iDreamSky creates a big mobile game publishing platform in China

Jeff Lyndon is the cofounder and executive vice president of iDreamSky, the largest mobile games publishing platform in China. Market researcher Newzoo expects China to overtake the U.S. as the world’s biggest games market by 2016 with $25 billion in revenue, according to market researcher Newzoo.

But navigating the Chinese mobile game market, with dozens of Android app stores and other distribution channels, isn’t easy. Lyndon’s Shenzhen-based company specializes in taking successful mobile games and publishing them in the Chinese market, after localizing them for traditions and tastes. It has a portfolio of more than 80 games today. It has formed alliances with companies such as Tencent, Baidu, and Beintoo.

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To date, the Company has distributed worldwide blockbuster hits such as Temple Run, Fruit Ninja, Subway Surfers, Cookie Run, Doodle Jump, Brizzle, and Asphalt. The company has raised $10 million from Redpoint Ventures and Legend Capital. iDreamSky has several hundred employees in offices in Hong Kong, Beijing, Chengdu, Nanjing and America. We talked to Lyndon recently about publishing in China and the upcoming ChinaJoy game trade show in Shanghai. Here’s an edited transcript of our interview.

GamesBeat: Could you tell me about the history of your company, and what’s currently going on for you?

Jeff Lyndon: We were founded in 2009. Currently we have more than 400 employees in China. We’re working on being the leading mobile game publishing platform in China. We work with many top companies around the world, including Gameloft, Ubisoft, Halfbrick, and many more. We help them bring their games to China. We started the company as an outsource developer, myself and the other co-founders, Michael and Anthony. We didn’t really know what to do at the time. We just knew that smartphones were the next thing. After a year of doing outsourcing in China for Android device manufacturers and telecoms in Taiwan, we built an app store — a third-party Android app store. That became a very big business for us.

Fast forward to 2010, though, and we decided that it wasn’t really what we wanted to do. Because we had built this successful app store, we had built relationships with a lot of developers. In those days, one of the biggest problems for mobile content developers was that because there were so many app stores, it was hard for them to distribute across all of them. We decided to be a mobile game distributor for a lot of these companies. In 2011 we had our first big hits. We started distributing Fruit Ninja, and shortly after that, we distributed Angry Birds. We still work with Halfbrick to this day.

At the end of 2012 we started asking ourselves another question. It seemed like the stores were consolidating, and billing was also consolidating. Distribution was getting worked out. Fewer and fewer stores were important – maybe 200, down from more than 1,000. Of those 200, only 20 really mattered in terms of download volume and revenue. However, you still needed to get on all 200 to combat piracy and unauthorized distribution. We realized this consolidation was going to keep happening, and when that happened, the surviving storefronts would become publishers too. We wouldn’t have any more leverage just being a middleman that helped with distribution to all the app stores.

At the same, we also realized that a lot of international game companies wanted to distribute their games in China. In 2011 and 2012 that was pretty easy, because they had such high-quality games compared to the local products. By the end of 2012, though, we started to see much better games coming from Chinese developers, games that were more adapted to the local culture in China. Because they didn’t need to localize, they could update much faster than international games.

The way the model worked in 2012, the publisher would say to the developer, “To sell your game in China you need to change this and change that,” and they’d take time making those changes. That model isn’t competitive anymore. We started talking to developers about our new publishing program, where instead of asking developers to create localized content, we have them license their games to us.

That sounds simple enough, but the problem is, if we’re going to develop localized content for a developer, we need access to all of their software. A Chinese company getting a developer’s source code is a big worry for most companies around the world. Most developers won’t give their source code to anyone. But in 2013, we proved to our partners that by doing that, by letting our teams develop their updates and maintain their games, it’s a far more efficient process. You get much better results.

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Now, 95 percent of our partners provide us with source code and have us do all their development in China. That makes iDreamSky a very special company. We’ve become a very trusted company in China. Right now, we do all the Chinese updates for Temple Run. We’ve helped them optimize the game for the Chinese market. We’ve help them make their game consume less bandwidth. We’ve added content for Chinese holidays. We’ve added Chinese characters. We’ve remapped their monetization so it works better for local consumers. We’ve changed the billing system so you can use direct SMS billing or online billing.

GamesBeat: You’ve seen the industry grow at ChinaJoy in Shanghai. Can you describe it?

Lyndon: This year is a big year because it’s the first time the mobile game industry will have its own expo center. It is huge. It’s also a big year because the overall Chinese games market has grown so large, and the consoles are finally launching in China too.

GamesBeat: Would you say you do less actual localization, then? You’re not necessarily doing a lot of the changing of the content?

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Lyndon: Our publishing service includes localization. Localization is the bare minimum that any publisher should be doing in China – adding Chinese language, doing content for the Chinese new year, lending more Chinese cultural themes to the game. There are three types of localization, I’d say. The first type is just translating the game, the most basic mode that calls for the least amount of time. The second layer of localization is the cultural element, adding the bells and whistles, adding Chinese characters into the game, making the universe feel more Chinese.

But I think there’s also a third level of localization, which is something that we’re providing in the Chinese publishing market. We provide technical localization. If you look at Chinese user behavior, the Chinese distribution ecosystem, your application needs to adapt to these situations. It’s a very fragmented market. You need a system in place to track all these channels of distribution, so you can have more accurate strategies for distributing your app in China.

For example, the majority of users in China are still on 2G. Some are on 3G and a very few are on 4G. In this kind of environment, your game needs to be designed to download and play with that in mind. In the U.S., everyone has 4G, so a game can consume a lot of bandwidth. In China consuming that much bandwidth is a big barrier for users. We localize that kind of thing for them.

Likewise, a Chinese user doesn’t make as much money as the average American user. Business models need to reflect that. You need to localize your monetization strategy. That’s the level of localization we provide. We don’t see anyone else who’s doing that right now.

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GamesBeat: The reach that you guys have into the Chinese app stores, how large is that? How many do you deal with?

Lyndon: Our reach is 100 percent, or 99.9 percent reach. We can reach any app store in China. We have games that have launched on WeChat and Mobile QQ. We constantly have games in the top 10. Recently there have been reporting algorithms done by iResearch and others, charting the top games across 200 app stores. We have at least two or three games in that top 10 every year, every quarter.

GamesBeat: I’ve talked to some people from Yodo1. They were talking about how they provided an anti-piracy service to western publishers. I wonder if you do something similar.

Lyndon: Because of our company’s background, we have a lot of technical components. We created our own SDK (software development kit) before we started doing publishing, and we’ve kept building that SDK for every one of our games.

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Currently, that provides all kinds of functions. It provides channel tracking, so we can see how each app store is performing with regard to our games. We have user behavior tracking. We have encryption technology, which is essentially state of the art anti-piracy technology. We change our security algorithm every two or three weeks to make sure every new update from our games is uncrackable. We have a messaging capability, a cross-promotion capability, and combined billing mechanisms.

Users can choose any sort of billing, no matter what situation they’re in. We have Internet billing, obviously. We can use SMS billing on the phone. If you have credit from prepaid cards, you can pay with that. The whole SDK is now a sort of hodgepodge of SDKs that we use for all the games we publish.

GamesBeat: I went to a talk at GDC about Plants Vs. Zombies 2 and its launch in China. It was interesting, because they talked about the challenges they faced with things like piracy. They also got hit with so many low-scoring reviews that it brought their average for the game down from five to two in China. They had to do a lot to understand why that happened. I wonder if there are challenges like that in the Chinese market that you see and have to learn to deal with.

Lyndon: Currently, the only thing in the top 10 in China that’s not made in China and not published by us is Plants Vs. Zombies. Right now there are only four foreign-made games in the top 10 — Plants Vs. Zombies, Temple Run, Subway Surfer, and Fruit Ninja — and three of them we published. To come back to your question, you have more users in China that aren’t familiar with the idea of needing to pay for games. One of our biggest complaints that we get on our customer service hotline — we have a 24/7/365 hotline at iDreamSky where people can call and ask questions about any of our games — is, “Why am I paying for your games?” “Why is your game asking for my money?” “I downloaded your game from this app store six months ago, and then yesterday it started asking for money.” “I saw my friend playing this game, so I went to the Tencent app store and got a new version and it turned out that this version asked me for money.”

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We get those questions a lot. Users just aren’t used to it, especially casual gamers. Someone gets their first smartphone, they’ve never dealt with apps before, and they feel like these are things that should be free – not just free to download, but free forever. It also comes down to how much monetization optimization you do. In Temple Run, for example, through the 360 app store, we were distributed more than 100 million times. I can’t remember the exact period of time, but in that same period, Plants Vs. Zombies did about 50 million downloads. If you were to compare the bad reviews, though, both games got about the same number.

We think that when Plants Vs. Zombies initially launched in China, they tried to optimize the monetization too much. They made the game way too hard, trying to drive users to pay. That backfired. But after a couple of weeks or months, they figured out the right balance of difficulty and how to reasonably ask for money. It’s a learning process. I think they’ve picked it up. They’re doing well now.

They get far fewer negative reviews than before.

GamesBeat: How much competition do you have out there for publishing western games in China? Are there other major publishers bringing out western content?

Lyndon: You have Chukong, Yodo1, TalkWeb, and iDreamSky. That’s it. And the only two companies that have had great success would be TalkWeb and iDreamSky. We’ve had the biggest success by far publishing western games in China. We’ve had three top 10 games, TalkWeb has had one, and the others haven’t had any.

GamesBeat: Do you have any predictions as far as how much of the market western games might be able to capture there?

Lyndon: It depends on what time frame you’re looking at. I’d say this year, we’re looking at eight to 30 percent of the market.

GamesBeat: What do you think about releasing games on top of platforms like WeChat? Are you excited about that kind of opportunity?

Lyndon: Absolutely. We’ve announced two releases on WeChat so far — Fruit Ninja and Temple Run — that we’ve developed for that platform on behalf of the original creators.

GamesBeat: Are some of the western developers and publishers still choosing to go directly into the Chinese market themselves with their mobile games?

Lyndon: Fewer and fewer developers are trying that. The market is becoming much more complicated than it used to be. Before, it was fragmented, but that just meant higher labor costs. All you needed to do was hire more people to make the calls and turn out the emails and do the legwork. As long as you had money, you could handle that.

Now, it’s more a question of knowledge, experience, and relationships. There are fewer app stores, but can you work with all of them harmoniously? How do you localize for Chinese tastes? Can you keep up with the pace of native Chinese developers? More western developers are looking for partners than are starting their own shops in China.

In my GDC talk, I discussed a couple of things. One is piracy. Besides just protecting our games with our technology, the most efficient method of combating piracy is making sure you work with all the stores. It’s a simple mechanism, which we’ve proven many times.

Most developers in China work only with the top app stores. There are 200 stores, but they only talk to the top 20, who have 80 percent of the download volume. It’s too much work to deal with the other 180, so they cut that corner. The problem is this. If you don’t provide a legitimate version through those other app stores, they have no reason to protect your interests. This is especially true if you have a popular game. Every app store wants to say, “We have these popular games, so you don’t need to go to any other store.” If you leave them out of the picture, it’s not like they’ll just pass on distributing your game. They’ll just distribute a version of your game that might not be the one you want distributed. It might be a small volume of total downloads at first, but it takes just one bad egg to ruin the whole basket.

Even though we get most of our traffic from those top 20 stores, then, we always make sure to work with all the little guys, so our goals are aligned. If they’re distributing our official version, they get their cut in the process. If they distribute a pirated version, they get traffic, but they don’t get a cut of monetization. This makes for an efficient way to combat piracy. You stop the distribution before it starts, instead of trying to sue people or make your app uncrackable. After all, there’s no such thing as “uncrackable” in the technology world.

The other thing is, each app store serves a different audience. They have their own characteristics. For instance, the Tencent app store is highly social, because it’s hooked up with WeChat and Mobile QQ. Games that have more social features work better in the Tencent ecosystem. When we distribute our games through Tencent, we make sure they have those social features that the Tencent audience wants, so they’re more willing to spend in our games.

Another example is Baidu. Their traffic comes from their search engine and their online forum communities. They run one of the biggest hardcore gaming communities in China. Recently we did an update for Baidu’s version of Subway Surfer that specifically focuses on competition, the Baidu Championship Tournament. You can only play that in the Baidu app store’s version. A third case is 360. After working with 360 for a long time, we realized that they have a lot casual users, a lot of users who are first-time gamers. With 360, we tend to distribute more casual games. We try to reduce the learning curve in 360 builds, so that it fits with their audience.

Altogether, if there are 20 app stores that matter, we have 20 different versions of our games and 20 different strategies for them. If we distribute 20 games, that’s 400 different versions, and we’re doing all the development for them. You can start to see the value proposition that iDreamSky presents to our partners.

GamesBeat: FunPlus raised $74 million. It seems like the financial momentum of Chinese companies is becoming very obvious. What do you think about that?

Lyndon: I can’t give out numbers as far as how much money we’ve raised right now, but I can talk about some of our investors. We’ve received investment from Legend Capital, a fund backed mainly by Lenovo. We’re also backed by Redpoint Ventures, from Silicon Valley. Currently we’re the largest distribution platform because of two metrics. One, we have more than 300 million registered devices and more than 110 million monthly active users. Our Q1 info indicates that we lead our market with a 23 percent share, compared to a total of about 23.5 percent between number two and number three. Our 2013 revenue grew by 10 times compared to our 2012 revenue. We’re looking at growing our revenue at least four or five times this year.

GamesBeat: How many people do you have working for you right now?

Lyndon: We have more than 400 employees. Our headquarters are based in Sunjian, the home of Tencent. We also have five to seven satellite offices around China, to ensure we have the best coverage. We’re growing very fast. In September of 2009 we founded the company with four people. Between then and now we’ve moved offices six times. I keep joking with my partners. “Stop signing two-year leases! We’re never going to stay in one place that long!”

GamesBeat: What sort of expansion plans do you have outside of China?

Lyndon: We think China is still a growing market. We’re interested in growing outside of China, though. I’m in charge of strategic investment, and we’re making investments in the United States, Japan, and Korea to start testing the waters. We’re hoping to nurture those investments into publishing arms in those regions. We’re being extra cautious about expanding outside our territory, though. We understand how it’s not that easy for western developers coming into China. It’s the same for Chinese developers moving into the west. As far as content acquisition, we have that covered already. We have the best content acquisition team in China. When we were 10 people, we were beating companies 10 or 20 times our size in that arena. I never believed that you actually needed people on the ground for that. You only need people on the ground if you’re doing publishing in that territory. A developer needs to be very in sync with the market they’re publishing in.

GamesBeat: It sounds like a collection of local publishing services. Do you think you’d ever grow into a global publishing service?

Lyndon: I’d like to say that, but we’re more humble and more realistic. That’s a goal we’ll try to reach. I think it’s every publisher’s goal eventually, to become a global publisher with their own platform and their own empire of content developers. That’s what iDreamSky is trying to become. We’ve had some success here and there with investing in content developers, which are making money in China through our publishing. We’re also working on selling those games in other territories now. We have potential buyers expressing interest, but we’re also wondering whether we want to sell those games ourselves.