Brief comment: Huawei and Tencent’s Recent Moves

This can shake up the whole profit distribution of the Chinese gaming sector

Two significant events have recently occurred in the Chinese tech industry, which are likely to have major impacts on the market. Most still underestimate the significance:

1. Huawei’s HarmonyOS Surpasses Apple’s iOS in China:

Huawei’s operating system, HarmonyOS, has a 17% market share and now overtaken Apple’s iOS in the Chinese market.

2. Tencent Removes Dungeon Fighter Mobile from Android Stores:

Tencent has withdrawn its popular game, Dungeon Fighter Mobile, from Android app stores in China.

Relevance and Potential Impact

These developments are particularly relevant because they signal a shift in the dynamics between game developers and phone manufacturers in China. Traditionally, Chinese game developers prioritized rapid growth and popularity over profitability, while phone producers capitalized on this by imposing substantial 50/50 fees on their app stores, forming an oligopoly known as the Mobile Hardcore Alliance (Oppo, Vivo, Xiaomi,…).

However, this status quo appears to be changing. Here’s a closer look at the implications:

Huawei’s Strategic Moves

Huawei, one of the key phone producers in the alliance, is now negotiating a 20% commission for game sales on its new HarmonyOS. This move is aimed at attracting developers and compensating for the loss of Android compatibility. Additionally, Huawei plans to exempt Tencent’s WeChat from revenue sharing, recognizing the app’s essential presence on Huawei devices.

Tencent’s Bold Strategy

In a significant move, Tencent has pulled its blockbuster game, Dungeon & Fighter Mobile, from Android app stores in China. This decision allows Tencent to avoid the hefty store fees. Remarkably, the game generated $270 million in sales on iOS within its first month, demonstrating Tencent’s strong market position. Now, Tencent is encouraging Android users to download the game directly from its platform, bypassing the middleman fees. To put this into perspective, a back-of-the-envelope calculation shows that Dungeon & Fighter Mobile could easily account for 7-8% of Tencent’s domestic games revenue this year.

Tencent’s decision to withdraw Dungeon & Fighter Mobile from traditional app stores highlights a broader trend of large tech companies seeking to maximize their profits by reducing dependency on third-party platforms.

Broader Implications for the Industry

If other phone producers have to give in and follow Huawei’s lead and reduce their fees, this could dramatically alter the profit distribution within the industry. The shift could benefit game developers, who would retain a larger share of their earnings, and reduce the dominance of phone producers and app store operators.