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Flash Master Spil Games Spills Into Item Sales, Webgames
 Games can draw a crowd even in a financial crisis. Spil Games recently launched a new webgame portal to compliment its Flash game offerings and soak up some for-item revenue. JLM Pacific Epoch caught up with Spil Games Asia CEO Marc van der Chijs to talk business and how things can be different in the China market.
JLM Pacific Epoch: Can you talk a little bit about Spil Games’ business model?
Marc van der Chijs: It's a very simple model actually: all games are available for free. Ninety-nine percent of our games are Flash games, and we have some Shockwave games that we produce. We do have a few downloadable games that you can generally play for free for 30 or 60 minutes.
The business model we have is focused on advertising revenue. We also work on a revenue-share basis to promote webgames and MMORPGs. I use China as a testing ground for new things. I think China is ahead of the rest of the world in terms of games. In-game items and the free-to-play model all originally came from China. Our first mobile gaming site worldwide was part of the Chinese website here. We also recently started a webgame portal. We run these games ourselves with our own payment systems and everything. Before, our portals were only advertising-based but now we use the pay-for-item model as well for our webgames.
JLM Pacific Epoch: Do you do in-game advertising as well as banner ads?
Marc van der Chijs: We do have in-game ads, but it is very limited still. In China, it is very difficult to find in-game advertisers because the advertising agencies are too lazy to sell these things. It's a small market for sure and they would need to invest a lot of time to do it. Even online ads are difficult in China because agencies just don’t want to sell them to their customers; it's easier for them to keep working with TV ads.
What we do use are banners and pre-loaders which are Flash ads that show up for about 10 seconds while the game is loading. We do have some video ads as pre-rolls. We do have branded games, which is actually in-game advertising, but, actually, that's not that big yet. Not many companies understand the benefits of a branded game because it's so new. If you don't have a marketing manager who understands a branded game as a good way to interact with customers, then there is no way a company is going to do it. The agencies are not going to sell it, at least not actively.
JLM Pacific Epoch: How many games would you say are on the China site?
Marc van der Chijs: Probably around 2,000 to 3,000 games, partly made by ourselves -- we make about one or two games per week -- partly licensed, and partly freely available on the web. It's all legal content, which is important. There are a lot of companies in China especially that put everything on their platforms, including illegal content.
JLM Pacific Epoch: How many different languages are you translated into, how many sites do you have?
Marc van der Chijs: We have 50 sites worldwide, and I think we are translated into 11 or 12 different languages. We recently launched a Japanese site.
JLM Pacific Epoch: How does China compare in terms of number of unique IPs?
Marc van der Chijs: China is the biggest worldwide accounting for 30 million of the 100 million unique IPs we record each month. In China, we have two websites: game.com.cn, which we set up about two-and-a-half years ago, and xiaoyouxi.com, which means mini-games in Chinese. Xiaoyouxi.com we took a majority share in just over a year ago. The site has grown a lot over the past couple of years under the leadership of Guo Haibin, who is now COO of Spil Games Asia. I have learned a lot from him, and he has also learned a lot from us. It is a very good cooperation.
Game.com.cn is bigger than xiaoyouxi.com because we have a different synergy. What we do with xiaoyouxi.com is focus only on Flash games, while game.com.cn is going in different directions. We are going to put a webgame portal on game.com.cn, and we have our mobile portal on there as well. Everything game related will be on game.com.cn, while xiaoyouxi.com will continue to focus on Flash games like most Spil Games sites worldwide.
JLM Pacific Epoch: Is there a move to make a 2.0 play?
Marc van der Chijs: Absolutely. We have a passport function on our site where people login to all the sites with one account. There are many web 2.0 functions on there. You need them in China, without them you can't do anything. You can comment on your games; you can upload your high scores; you can rate the games; there is a forum to discuss things and there are a lot of people so it's very interactive. Just offering games, like we do outside China, doesn't work here. You can only grow by having these interactive functions. It makes it stickier. It doesn’t really mean that you get more traffic but it makes people stay longer and come back more often. That's one of the things that we did from the start, and I think that was one reason why we grew a lot.
JLM Pacific Epoch: There are so many players in the domestic market. Can you say something about how you differ from your competitors?
Marc van der Chijs: There are about 200 or 300 different competitors in China on the game field. Most of these companies actually are homegrown. They are people who work in their dorm room or in the attic. People who just do it for fun, grab content from everywhere and don’t really update that much -- that's one reasons why they can't really grow.
The difference that we have basically is that we have a lot of web 2.0 functions, and, most importantly, we have new games all of the time. Every day you will find at least one or two new games on our website. We make games ourselves which are only available initially on our sites. These games we give away for free to all the portals in China. At first, people were laughing and saying, 'why are you giving them away for free?' What happens is people play the game and they see the logo from game.com.cn, and eventually, they are going to click on that logo and come to our site and see that we have a better selection of games and a much better search function. So, instead of going back to the original site they keep coming back to ours. They may go back occasionally to their old sites but you see a lot of traffic is coming from these smaller sites to our sites, and that's how we have been growing so much. Of course, what's happening now is these sites don’t want our games anymore. But if other sites put our games up, they are forced to put them up to stay competitive. It's a real Trojan horse strategy, it has paid off but it’s a bit risky because if it doesn't work you are giving away content that is quite expensive to make for free. But, at first, it was the best marketing strategy that we could have had, and it’s a strategy that we do worldwide.
JLM Pacific Epoch: I read your blog about the influence of the financial crisis. In China, are you seeing the same trends where people with jobs are playing games less?
Marc van der Chijs: Yes. We see it in our stats during the day. There is less traffic around lunch and at 4 p.m. than we used to have. People are more afraid to lose their jobs, so they focus more on their real work instead of doing other things.
JLM Pacific Epoch: Do you see there being other impacts from the financial crisis?
Marc van der Chijs: During a recession, entertainment is the last thing to be hit. It may even lead to additional traffic on the site, although I don’t expect a big increase. People may stay on longer when they have less work to do when they are at home.
Originally, I thought the financial crisis would have a positive effect on our advertising as companies focused on marketing and advertising that could be measured better. It’s much easier to measure the ROI for online ads than for traditional ads. But it turned out I was wrong, because what we are seeing now is that at least some companies and ad agencies decided to cut their digital budgets first and stay with the traditional advertising that worked well for them in the past. Not smart in my opinion, but understandable if you think about the fact that people want to reduce risk in a crisis. If digital advertising didn't work well, it could cost you your job. Even if traditional advertising performs badly, at least they can say, 'but that’s how we’ve always done it!'
JLM Pacific Epoch: I know you guys are mostly developing flash and webgames. Do you think the MMORPG days are behind us?
Marc van der Chijs: No. They are not behind us, but they are a specific target group. MMORPGs will always be there. The target group that plays MMORPGs experiences a little growth but mostly stays constant in comparison with other genres. Flash games are expanding all the time. There are a lot more people playing Flash games now than there were two years ago. A download is a major hurdle for many people. They don’t want to download a thing and then wait and install it; it's too difficult.
At this point, we have no intention to go into MMOs. Our target group is the ones that play on a casual basis.
JLM Pacific Epoch: Webgames will bring a big change to your business model. Currently there are five major webgames that are making about RMB 10 million each month.
Marc van der Chijs: That's one of the reasons why we entered this market in early January, because we see there is money there and we want to differentiate our strategy a bit from advertising. We see there is huge potential there. Internet connections are fast enough these days; it’s a reliable connection. Broadband is good enough for gaming here in China, and there are enough people who are willing to try it. The games are good enough, like SeaFight which was released in 2006.
I think it’s going to change our business in China. Not necessarily by bringing us a lot more users but by increasing revenue per user. We now already see that, and this innovation came at the right time considering potentially lower advertising revenue this year.
JLM Pacific Epoch: What do you see as the future of the mini-game category with all of its competitors?
Marc van der Chijs: Basically, the mini-games will be better in terms of graphics. It’s a natural evolution: the more companies produce mini-games the more experience the designers get the better the designs get. Game play will not change that much, but design will change. That said, I think design doesn’t really matter for Flash games. I often see that the worst designed games, in terms of graphics, perform the best. It's really about an easy to learn game-play that is addictive. It really doesn't matter what it looks like. People are investing more in good design so you will see that evolution, but I don’t think it will really change how many people will play that game. People may try it out because it looks great, but a good game will always come to the top even if it doesn’t look that good.
Then, you will see more 3D. Right now, Flash doesn’t really support 3D. You see a bit more in Shockwave games, we have some ourselves. 3D is going to be the next thing for mini-games.
The current target groups for mini-games are expanding. It used to be that mini-games were just for kids, and you really see now that older people, by older I mean above 30, are starting to play these games -- people who never really played any games before because they weren’t out when they were young. These people will never play an MMORPG, they will probably never play a webgame because it's too difficult. The target groups for mini-games are expanding; you have different categories for really young kids, ‘tweens, boys, girls and people who are a bit older. Things like Nintendo's Brain Age are what you are going to be seeing more of.
The last thing for mini-games is that these things are moving away from the Internet to mobile and to handhelds. They are already offering casual games on consoles. A few years ago, you wouldn’t even think about it. Consoles used to only be for the top games that take years to develop. Using accelerometers, using touch screens suddenly you can do so many more things now, and, really, that's where the future is. I believe mobile games are going to be much bigger than what we see now on the Internet and on our sites. Mobile games are where money will be made in the future.
JLM Pacific Epoch: In terms of that, are there a lot of challenges for the mobile market in China?
Marc van der Chijs: Basically, we had a wait and see approach until just a few weeks ago. I was very happy to see that 3G finally launched in China, even though it will take at least 4-6 months until the network has been sufficiently rolled out. I am glad there will be some competition between the three providers, but it’s a pity that they all have to use a different 3G standard. China Mobile announced its rates for 3G and they are based on usage and not a flat fee. In order for the mobile Internet to really take off you will need a low monthly flat fee. I am sure that will come eventually, but that may still be years away. I do not expect a huge change over the next 12 months, but I think that within 3 years mobile games, especially FlashLite, will be bigger than flash games that you now play online on a computer. If you look at our company, we launched a download site at Shouji.game.cn where we have JAVA games that you have to download through your computer because we don't want to work with China Mobile (NYSE:CHL, 941.HK). Actually, that site is doing quite well. We haven't done any marketing for it, but it's going by itself. People talk about it on BBS and people go to the site. Because this went so well the next step was a WAP site that we launched right before Chinese New Year. We are also promoting Spil Games global FlashLite mobile game site www.games.mobi I think that will become a leading destination for mobile games worldwide, but eventually we might launch a China specific FlashLite mobile games site.
JLM Pacific Epoch: Can you tell us about your company background?
Marc van der Chijs: Spil Games is a Dutch company that was set up in 2001. They contacted me in late 2005 when I was working with online video site Tudou.com, and asked me if I could help them launch a game site in China. At that time, there were no really big Flash game sites. There was 4399.com, but others were mostly small sites. After I started working on the site, I decided it made sense to make games in China instead of just buying them from other companies or making them abroad. So we took over zLong Games in late 2006 which was a small 15 person game studio which has grown to 55 people. We are active outside of China as well in several Asian countries. My focus for next year is to do a lot more outside of China.
If you look at our websites, the sites we have in China are very different from the ones we have in the rest of the world. When we started in China, the first site we put online was very similar to the ones we did outside China and it didn't work. People came to the site but they didn't come back. Then we said let's do a Chinese site. The other ones outside China are all very simple, very clean, very structured. And then the Chinese one that we build was extremely flashy with things moving up and down and blinking. I thought it would never work and what happens? It took off. Exactly the same games, just a different design.
JLM Pacific Epoch: Did you change the domain name?
Marc van der Chijs: The first one we had was youxi.cn and then we put games.com.cn next to it but it didn't have to do with the domain name.
People always say, "it looks different from the outside but when you do business [in China] it's the same." No, it's really different. In India, Indonesia, Malaysia it's all sites similar to the ones we use in Europe or the U.S. but China's different.
JLM Pacific Epoch: Are you guys profitable?
Marc van der Chijs: Breakeven, all the money we make goes back into marketing.
JLM Pacific Epoch: Have you taken any funding in the past?
Marc van der Chijs: We are funded by Spil Games, and Spil Games itself is VC funded. We have a 55-person game studio and about 12 people working on games.com.cn and xiaoyouxi. We have some people in our office in Zibo, Shandong province who work on new concepts like the mobile gaming websites and webgames as well as doing IT, servers and some sales and marketing. We have some sales and marketing here, but a lot of it is direct sales.
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