mouth, it is difficult for app stores to control their own destiny.
The most direct example is that in 2017, because “King’s glory” required a 3:7 share, it failed to reach an agreement with Huawei, and then Huawei’s app store completely removed Tencent games for a year. However, it was still in the category of pure commercial competition at that time, which would not cause many sensitive public opinions. Huawei and Tencent did not talk about it in a high profile.
For Tencent, the best distribution channels are wechat and QQ.
Therefore, although Huawei (including the glory brand) was the largest mobile phone manufacturer in China at that time, it still could not stop the booming development of Tencent games. The king’s glory set a new record of user volume and activity in that year.
The aforementioned game developers close to Tencent told China entrepreneur that the most direct trigger of the dispute between Huawei and Tencent is the proportion of call of duty mobile games, and the two sides have never been able to reach an agreement.

According to the report from sensor tower, a third-party testing organization, “call of duty” mobile game won US $14 million in revenue on IOS platform in the first week after it was launched in China on December 25, 2020, and its operation data performed very well.
At the beginning of its launch, this annual blockbuster entered most of the core Android channels, but it didn’t log into Huawei’s app store. According to the developers mentioned above, the main reason is that Tencent hopes to draw a percentage of 3:7, but Huawei does not agree to it and requires that the 5:5 sharing rule still be implemented.
The vast majority of game products are not such top-notch masterpieces, and they do not have the confidence to open their mouth to renegotiate the share ratio with mobile phone stores. As a result, in the domestic game industry, only a few products and companies dare to “resist” the channel side. Although others are not very satisfied, they can only be forced to accept the 5:5 high share rule.
So on the surface, this is just an agreement dispute between Tencent game and Huawei software department, but behind it is the result of long-term game between game companies and hardware manufacturers.
The toll has been hard for a long time
Globally, game companies are an important source of revenue for app stores.
Sensor tower reported that in the first half of 2020 alone, the games on the app store brought more than 22 billion US dollars to apple. Foreign media generally predicted that Apple’s app store’s revenue last year exceeded 64 billion US dollars, and game products undoubtedly contributed more than half of the revenue.
The ability of Chinese game companies to attract money is more prominent. According to sensor tower, in December last year alone, the top 30 mobile game manufacturers in China received $2.16 billion in revenue on IOS platform, of which “King’s glory” earned nearly $250 million on IOS platform.
Domestic app stores also have significantly higher in app commissions on game products than other categories. Take Huawei store as an example, according to the “Huawei application market intermodal transport service agreement”, in terms of internal purchase share of applications, the vast majority of apps are 30%, but the share of game applications is 50%.
It should be pointed out that Tencent’s app Bao shares 55% of the game applications (25% of the fixed channel cost, and the rest of the developers share 6:4 with Tencent), even higher than that of the hard core alliance.
At present, the application sharing ratio of Apple App store and Google play is mostly 3:7, with 30% for the platform and 70% for the developers.
That is to say, while the overseas game companies are trying to overturn the 30% Apple tax, the domestic game companies have been abiding by at least 50% of the revenue pumping agreement. In addition, after paying the channel fee, the game content producers spend a lot of resources on R & D products, but more than half of the revenue is contributed to the channel providers.
Under the policy background of shrinking game titles, many game companies are struggling to survive, hoping to change the “toll” rule of app stores. At the same time, the hardware store channel, which is divided into high-speed and complex SDK access, is also facing the challenge of more new channels.
Shortly after Huawei took off Tencent games, Huang Yimeng, CEO of heartbeat network, said in his circle of friends that the channels are paper tigers, and taptap is willing to help Huawei users who can’t download Tencent games. Tachycardia’s taptap platform reached 24.8 million in the first half of last year, becoming a new channel for many game companies to release their products.
An entrepreneur who helped the game company to launch the sea told the China entrepreneur that the buying platform represented by Tencent advertising, huge engine (byte beating) and Baidu information flow has been significantly improved in the past two years, so that the original products with original strength to buy volume can also have many other options after rejecting hardware store channels.
The rise of vertical distribution and buying channels of these games, as well as the increasing voice of cloud games, have brought obvious impact to the app store. The traditional game channels are moving towards decentralization.
The era of content as king is coming, and the bargaining power of high-quality R & D manufacturers and head game products is gradually improving, which also makes them more and more confident to challenge traditional channels.
When Netease launched the mobile version of dream journey to the west, it talked about the 3:7 share with Android channel, and Tencent game started from the middle of 2019, trying the 3:7 share ratio with domestic major Android channels. In 2020, Lilith’s “the awakening of nations” and mihayou’s “the original God” are two popular products, but they directly choose to give up the Android mobile transport channel.
Last year, Apple was brought to court by epic in a lawsuit, and its tough attitude also attracted the support of many peers. For a long time, Facebook also faced off with apple because of the price of paid apps.
Perhaps due to the continuous pressure from the outside world, Apple launched the “small business plan” at the end of December last year. For those developers with an annual income of less than $1 million, Apple will reduce the bonus from 30% to 15%.
The good days of the app store are passing
At present, the vast majority of game manufacturers are still unable to get rid of the dependence on traditional channels, even those developers who have “resisted”.
Although MIHA you’s “original God” did not go on sale in the mobile phone store, another product of MIHA you’s “undetermined event book” appeared in the app stores of hard core alliance and Xiaomi; Lilith’s “sword and expedition” also registered a large number of Android distribution channels.
But this does not mean that app stores can have a worry free future. A market leader of a US listed Internet company, who has been engaged in channel delivery for a long time, told China entrepreneur that the good days of making money by binding app stores to mobile phones and “lying down and collecting tolls” are passing.
Take apple as an example, in 2017, it asked Tencent to shut down the official account function on WeChat iOS, because APP could not guide customers to use the application fee mechanism. But less than half a year later, apple changed the rule, and wechat restored the reward function of the public platform.
“We understand that if we can’t install wechat on the iPhones sold in China, the iPhones won’t sell very well,” Philip schumec, a former Apple executive, once pointed out

This is undoubtedly a signal. Apple has a complete software and hardware ecological closed loop, a big Mac like market volume and a high viscosity user base, but it is still afraid of the influence of super applications. For other companies, the challenge for the app store will only be greater.
The daily active users of the small programs pushed by wechat ecology have already exceeded 400 million, and the number of small programs has exceeded 1 million. These are strong competitors that cannot be ignored for app and application distribution channels.
Even Tencent’s own app store is facing challenges. In the early years, when the wechat game center was just launched, when users downloaded games from wechat of Android mobile phones, they would first jump to app treasure to download, and then continue to download games. The huge number of wechat users significantly improved the innovation effect of APP treasure. Now, when users download games from Android version of wechat, they don’t need to jump to app treasure. Instead, they download games directly from the suspended window.
Zhou Tao, general manager of Tencent mobile application platform, who is responsible for the application treasure business, once said in 2018 that the distribution form of pure app store is losing its advantages, “the distribution of content, information flow and video platform to mobile developers is gradually increasing.”
The first to fall is a large number of Internet app stores, followed by the threat of mobile app stores. Tencent advertising, massive engine and even station B have proved their distribution ability and transformation effect with a lot of data. New non intermodal transport platforms, such as taptap and HaoYou kuaixiao, which are not separated from each other and do not connect to the SDK, have also become the distribution channels on which many head products relied last year.
For example, by the end of 2020, the total revenue of “Yuanshen” in the global mobile terminal is close to 560 million US dollars. This game makes MIHA tour the fastest growing mobile game manufacturer in the world in the fourth quarter of 2020. However, it has not yet been put on the shelves of Huawei and Xiaomi app stores. The only download channels for games on Android platform are official website, taptap, B station game center and Google play.
In the face of changes in the times, some app stores of mobile phone manufacturers are also actively expanding their sources of income.
After two years of negotiation games and the impact of buying platform, hardware manufacturers are exploring a new way to “make money by making peace” with Internet companies, aiming at the new needs of the game industry, such as hot going out to sea and small games. Huawei, Xiaomi and oppo are all focusing on supporting the business of applying to the sea, while vivo is increasing its resource preference for small games.
It is worth mentioning that the app store business belongs to the Internet software department. Although it belongs to the consumer BG (business group) with the hardware R & D Department of Huawei mobile phone, it is independent of each other. The single decision of the app store can not directly rise to the height of the whole Huawei. After all, just a few days before Tencent’s game was removed from the app store, Huawei also launched a co branded mobile phone named “King’s glory”.
Therefore, the uproar between Huawei and Tencent is not a struggle at the level of the two companies, but a microcosm of changes in two industries and an era.