Is Gaming to be Weixin’s Salvation?

Weixin has more than 200 million users, but no profit to show for it.

Many people propose a similar solution to this dilemma: gaming. And they always refer to Kakao Talk and Line, the Korean and the Japanese Weixin respectively. Before they turned to gaming, both services faced the same dilemma as Weixin: millions of users, but mounting loses. Last year, Kakao Talk’s loss climbed from 4 billion won a year before to 15.2 billion won.

To counter this trend, Kakao Talk turned to gaming. The company signed up game designers to launch games specifically produced for the Kakao ecosystem, and started to recommend these games to its 30 million plus users. Kakao Talk also launch its own line of virtue currencies called “Chocos” to be used for all transactions, which Kakao Talk would then take a cut.

Kakao Talk’s foray was an instant hit. Within a month, 7 out of 10 most popular Google Play games was from the Kakao ecosystem, with the game Anipang occupying the top spot. By November, Kakao games have been downloaded more than 82 million times, of which 16 million went to Anipang, helping the game to a health revenue of nearly 200 million won a day.

Kakao Talk has prospered from the experiment. Its revenue has risen from 5 billion won in August to 14 billion won in September. In October, the number also tripled again, finish at 40 billion won at the end of the month.

Line has also experimented with gaming. In July, Line launched the game Line Birzlle, gaining a stunning 2 million players with a mere 24 hours. In less than 100 days, the game accumulated 10 million users. Line has also launched a virtual currency named “Line coins”.

Tencent, the giant backing Weixin, has already invested 400 million Yuan into Kakao Talk for a 13.84% stake, so obviously Tencent is smitten with Kakao Talk’s line of business, and implementing gaming into Weixin is only natural. But one must ask, how successful would Weixin be at this?

Let’s say Weixin succeed beyond imagination. But even Apple’s app store, the holy grail of all gaming platform wannabes, only accounts for 1% of Apple’s overall revenue. Granted, part of the reason for that is the fact Apple’s yearly revenue exceeds $100 billion, but the app store can’t even hold its own against the Itunes Store. No matter how you spin it, the bottom line is simple: app store is barely profitable enterprise aimed to sell more phones and pads, where Apple makes its money.

Similarly, Facebook, which profits immensely from gaming, only derives 17% of its revenue from it. That 17% amounts to nearly $600 million, and brings one third of Facebook’s profit, but that doesn’t change the fact that Facebook’s main line of business is advertising, both on the web and on the mobile front. In fact, gaming’s importance is already fading for Facebook and the business no longers grows and the future is increasing turning to mobile.

And these are the best of all possibilities. Having users doesn’t necessarily translate into being able to build gaming platforms, as Sina Weibo can attest. Similarly, having users doesn’t mean you can retain them, the fall of Kaixin is a perfect example of that.

That’s why even Kakao Talk is deciding to spread its bets. Kakao Talk professes to have the very limited ambition of being a alternative to Google Play and the app store for small developers. In addition to gaming, Kakao Talk is also trying other lines of business to see what sticks.

For Weixin, game is definitely something worth trying, but it shouldn’t be Weixin’s only bet. However, that’s not to say Tencent won’t find some way to convert users into profits. After all, this is the company that hit the oil with an IM service, succeeding where AOL and Microsoft came up dry.