Last night Chinese instant messaging/gaming/social networking giant Tencent released it Q1’09 figures and they were once again impressive. I have been following Tencent for years and the company keeps amazing me with its figures. Also tech blogs outside China finally start to understand that what Tencent is doing in China is a lot more impressive than Facebook’s and MySpace’s figures, and that these two companies can learn a thing or two from China.
The Q1 revenue for Tencent was USD 366 million, 20% over Q4’08 and 75% over Q1’08. That’s already a major achievement in a global recession, but even more remarkable is where the revenues come from. Most non-Chinese social networks still rely for the majority of their revenues on advertising. Tencent, however, only had USD 21 million in advertising revenue, which is a decrease of 30% compared to Q4’08. USD 342 million came out of virtual items and microtransactions, and out of this amount and amazing 64 million USD was mobile value added services!
Tencent seems to be pretty much recession proof because of its micro-transactions, people keep on spending money on this even when the economy is not doing very well. The main reason is that people always want entertainment, even (or maybe especially) when the economy is getting hit by a global crisis. However, Tencent remains a bit cautious for the future: “The Company’s Internet and wireless value-added services, which are characterized by user-paid small ticket consumption items, have so far been rather resilient in the downturn, although the Company is uncertain of its performance should the economy continue to weaken for a prolonged period. “.
Their advertising income is not very important to the companies bottom line anymore, only about 6% of total revenue is advertising. So the fact that the ad income nosedived by 30% since the last quarter is not good, but the company does not really feel it. The company remarked: “The decline reflected lower advertising spending by customers as they imposed more cautious cost control measures, which include delaying the budget approval process and signing of framework contracts, under the uncertain economic environment.” They also note that for the rest of the year there is not a lot of visibility yet.
For Spil Games Asia I am seeing similar things. Meeting advertising income targets is a challenge, but income from virtual items and micro-transactions is growing very fast (we just started doing this and are now seeing growth rates of 20-30% per week). Mobile games are also doing well, but our main target for now is to grow our mobile audience and not yet to earn a lot of money from it. Our focus will be on monetization of games through micro-transactions, that’s where the real money is. But we won’t neglect advertising of course, both revenue streams will be important for us, especially for casual flash games.