Tencent & Activision Blizzard – Colonial times.

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 Tencent and Activision go where Microsoft and Sony fail to tread.

• Tencent appears close to buying a majority holding in the Finnish mobile games publisher, Supercell which is best known for its Clash of Clans and Clash Royale strategy games.
• This will bring Tencent into head to head competition with Activision Blizzard which I believe is also about to make a land grab for mobile gaming through its acquisition of King Digital.
• This is a highly significant move because in my opinion it marks Tencent’s first real move outside of China.
• Tencent’s investments in Kik and Snapchat are minority investments and consequently I think that they will be of very little help when it comes to a strategy to expand into Digital Life services outside of China.
• Furthermore the Instant Messaging segment of Digital Life is very well defined with dominant players already present.
• Gaming, on the other hand, is the most important segment of the Digital Life pie outside of China, and nthere is no dominant player.
• Xbox and PlayStation are the dominant gaming platforms in developed markets but both of these have completely failed to create any impact in mobile and remain stuck in consoles.
• Consequently, I see the mobile gaming segment as wide open and in developed markets Supercell has the No. 3 and No. 5 slot in the top grossing gaming charts on both iOS and Google Play (AppAnnie).
• Furthermore, Clash of Clans has been constantly in the top 5 grossing apps on the Apple App Store and Google Play for a very long time making this a great platform from which to begin building a position in developed markets.
• In China, Tencent is already dominant in games and I see this acquisition being all about moving outside of its home market rather than bringing Supercell’s games to China.
• Activision Blizzard recently closed its $6bn acquisition of King Digital which only has one game in the charts but critically, has over 500m active users.
• Activision has lots of games but few mobile users, making this a perfect fit as long as it can execute on successfully bringing its games to King’s users.
• I think that both of these companies have much more to do than bringing their games to mobile as it is critical to create a thriving community around those games and it is from there one can monetise and expand.
• Here, I think that Tencent has the biggest advantage as it has already done this with great success in China with Weixin / Wechat and Qzone (Social Networking).
• Tencent still has a hill to climb as RFM research indicates that Tencent has not fully taken on board what is required to really build a thriving ecosystem as opposed to series of discrete services.
• However, I think that it understands these principles better than Activision does.
• For both of these companies, turning successful gaming apps into thriving communities from which they can expand will be tricky and take time and in that regard Microsoft and Sony still have a chance.
• However, both of them have failed to bring their thriving gaming communities to mobile and are now really running out of time to do so.
• With Microsoft seeming to lose interest in the consumer and Sony’s inability to create a good user experience, I don’t seem them making any impact in mobile leaving the way open for others.
• Tencent and Activision now head a very short list of those that I think have potential in developed markets.
• I still prefer Baidu to Tencent as it really understands the ecosystem but should things change at Tencent, then there is substantial upside potential.
• I prefer both of these companies to Alibaba, Google and Twitter.