As domestic market growth plateaus and industry giants consolidate their dominance, mid-sized game developers face shrinking opportunities. Devin from Grand View Capital, drawing from years of investment experience in global expansion, analyzes the current landscape, potential opportunities, and valuation methodologies for game companies venturing overseas.
Domestic Market: A Red Ocean Under Oligopoly
The Chinese gaming market presents a challenging environment. With user growth stagnating and customer acquisition costs soaring, smaller developers find their operating space increasingly constrained. Market concentration has reached extreme levels, with Tencent and NetEase controlling approximately 80% of market share. This oligopolistic structure leaves minimal room for smaller players to compete.
Global Markets: Blue Ocean Potential With Challenges
In contrast to the saturated domestic market, international markets continue to demonstrate strong growth potential. In 2018, overseas revenue growth for Chinese game developers reached 16%, outpacing domestic expansion. Currently, international markets contribute over 20% of total revenue for Chinese gaming companies, making global expansion an increasingly essential strategy.
However, international markets present their own challenges. Established markets like the U.S., Japan, and South Korea feature fierce competition from strong local players, creating high barriers to entry. Traditional Chinese strengths in strategy and RPG genres face saturation in these mature markets.
Emerging Markets: Alternative Opportunities
Facing these challenges, many Chinese developers are turning to emerging markets in Southeast Asia and South Asia. While these regions feature lower average revenue per user, they offer large populations, rapid economic growth, and increasing mobile internet penetration—creating fertile ground for expansion.
Niche genres like anime-style and palace intrigue games have found particular success in these markets. For developers considering global expansion, identifying underserved segments and building differentiated competitive advantages becomes crucial.
Hybrid Monetization: Diversifying Revenue Streams
In monetization strategies, hybrid models combining in-app purchases with advertising are gaining traction. Google has introduced various products and services to encourage this diversified approach. Data shows that 34% of top global games now employ hybrid monetization, signaling an emerging industry trend for revenue optimization.
Investment Perspective: Rational Valuations
From an investment standpoint, the domestic gaming market has matured, leading to more rational valuations. The era of 50-60x PE ratios has passed, with current valuations typically ranging between 20-25x PE.
Applying this framework to international markets, we can estimate ceiling valuations for overseas gaming companies. Considering that top Chinese mobile games generate approximately $80 million in monthly revenue, applying the valuation formula (Monthly Revenue × 12 × Gross Margin × PE Ratio) suggests leading international gaming companies could reach valuations around $6 billion.
Investment Strategy: User Focus and B2B Enablement
Grand View Capital's investment thesis in gaming globalization focuses on two validated business models: the toolification of casual games and the mid-core evolution of casual games. The former creates large traffic pools through rapid iteration and product matrices, while the latter adds depth and retention to casual formats, exemplified by Habby's "Archero."
Financially, gaming companies depend on two key factors: revenue (determined by paying user count and average revenue per paying user) and cost control. Successful companies excel at expanding their paying user base while optimizing acquisition costs through precise targeting and efficient operations.
Keys to Successful Globalization
For gaming companies pursuing international expansion, three critical factors emerge:
- Product Selection: Leverage existing expertise while conducting thorough market research to identify promising niches.
- Monetization Strategy: Develop market-appropriate revenue models and continuously optimize performance.
- Team Composition: Assemble experienced, complementary teams with strong working relationships.
Future Investment Directions
Grand View Capital will continue focusing on three primary investment areas in gaming globalization:
- User-centric mobile applications from a traffic perspective
- Supply chain-enhanced physical product exports, particularly in e-commerce and consumer goods
- B2B enterprise service companies enabling business operations
Case Study: The Success of "Archero"
"Archero's" international success resulted from multiple strategic factors: selecting the promising roguelike genre while innovating on casual game mechanics, assembling an experienced development team, and executing precise user acquisition campaigns. This case study provides valuable lessons for developers considering global expansion.
Future Outlook: Trends in Gaming Globalization
Several key trends will shape gaming globalization:
- Market Diversification: Expansion into emerging markets including Southeast Asia, South Asia, Latin America, and Africa
- Genre Innovation: Growth opportunities beyond traditional RPGs and strategy games into anime, simulation, and other niche categories
- Technology Adoption: Integration of 5G, cloud computing, and AR/VR technologies
- Localization: Increased focus on adapting language, cultural elements, and payment methods to local preferences
To capitalize on these opportunities, developers must embrace technological innovation, strengthen localization capabilities, build robust data analytics, and establish strong local partnerships. Through these strategies, Chinese gaming companies can achieve sustainable success in international markets.