Over the past few years, the Chinese mobile headline-makers with the most mindshare in the West have been TikTok and WeChat. The ubiquity of Chinese mobile payment mechanisms, widely seen as a harbinger of the future for the rest of the world, has also commanded attention. But for those curious about what China can teach the West about state-of-the-art mobile development, a more recent arrival tells the most compelling story.
Genshin Impact, a Chinese mobile game featuring adorable sword- and sorcery-wielding anime characters wandering through a lush fantasy world, debuted internationally in September 2020. It was an instant success: Apple and Google both gave it game-of-the-year awards, while PC Gamer called it “the biggest global launch of a Chinese game in history.” To date, Genshin Impact has generated nearly $1 billion in revenue worldwide, making it one of the top 50 highest grossing mobile games of all time.
Pay-to-win used to be a nonstarter in the West, but attitudes are changing.
The game is an exquisite example of the accelerated Darwinian selection inherent in China’s transformation into the world’s largest mobile market. Acutely tuned to the needs of users, its mobile industry is laser-focused on revenue generation and designed to facilitate continuous improvement. The revenue aspect is particularly intriguing for those interested in whether China’s mobile market trends are influencing the rest of the world. While in the past the country was considered a copycat, today Chinese developers are leading the way in perfecting the art of extracting cash from mobile users. Genshin Impact is a prime example of how the country is establishing itself as an innovative pace-setter while the West plays catch-up.
Like the vast majority of Chinese mobile games, Genshin Impact is free to play, with no subscription charges or download fees. The game generates revenue from an ingenious variety of in-app microtransactions aimed at players who want to upgrade their characters without going through the normal tedious hack-and-slash gameplay. This “pay-to-win” approach used to be a nonstarter in the West, considered more or less a form of cheating. But attitudes are changing, and the strategy is fast becoming standard practice in the video gaming industry writ large. In the fourth quarter of 2020, Genshin Impact raked in $100 million in the U.S. alone.
“If I had to pick two areas Chinese developers excel at,” says Joel Julkunen, an executive at GameRefinery, a gaming analytics firm based in Helsinki, “I would go for the innovative monetization structures and the ability to deliver high-quality [in-game] events and new game content for players.”
Monetizing mobile has traditionally been a tough nut to crack. The classic Western strategy has been a blitz of targeted advertisements à la Facebook and Google, an approach that runs the risk of alienating users and propagating privacy issues. China has followed a different and arguably more consumer-friendly path, assiduously creating content mobile users have demonstrated they’re willing to pay for.
By any measure, China’s mobile adoption numbers are staggering. As of December 2020, China had 989 million connected users (nearly three times the population of the entire United States), 99.7 percent of whom access the internet via mobile phones. According to the China Internet Network Information Center, the country has 741 million mobile news consumers, 781 million mobile shoppers, and 853 million users of mobile payment systems. These numbers are all the more remarkable given that as recently as June 2007, when the iPhone was first released, only 16 percent of China’s population had internet access.
An entire generation with practically no preexisting technological habits leap-frogged directly to the front of the internet queue.
Combine this with China’s evolution from a Maoist collectivist state into what William Bao Bean, a general partner at a Taiwan-based startup accelerator that focuses on mobile, calls “probably the most capitalist market in the entire world,” and you end up with the world’s biggest petri dish for competition-induced innovation. Timing also played a key role: When the smartphone debuted in China, desktop penetration was only a fraction of the overall market, so the vast majority of the population first started accessing the web on mobile devices. An entire generation with practically no preexisting technological habits essentially leap-frogged directly to the front of the internet queue—and that generation plays a lot of games.
Chinese mobile developers are world leaders in digital entertainment (which includes gaming, live streaming, and short video) and e-commerce, says Chinese technology analyst Rui Ma. TikTok’s explosive international growth over the last five years bears this out, as does the growing success of Chinese mobile games in Western markets. In the fourth quarter of 2020, for instance, these games accounted for $780 million in U.S. mobile game revenue, or about 20 percent of the overall market, three times the figure from two years earlier.
This didn’t happen all at once. Chinese tech companies have devoted tremendous resources to gaming for at least 20 years. The proliferation of a dazzling variety of pay-to-win mechanisms in China is largely the result of throwing everything possible into the pot and iterating on what works best.
“One [approach] that stands out is the targeting of bundled in-app purchase offers within different user segments,” says GameRefinery’s Julkunen. “Smaller packages are aimed at the more casual players, who are generally reluctant to purchase anything. Then you have much more expensive bundles, with exclusive content aimed at big spenders.” Developers also pay attention to the timing of these offers, he says, “meaning you’ll get a special deal just when you’re in need of a bit of a boost.” Some games even feature the ability to “‘rent’ high-tier items or characters for a limited time.”
Nan Duan, a game developer based in Shanghai who has experience working in the U.S., says the Chinese mobile game AFK Arena deploys a particularly memorable scheme, featuring “an expiring offer, only available during the first one to two weeks of a new account, that unlocks significant rewards when you reach major milestones.” Duan adds, “The psychology at play here is amazing. The expiration of the offer creates purchase urgency, while the future rewards motivate you to stay engaged with the game due to loss aversion.”
The spread of pay-to-win gaming has been controversial. Many gamers feel it’s unfair for participants in a multiplayer game to gain an edge simply because they’re willing to spend money. A more troubling issue for critics has been the similarity between some pay-to-win mechanisms, in which users pay for an essentially random chance to win a valuable item or powerful character attribute, and gambling. As recently as 2017, backlash from users forced the U.S. gaming giant Electronic Arts to back down on its microtransaction monetization model in the game Star Wars Battlefront II.
These concerns don’t appear to be slowing the pay-to-win model’s momentum, however. In September 2020, a report from Juniper Research forecast that global gaming revenue growth over the next two years would be largely propelled by what Forbes has called “much-maligned microtransactions.” And in May 2021, the French gaming company Ubisoft announced it would be prioritizing free-to-play in-app microtransaction games going forward.
Then, of course, there’s the triumph of a game like Genshin Impact. The key to its success, according to gaming analysts, is its attention to nuance. Reviewers have noted that it’s possible to play Genshin Impact for many hours without any real pressure to pay for upgrades. At the same time, the plethora of money-driven ways to improve your gameplay have struck a chord with international audiences. The game seems to hit a design sweet spot, a level of sophistication propelled by years of close attention to what works and what doesn’t among discerning Chinese gamers.
The feedback loop between designers and users is an example of what Rui Ma calls the “coevolution” of Chinese consumers and tech companies. In an incredibly competitive market, Chinese developers have to keep leveling up their product in order to strike a chord with users with increasingly high standards.
Nan Duan offers an instructive example of this coevolved relationship. It’s standard practice in Chinese gaming to compensate users for downtime resulting from patches or routine service maintenance, Duan says. As a kind of apology for the inconvenience, gamers receive what Duan calls “soft currency,” in-game credits that can be used to purchase in-app upgrades—a practice contrary “to expectations in Western markets.”
On the one hand, these payments could be viewed as a gateway drug for full pay-to-win immersion. But they’re also an implicit admission of how tough Chinese consumers are to please. “[Chinese gamers] are very demanding consumers across the board,” says Duan. “They expect developers to be responsive to feedback, to deliver lots of content all the time, and to be technically capable. They’re very vocal on social media if they’re dissatisfied, and they’ll ruthlessly compare games against each other.”
Of course, no gaming company can thrive if it doesn’t give gamers what they want. But Duan and Ma argue that the sheer size of China’s market breeds a ferociously competitive environment, one in which mobile developers have to be especially on their game, so to speak. When it comes to where to spend their time and money, Chinese gamers have nearly unlimited options. Meeting their requirements has forced Chinese developers to constantly refine their approach.
These refinements encompass more than just tweaks to the business model. Although technical constraints have eased in recent years, for much of the past decade Chinese mobile developers have worked in an environment characterized by a sweeping range of bandwidth connectivity and device specifications. With attention to the user experience a paramount concern, issues such as device compatibility have long commanded manic focus.
“Core gameplay innovation,” says Duan, isn’t necessarily Chinese developers’ strong point. Most mobile games in China run on top of commercially available game engines, to which Chinese companies make their own proprietary enhancements. The real value-add can be found in their willingness to invest in infrastructure and operations and to constantly optimize and localize. They excel at delivering low-latency experiences across the globe, something that “can be especially challenging in emerging markets like South America and Southeast Asia,” Duan says. Other operations-related technical strong points include dynamically scaling servers, implementing no-downtime patching, and third-party payments integration.
But perhaps the most distinguishing characteristic of Chinese mobile developers is a readiness to try anything once. Skipping the desktop phase of computing gave developers a clean slate to play with, Duan says. “Chinese developers aren’t shackled by self-applied constraints like ‘players won’t want to play this kind of game on mobile because they can enjoy a superior experience on a PC or console.’ This creates a lot of imaginary constraints around ideal session lengths or input complexity for Western game developers.”
Chinese developers also “start from a mindset of ‘we’re willing to deeply localize,’” which Duan contrasts with a “one-size-fits-all” approach more popular in the West. This commitment to localization goes beyond making a game work in different languages; it can also mean adapting to different cultural tendencies. When it comes to expanding into key emerging markets like Southeast Asia and South America, Duan feels this emphasis on localization has been a “difference maker,” allowing Chinese developers to build huge regional audiences and start generating material revenue.
Could these strategies work for developers in the West? Certainly, in an ever more competitive global environment, experimenting with innovative business models and ramping up responsiveness to user preferences will be fundamental to sustaining growth. But Rui Ma cautions against taking what works in China and applying it wholesale to other markets. While China’s tech companies have amassed sophisticated technical know-how in domains such as processing financial transactions and mobile network optimization, in many cases what appears unique and innovative is actually a fix for problems that simply don’t exist in countries that modernized earlier.
Take China’s thriving e-commerce sector, which is successful in part because the country lacks the kind of preexisting retail infrastructure that’s taken for granted elsewhere, Ma says. In many rural areas, grocery supply chains that can deliver refrigerated goods have yet to be built out, so community group buying fills the gap. Community grocery shopping apps have cropped up to allow locals to pool their grocery lists via a central organizer, who then coordinates online ordering and delivery. Such a business model is unlikely to make headway in the West, where these supply chains already exist. Instead, it’s much more applicable to countries that share China’s circumstances.
The most significant takeaways from the innovations of Chinese mobile development may not be their impact on the West, but on global markets more broadly. Successful localization requires a set of skills that go beyond technological expertise, including sustained investment in human resources and giving diverse cultures the same kind of assiduous attention that Chinese developers have long applied to domestic users. The inroads Chinese games are making into both emerging and advanced markets suggests the techniques honed in China—innovative approaches to revenue generation, a concentrated focus on the user experience, deep commitment to localization—can have global appeal. The competitive pressures of the world’s largest market appear to have incentivized Chinese developers to figure out how to harness the technical, financial, and cultural possibilities of the mobile universe arguably better than anyone else.
Given the scale and momentum of China’s mobile market, there’s no reason to believe this dynamic will change anytime soon. That’s both a challenge to developers and a promise to consumers: Driven by Chinese competition, mobile games and apps will only become more useful and engrossing. After all, the smartphone has only been around for some 14 years. We may be at the very beginning of this particular upgrade path.