One of the highlights of last weekend’s China Game Developers Conference in Shanghai was the talk given by Kabam Games co-founder, chief technology officer and current Beijing office manager Michael Li, who told the story of the company’s journey to producing the #1 grossing iOS game (both overall and in 26 different countries) and #2 iPad game, Kingdoms of Camelot: Battle for the North.
What’s most interesting about Kabam’s success with KOC: Battle for the North is that the game was designed by its Beijing team, first established in 2010 and now about 70 employees in size. Why would a Silicon Valley gaming company targeting Western players design games in culturally disparate Beijing?
Li cited several reasons for establishing the Beijing office. Kabam sought to leverage the large supply of skilled Chinese mobile developers with strong experience from the feature phone era and familiarity with freemium gaming (free-to-play games with the option to purchase virtual goods for better gameplay). Li said that demand for engineering and developer talent from entrenched Silicon Valley giants (Google, Facebook, etc.) made hiring cost-prohibitive for what was then still an unproven and less capitalized company. As Kabam was uncertain of its ability to succeed, they sought a less expensive form of experimentation which Beijing could provide.
Kabam is not alone, but rather part of a larger trend of top web and mobile games being developed and produced in China by Western-led companies for Western audiences. Another company emblematic of the trend is CMUNE, maker of 3D first person shooter (FPS) web game UberStrike, which, like Kabam, makes money from the sale of in-game virtual goods (primarily guns). CMUNE CEO Ludovic Bodin, who presented just prior to Li at GCD China, is actually far more bullish on Facebook’s long-term value as a gaming and communication platform than Chou, perhaps making his company’s Beijing-based operations more ironic.
Lee and Kabam, and doubtless CMUNE, are fully aware of China’s gaming market size (US $3.93 billion in revenues in H1 2012) and potential (Kai Fu Lee predicts the installed base of smartphones in China doubling to 500M by the end of 2013) and this naturally impacted the decision to set up shop in Beijing. However, Kabam has neither laid the basic infrastructure for the distribution of its games in China nor begun the localization of those games. Li said that Kabam is primarily focused on locking down Western markets with fairly homogenous and accessible distribution platforms and views any use of resources targeting Chinese gamers as offering inferior ROI.
I asked Li if their existing titles would succeed in China given all other barriers to entry were removed (e.g. legal obligation for a joint venture) and he was fairly optimistic that they would. He believes that Chinese gaming habits and tastes—although different—are closer to the West than those of Japanese gamers. Still, he believes Chinese gamers demand a greater level of intricacy and details in their games.
Kabam’s Beijing Office: From Failure to the Throne
Li shared that the Beijing team’s early efforts amounted to very little. Failed projects included producing a viral app for Facebook (which Li said failed to the unpredictable nature of “viral” and the culture gap) and taking an unprofitable game in the US and trying to turn it around.
Finally, Li and his Beijing team took a gamble on mobile with Battle for the North. The result was growth from 0 to 4 million monthly average users (MAU) in 5 months.
What triggered the vast change in fortune? Here are the five keys Li outlined:
1) Start small (in resources allocated, scope of project, objective)
2) Prepare for failure
3) Concentrate expertise
4) Use Local Experts (bicultural employees with local expertise in both China and the West)
5) Satellite, not separate (have someone from headquarters to lead—in this case Li himself)
Doubling Down on Beijing
On the back of Battle for the North’s iOS momentum, Kabam just released a new F2P mobile strategy game, The Hobbit: Kingdoms of Middle-earth, which is loosely based on Peter Jackson’s new Hobbit movie coming to theaters in December and “set in [an] epic world of Elves, Dwarves, Orcs and Wizards”. Interestingly, Li shared that Warner Brothers was probably oblivious to the game having been designed in Beijing. It’s available for the iPhone and iPad and Android devices in many languages–but not Chinese.
Kabam was founded in 2006 as Water Cooler and then largely an online community of sports fans dedicated to eliminating anonymous trash talk. It made its first big pivot with the 2009 release of the original Kings of Camelot, a massively multiplayer social game, on Facebook. On the “core” scale Kabam weighs in around “mid,” not as soft as Farmville but not as hard as Uberstrike. Kabam now has over 550 employees spread across offices in San Francisco, Beijing, Austin and Luxembourg. Kabam grossed over US $100 million in 2011, and expects to grow by 50% to over US $150 million in revenues in 2012.
Originally largely dependent on Facebook for revenues, the company now earns less than 30% from Facebook and though far from abandoning the platform, its focusing on mobile and platform diversification. In a Venture Beat interview, Kabam CEO Kevin Chou cited Apple’s vast number of credit cards on file and precedent for entertainment transactions with consumers as key reasons for its superior monetization to Facebook. But Kabam will not bet the farm on iOS and will try a number of different strategies, going mobile-first for some titles and web-first for others. It has grown its partnerships with Kongregate and Steam and has built its own gaming platform at Kabam.com.
May 2011 Series D funding of US $85 million from Intel Capital, Google, Canaan Partners, SK Telecom and others valued Kabam at over US $225 million. While Chou previously said Kabam was considering an IPO in 2013 or 2014, Li told me he was unaware of the company’s IPO timeline. Although Kabam may have less to worry about in terms of investor skepticism as a U.S. company, Li told me the unfavorable market environment was a deterrent for a near-term public offering. I previously wrote about the unfavorable IPO conditions for tech companies here.
For a more detailed look at Kabam and emerging trends in the gaming industry, check out this video presentation from Kabam President of Studios Andrew Sheppard.
Learn more about the 5th Annual China Game Developer’s Conference.
James Hopkins is an American working for Alibaba.com in Hangzhou, China. He previously lived in the tech-heavy district of Nanshan in Shenzhen. The views expressed here are his own and do not represent those of his employer.
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