2018 year in review

This post is unfashionably late by a week, but anyhow, here are a few major themes for 2018 in my view.

Chinese apps conquer the world

Hard to resist the hyperbole, but 2018 saw some incredible progress for Chinese apps’ global ambitions. To be sure, the biggest successes were predictably from emerging markets (very notably, India), but apps like Tik Tok, PUBG Mobile, and Knives Out have taken formidable positions (and sizable revenue) in developed markets such as US and Japan.

To pontificate on this, I believe the following factors play a role in this outcome and ongoing trend:

• Relative lack of investment from American competitors in these emerging markets, due to perceived lack of infrastructure and low consumer spend. There’s also the question of business model fit, where Silicon Valley’s dependence on ads performs poorly in emerging markets
• Chinese devs’ openness to hustle as needed and over-invest (willing to be inefficient but highly effective). The Chinese playbook is to try everything and see what sticks – but do it in lightning speed, which requires a high upfront investment¹. This is also against a backdrop of a tightening home market (and for games, a regulatory freeze that signaled the arrival of winter), where “going overseas” is more than ever a strategic imperative for more and more businesses
• A potential mindset advantage – unlike American companies which (stereo-typically) prefer a “one-size fits all” approach to global opportunities (and which often really means, built for the North American market, and hoping it is compatible with other markets), Chinese devs have seen how this did not work (for US products) in China. ² They also likely more deeply understand the value of empowering the local team to make big decisions³

The beginning of the end, of the PC (x86) platform

Another hyperbole, it may seem (or a massive understatement, depending on which sectors/markets you look at), but consider the following that happened in 2018:

• Intel’s significant ongoing woes with its 10nm manufacturing processes, in contrast with TSMC’s 7nm process that has already seen mass commercialization (e.g. Apple’s A12 Bionic chip)
• Windows on ARM is now a thing, and Mac on ARM is on the horizon too with project Marzipan

Both of these are symptoms of the gravitational pull of the mobile ecosystem. Specifically for the PC gaming sector, I’d say these are alarming long-term signals –

• There is a non-trivial likelihood that x86 stops being a consumer computing platform, wholly replaced by ARM in a convergence form factor like the Surface
• x86 gaming may survive as a standalone high-end market, but will face hostile underlying hardware economics (not unlike, say, DSLRs)
• PC gaming could possibly survive the demise of the x86 platform, but it likely will be a massive blow to legacy content: many games from the past few decades may become unplayable (cloud gaming could be a solution there, but cloud gaming has its own critical dependencies)

At this point we have to pause and say, what are we even talking about when we say “PC gaming”? It’s not up for much debate that the underlying Wintel platform has been disrupted, but if keyboard+mouse lives on as an input paradigm, is that all that’s needed for “PC games” to live on?

It of course is not as simple as that – the migration away from x86 will be painful at the execution level for developers and end-users. Add to this mix tremors in the distribution (Discord and Epic becoming publishing platforms, and initiating a race to the bottom in rev-share), and the next few years look quite turbulent and interesting.

Predictable mobile clones, and unpredictable market adoption

For the last theme, I want to go back to the world of Chinese mobile games. 2018 was a year that continued themes I wrote about previously, where every genre conceivable had an earnest mobile clone effort. The thesis is simple: Chinese players prefer the mobile platform, so every game globally that has a fresh idea on PC/console was ripe to be taken to mobile.

What was dramatically unpredictable, was just how strong the appetite was. Going back a year, even with the benefit of having played Netease’s first stabs at mobile battle royale, I would have said this genre has severe adoption constraints on mobile, mostly centered around the input. Oh how wrong I was. Also the sheer audacity of Tencent’s playbook – to launch 2 competing licensed PUBG mobile games simultaneously – surely invited many a raised eye-brow. Now all of that feels like ancient history – more players globally play the battle royale genre on mobile than on all other platforms combined, and it’s probably not even close.

But if this were just about PUBG Mobile, which I feel I have talked about ad nauseam, it wouldn’t be a theme. There is more – Identity V, and LifeAfter (both by Netease) took concepts from relatively niche games Dead by Daylight and Rust, and successfully launched them to a wide Chinese mobile audience. The market performance of these games, despite clear technical drawbacks (in particular for LifeAfter), shows a huge appetite for “fresh gameplay”.

The other side of this coin also bears a mention: Chinese game devs, in particular the large in-house studios of Tencent and Netease, now have well-rehearsed processes to quickly assemble and deploy large-sized teams (100s of devs) against opportunities deemed strategic. This means that any game that does not have a mobile strategy, regardless of how irrelevant the original devs believe mobile to be for them, will quickly (3-6 months) have a mobile clone if they stumble across success. (In this regard, single-player AAA games, especially those strongly narrative driven, remain relatively safe from clones.

This is why, despite western gamers’ loud protests, Blizzard et al must march towards mobile – it’s not just about profit-seeking; in many ways it’s about long-term business viability.