It originally rose to prominence by spamming and its viral social games (Parking Wars and Happy Farm). At its peak Kaixin001’s Happy Farm had 15 million daily active users and still has over 10 million today, according to Hans Tung, a partner at Qinming Venture, which invested in Kaixin001. Although Kaixin001 since refocused on relationships, games are one of the most lucrative monetization channels for social networks.

Kaixin001 opened the platform to 3rd party applications on May 12, 2010. The network did a good job of copying games in-house at first, but as the expectations of users rise, Kaixin001’s offerings look increasingly anemic: its development team is slow (it needed 6 months longer than RenRen to copy Restaurant City by Playfish).

Its new open platform is divided into four sections:

1. In-house apps
2. Third party apps
3. Application laboratory
4. Web games

1) In-house Apps
Kaixin001 itself has produced 45 applications, of which 9 are games. RenRen is an “open platform,” but continues to develop apps in-house to the chagrin of third party developers. Likewise, Kaixin001 may well continue to develop some apps in-house.

2) Third-party Apps

The newly added 3rd party applications include seven social games and five other applications. Facebook generates huge revenues from 3rd party social game developers (Zynga is the largest advertiser), but Chinese social networks have not yet able to effectively monetize this channel.

RenRen’s contracts stipulate that third party developers cannot place their games on Kaixin001 for at least 6 months after launch on RenRen. Kaixin001 has responded in kind, offering 80% revenue share to developers who sign an “exclusive,” but only 60-70% for others, according to an industry insider. That’s still more generous than RenRen, which offers developers at most 56% revenue share for games that exceed 200,000 daily active users.

For the same game, average revenue per user is 2-3 times higher on Kaixin001 than on RenRen, according to Tung. “We’re quite pleased with the results so far,” said Tung. The ascendancy of Kaixin001’s open platform may create a better bargaining position for Chinese game developers.

3) Application Laboratory
The application laboratory is testing 9 social games and 8 other applications. Only select users and their friends can beta test these games; it appears Kaixin001 intends to retain significant control over the number and quality of applications that are accepted onto its platform.

4) Web Games
All social networks push MMORPGs, the traditional moneymakers in China's gaming industry. RenRen is reportedly generating 3 – 5 million RMB per month through that channel according to Calvin Ng, who runs an MMORPG company. Benjamin Joffe, CEO of the internet market research firm +8*, comments: “This is also why Sohu, Sina, Netease moved to online games. SNS are also great user acquisition channels!”

Kaixin001 generated 100 million RMB in revenues in the first half of 2010 (80% from advertising). If all goes well with its open platform experiment, Kaixin001 will soon be cashing in on new social games as well.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

A consensus did emerge that more social games will target niche audiences. Panelist Atul Bagga, Vice President at ThinkEquity, commented, “So far we see horizontal applications, that is games that everybody is playing: your mom, your granny, your niece, your daughter. I think there is a lot room for vertical applications, for the smaller niche, for example, Watercooler’s Kingdoms of Camelot. It does not have huge usage, but the game kicks butt because the ARPU (average revenue per user) is very high.”

Chinese developers recognize the trend towards originality and verticality, but it’s a far greater challenge than producing farm game derivatives. First, they have to develop for a foreign audience, as revenues in China are still insufficient. Most Chinese developers see Japan, Korea, Brazil, and Russia as easier markets than Facebook (and head-to-head competition with the like of Zynga), although the Chinese-language Facebook communities in Hong Kong and Taiwan are still good bets.

Second, capturing a niche often requires an unfamiliar game design and appeals. Hans Tung, a partner at Qinming Venture, comments, “The hurdle for these developers to come up with very good vertical games… is much, much, much harder. In China all the massive multiplayer online game developers all know that social games are big. They all know that women are playing games now. But they don’t how to make those games for women. We talked to 11 listed game companies in New York and Hong Kong and most of them suck at making games for women.”

The growth market in vertical social games is a worldwide trend that will require still greater innovation on the part of Chinese and foreign developers alike. But the rewards could be rich: if developers are able to deliver, even the more closed Chinese social networks may open up their platforms—and valuable users—to third party developers.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

It’s almost cliché for Chinese internet giants to launch a microblog or social network; nearly all have tried. The challenge for Candy (in Beta) is to gain initial traction and to achieve user retention. The latter could be challenging for such a casual site, there’s a reason the other social networks are moving away from that model.

Candy reflects Shanda’s effort to diversify into casual games. Over 86% of Shanda’s 768 million USD in 2009 revenues came from Massive Multiplayer Online Role Playing Games (MMORPGs), while casual games accounted for just 12% of revenue. As Shanda’s bread-and-butter MMORPGs like Woool and Mir 2 age, it is imperative that the firm finds new hits or market models.

One analyst recently downgraded Tencent, which derives 48% of its revenue from online gaming, over concerns about a slowing MMORPG market:

We believe social network games are competing against MMO games for users’ time. Chinese Internet users now have more diversified entertainment means than before, causing high-monetization MMO games to lose growth momentum.

The Interface: Sweet Like Candy

As the name implies, Candy is cute and bubbly—perhaps sweeter for girls than guys. The closest analog is Qzone by Tencent, which also mixes nicknames, cuteness, and games, although that site suffers from poor execution.

At the core of the site is a microblog that allows for far richer interaction than Twitter. The character limit is a generous 256 (almost an essay in Chinese), comments are threaded, and pictures, videos and emoticons can be attached.

Users also gain badges for sharing, playing, and friending.

The Games and Applications: The Simpler the Better

Candy offers 33 applications (17 are games), including a few from 3^rd parties. Production quality of the applications is high: the graphics are attractive and the functions are simple and intuitive.

All applications are pre-installed with square logos in the style of the iTunes Store. The design team closely followed the hottest in Western tech and design, while still adding elements familiar to Chinese netizens: a cute design, emoticons, and footprints.

New applications include:

• Pandora’s Planet (by Shanda): a simplified version of Sim City, in which players strive to expand their city.

• Square People (格子客, by Shanda): Players flip over a square to discover a surprise task or video behind it (e.g., add person x as a friend).

• Age of Dinosaurs (by Shanda): A farm game with a dinosaur theme that encourages more interactions between users. Prayer ceremonies can ward off dinosaur attacks.

• 3^rd party applications include a music player (Xiami), video player (Ku6), and the popular social game Bubble Fish (泡泡鱼), which is also found on the RenRen network.

Shanda’s star MMORPG Mir 2 (传奇世界) is also an application (though it’s not yet operational), indicating an attempt to bridge the gap between MMORPG and casual gamers. That’s a big divide to bridge, but success would be sweet—and lucrative—for Shanda.Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

Liu Jian, chief operating officer of Oak Pacific Interactive, owners of the popular RenRen social network, stated, “Copying cannot be the future model for social game developers, unless you’re Tencent.”

That barb, rare at a Chinese conference like the recent ChinaJoy event, prompted a round of applause. The issue of copying is a common one in game industry history, with the likes of Zynga, Electronic Arts, and Activision Blizzard being blasted for it at some point or other.

Tencent, a Chinese internet giant with a dominant instant messaging service and popular social network, has come under heavy fire for copying and pushing out smaller players. The magazine China Computerworld went so far as to publish a controversial cover story called “F**king Tencent,” with a picture of the Tencent Penguin stabbed with knives, writing:

Tencent is never the first to "eat crab" [to try out new things]. It looks for a space in a mature markets to shove its way in. However, the methods it chooses also invite controversy: imitation, sometimes unscrupulous "shanzhai" copying.

As early as 2006, Sina founder Wang Zhidong openly accused [Tencent founder] Ma Huateng of being the industry's "plagiarism king," and of brazen plagiarism at that.

Tencent’s speaker was up next and did not let slight pass unnoticed. Peter Zheng, General Manager of the Qzone Social Network Product Center, responded that at least Tencent did not copy its entire social network from Facebook, referring to the fact that RenRen’s design and features, down to the shade of blue, are remarkably “similar” to Facebook.

China’s social networks are experimenting with open platforms, but all still produce their own games, many of them knockoffs of other popular titles. Despite ostensibly striving to create an ecosystem of third party developers, RenRen itself has released RenRen Farm and RenRen Restaurant (a ‘faithful’ copy of Playfish’s Restaurant City), the second and fourth most popular games on the network, respectively. Upset developers allege that the network privileges its own games by allowing them to send out more viral notifications to users.

The power of Chinese social networks means that developers earn zero or low revenue share and therefore struggle to generate significant revenues in the domestic market. Calvin Ng, a CEO and advisor to several gaming companies, says, “But you can’t say that social networks are not making money, when they see a good idea that’s making money they just copy it because they want to make everything.”

At the same time, speakers at the ChinaJoy SNS & Social Game Forum urged social game developers to innovate, rather than release another farm game. It’s common for Chinese developers to download the flash code and then reconstruct a game within two months. But this strategy may not work abroad, where social networks and gamers are seeking original content.

Even domestically, Chinese social networks, when they do cooperate with developers, are now looking for more original and exclusive content. Chinese social networks often offer higher revenue share if developers agree not to release games on competitor’s platforms.

PopCap, a U.S. casual games company with a studio in Shanghai, just announced a pioneering cooperation to release innovative games on RenRen, which will test the success of both original games and foreign developers in China. PopCap’s games, especially Plants vs. Zombies, are widely pirated in China, but the company has not yet been able to make much money in China.

China has onerous rules for foreign developers who seek to introduce their games into the market. Massive multiplayer online games officially require a local partner to handle the distribution of all games, hence Blizzard’s cooperation with NetEase on World of Warcraft. It’s a gray area as to whether a social network like RenRen qualifies as a distribution partner in the case of social games—it seems the rules are still being written.

Despite the current challenges, most of the attendees expect China’s social network to gradually open up more. The social network Kaixin001 recently launched an open platform experiment (it was previously completely closed), which may shift the bargaining power in the relationship. For the same game, average revenue per user is 2-3 times higher on Kaixin001 than on RenRen, according to Hans Tung, a partner at Qinming Venture, which invested in Kaixin001. Tencent’s Qzone also continues to dabble in licensing games, though it offers only “a few cents on the dollar” according to Calvin Ng. If Chinese social networks start chasing developers rather than the other way around, revenue share will surely improve for developers.

Developers are being challenged to create games that are more innovative, targeted, and difficult to copy. If they are able to achieve that, even Chinese social networks should slowly open up.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games http://www.chinasocialgames.com Follow Kai on Twitter @klukoff http://twitter.com/klukoff

Originally posted at VentureBeat

ChinaJoy, China’s equivalent of the Electronic Entertainment Expo (E3), is famous for its thousands of show girls, new title releases, and the flashy sports cars of the top executives behind it all. This glitz not only attracts droves of young men—potential gamers—like moths to a light, but also reflects the rich fortunes of hardcore online games in China.

Gaming is the largest market by revenue in China’s internet industry: $3.57 billion in 2009 and $9.2 billion by 2014, according to a forecast by Niko Partners. China’s casual games generate some revenues and there’s a nascent social games sector, but about 80% of the riches come from massive multiplayer online games.

Of the Chinese internet companies listed on the NASDAQ and NYSE, 7 of 15 are either completely or heavily dependent upon massive multiplayer online games: Shanda, The 9, Netease, Kongzhong, Changyou, Perfect World, and Giant Interactive.

Tempering Sky-High Expectations for Massive Multiplayer Online Games

Despite the carnival atmosphere at the ChinaJoy expo, there were sober concerns on the business conference side that growth is slowing. Stocks for all virtually of the major Chinese gaming companies are down for the year-to-date.

SIG analyst Zhao Chunming cites five challenges facing massive multiplayer online games:

1. User growth is slowing down as new Internet users are mainly coming from older age groups, rural areas, and mobile users.
2. Competition is appearing on multiple fronts, most notably social network games.
3. Competition is intensifying among game companies as the market matures. Major game companies have seen talent losses to rivals or VC-invested start-ups, resulting in an across-the-board increase in engineer and designer costs.
4. The market is filled with homogeneous content, lack of innovations. We believe the stickiness of games has come down, due to games “learning” from each other in-game play and money-making features. It is increasingly difficult to produce blockbusters in this market.
5. Average revenue per user growth is significantly slower, raising questions about the virtual item-based model. In our opinion, the money-making incentives behind the item-based games have caused deviation of game usage, i.e., chasing virtual items rather than the core entertainment purpose.

Bill Bishop, formerly chief executive of a Beijing-based developer and operator of online games and a blogger at Digicha, states: “The cost of user acquisition (getting new users) has gone up significantly. In the last couple of months, Perfect World, Giant, and NetEase have all enacted big cuts in their field marketing teams for internet cafes, laying off hundreds or maybe even thousands of sales agents, because they’re trying to protect margins.”

Still, “Most companies around the world would kill to have the ‘problems’ of Chinese game firms,” says Bishop. Though decelerating, growth is still strong. It may just be a matter of investors tempering sky-high expectations for the domestic Chinese market.

Moreover, by examining only the speed bumps facing by China’s publicly listed companies, many analysts are missing the growth of small to medium-sized developers generating $0.5 to $4 million per month, says Calvin Ng, a CEO and advisor to several massive multiplayer online gaming companies. “The Chinese mentality is that everybody wants to get rich. Today all of the small game developers think they can become the next Shanda,” a reference to one of the biggest public game companies.

There are fewer barriers to entry for newcomers today, prompting more developers to strike out on their own. Ng says, “It’s become easy to share your game with 20 to 30 portals. I have personally met 6 or 7 startup studios that came out of Kingsoft alone.”

Recognizing this shift, the top firms have started publishing games and making acquisitions. “It’s very hard for the big boys to retain talent, so they’ve become venture capital firms themselves,” states Ng. Shanda has launched Fund 18, which will invest in, publish, and distribute games. In the case of overseas publishing, Shanda retains 60 percent of revenues. Giant Interactive has set up a similar fund, called Win with Giant. In addition, there have been a number of acquisitions of smaller developers at a price to earnings ratio of five to six, according to Ng.

Chinese Firms Go Abroad, But Foreign Firms Face Prohibitive Regulations in China

With government encouragement, Chinese companies are also headed overseas in search of new markets. Calvin Ng says, “NetDragon was the first one and the father of [Chinese gaming companies] going abroad. From there spin-offs include IGG (I Got Game), Ray Flame (actually all of their games are from China), and Enjoy MMO. They’re already doing pretty well in the West.” Perfect World expects its overseas revenues to reach $100 million in 2010. Chinese gaming firms are also starting to purchase abroad: Shanda acquired Mochi Media, Tencent invested in Riot Games, and The9 invested in Aurora Feint.

At the same time, severe regulatory issues cripple foreign firms attempting to enter China. Bill Bishop writes, “From a US policy perspective, assuming the U.S. game industry lobby cares about this issue, it seems like an easy argument to make to USTR and the Congress that while China is blocking American firms from a $4 billion+ market (and growing 30%+ per year), the Chinese are piling unrestricted into the wide open US market and have a very good chance of gaining real share.” Even the sale of Xbox, Playstation, and Wii consoles is technically illegal in China, though there is a gray market.

Blizzard Entertainment, one of the few major foreign exhibitors at ChinaJoy (sharing a booth with its partner NetEase), exemplifies the travails facing foreign firms in China. The company had difficulties getting its content approved for World of Warcraft when it changed operators in China from The9 to NetEase. When a sector is “sensitive”, even a strong and experienced Chinese partner cannot guarantee smooth sailing.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff.

Jens Hilgers is the CEO at China Venture Labs, a privately held early stage investment company focused on internet and gaming startups based out of Beijing, China. Jens has built several successful gaming companies in Europe amongst them Turtle Entertainment GmbH, a global leading online platform for competitive computer gamers which he still oversees as chairman of the board today.

Photo by Michele Travierso

Only a year ago, social games in China were developed by individuals or a small team on a shoestring budget, destined for RenRen (then Xiaonei) or other Chinese networks. Today, buoyed (and pressured) by investment (primarily foreign), developers have formed serious teams and launch their games in more lucrative markets.

The new business model for Chinese developers is to set sights on overseas markets, with Japan as a primary target. Average revenue per user (ARPU) in Japan is up to 12x greater than in China, according to an estimate by Jia Shen, CEO of RockYou. Most Chinese developers see Japan, Korea, Brazil, and Russia as easier markets than Facebook (and head-to-head competition with the like of Zynga), although the Chinese-language Facebook communities in Hong Kong and Taiwan are still good bets. Of course, it won’t be long before the Zyngas of the world also launch in lucrative markets like Japan.

In China, monetization remains a challenge for developers, despite the massive popularity of social games. The combination of low ARPU, powerful networks (read: zero or low revenue share), and an unstable regulatory environment, makes it exceedingly difficult for developers to reap significant profits. For this reason, most foreign developers have not tried launching games in China.

Instead, the top social game firms have come to China for the comparatively cheap and abundant talent. All the big boys—Zynga, Playfish, Playdom (rumored), PopCap, Slide, and WaterCooler–are now present, with several others players eyeing acquisitions. China’s market holds enormous promise—MMORPGs and Tencent make huge moneymakers via virtual goods—but that day has not yet arrived.

The Top 10 Social Games in China

In terms of the top games, restaurant and pet games are now hot, while a few older hits have fallen off the map. Since the last edition of the report in December 2009, four of the top ten titles have been replaced: Parking Wars, Slave Manor, Animal Paradise, and Small Games. Among the newcomers, three are very localized (Promotion, X-World, and 361° Basketball) while one (Happy Baby) is a knockoff of a Western game.

#1  Happy Farm

Arguably the first SNS farming game worldwide, Happy Farm, was developed by Five Minutes, a Chinese developer. Its simple “plow, plant, water, pick, and repeat” formula has since conquered the world. Moreover, the addictive, log-in-every-hour mechanics have spawned countless copycats and variants. Chinese versions are more competitive than their Western counterparts: they allow users to steal and add worms and weeds to friends’ farms.

#2 RenRen Restaurant

Renren Restaurant is a copy of Restaurant City by Playfish on Facebook. The social network Renren, despite having a mostly open API, had its in-house game developers copy the game almost screen-for-screen. The game’s relative sophistication (3D graphics, high social interaction) indicates the future of China social games. As Chinese developers become more accustomed to such features, titles will undoubtedly become more original.

#3  Happy Aquarium

Happy Aquarium = pet game + Happy Farm underwater. Fish games are rapidly growing both in China (Happy Aquarium, Bubble Fish) and on Facebook (FishVille, Fish Isle). In fact, Hong Kong developer 6waves transferred Happy Aquarium to Facebook in Chinese, where it is has enjoyed remarkable success (1.9m DAU, No. 21 game overall). Game themes and mechanics translate across China and Facebook.

#4 Happy Baby (NEW entrant)

Happy Baby is a classic pet game in a cutesy style that copies Playfish’s Pet Society. There are plenty of variants and combinations for the user to create a “dream baby.” One industry insider cited this Happy Baby as the highest-grossing title on RenRen, the biggest open platform for social games in China.

#5 Building One

In Building One, users virtually live, work (e.g., by opening a hairdresser or spa), and socialize together in a single tall tower. Visually, this creates an appealing skyscraper to explore. Stealing customers and coins from other shops is a key part of the game. You can see from the picture you can develop different parts of the building, such as a restaurant with a dining area where you can serve cakes and whatever else you want to cook for your guests. It’s like a bunch of different simulations in one game.

#6 Promotion (NEW entrant)

Based on a popular Chinese book and film (The Promotion of Dulala), this workplace simulator allows Chinese white-collars to virtually become the star employee they always dreamed of. Users start out poor and lowly, for example with an internship at a fast food company, but can pull themselves up by their virtual bootstraps to become an online Donald Trump. The game has a sharp eye for Chinese humor that appeals to local users.

#7 House-buying

House Buying is the most popular game on Kaixin001, China’s hottest social network. House Buying innovatively combines a real estate section, Happy Farm, a pasture section, and Parking Wars into a single game with a common currency. For example, grow bamboo in your farm to feed pandas in the pasture, which can in turn be sold for cash to pimp-your-house. Because Kaixin001 develops all games in-house, it offers unparalleled integration.

#8 Wonder Hospital

In Wonder Hospital, users heal patients to acquire money and fame. The game includes innovative and controversial ads: a zeppelin flies overhead promoting the Yu Ting brand of contraceptives. Moveover, in-game actions are especially nasty. When visiting a friend’s hospital, players can enforce fines, steal patients, throw rubbish, let a dog loose, park a truck to block access, and ‘mystery mischief’ indicated by a bomb icon. This could change as the government “integrates” social games into its harmonious society.

#9 361° Basketball (NEW entrant)

361° Basketball is a team-management game that is fully branded by the Chinese sportswear brand 361°. To prepare for “PKs” against other teams, players train by watching brand videos from the “Equipment Shop,” where they can also buy virtual 361° products.

#10 X-World (NEW entrant)

X-World New York is a game in the style of Mafia Wars! The game has the same “task list” mechanics, but the theme is muddled as mafia games are officially banned in China. It’s one of five new 3^rd party games included in Kaixin001’s new open platform experiment.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

The most sweeping change is the requirement of real names and valid ID, which would completely change the anonymous nature of the Chinese internet. The vast majority of gamers and BBS and QQ users use nicknames rather than real names. Networks, portals, and game developers are all likely to balk unless the policy is vigorously enforced.

The other key change is that online platforms are prohibited from selling virtual currency to minors (under 18). Tencent, the Chinese internet giant that caters to teens, had its stock fall about 5% in Hong Kong upon the news, despite issuing a statement that it would not be affected.

New regulations for online and social games have been in the making for some time. The announcement by the Ministry of Culture establishes their imminent arrival.

Five Key Points

(The full regulation (in Chinese) is available on Sina Tech)

1. All online game operators, including SNS companies, should have no less than 10 million RMB of registered capital.
2. Online games developed by foreign companies are subject to special regulation and approval by the Ministry of Culture. See application requirements below.
3. Any change of the game content should be reported to MCPRC for further review.
4. The new regulations also require users to register with real names and valid ID. Note: All Chinese have a Resident Identity Card (居民身份证) that could be used, similar to South Korea's real name system. Shanda's beta social gaming platform, "Candy" (糖果), already requires this for registration.
5. Online platforms are prohibited from selling virtual currency to minors (under 18).

Application Requirements (for foreign game developers)

• (A) Application forms
• (B) Game instructions
• (C) Agreement of trade and operation (both in Chinese and the original language) and a copy of the copyright certificates or authorizations for the game
• (D) A copy of “internet operation license” and “business license”
• (E) Other documents required for a review of the content

Credit to Bill Bishop of DigiCha for bringing this to our attention.

By Kai Lukoff and Pan Xie

There were farms before FarmVille?

Origins

Most social games are far from revolutionary: farm games pre-date their social network successors by 15 years. SimFarm, released by Maxis in 1993, is the earliest to this author’s knowledge. Harvest Moon, released by Victor Interactive Software in 1996, further popularized the genre. To date, the spread of social games is all about distribution, not original gameplay.

Happy Farm, one of the first two SNS games. Still the happiest.

China is most often cited as the source of the first social farm game, which is half-true. Happy Farm (开心农场) was released by Five Minutes in "November 2008" (China Social Games is waiting to receive confirmation of an exact date). The inspiration for Happy Farm was Harvest Moon, the earlier cited Japanese console game. It went on to become massively popular in China, attracting litters of copycats.

myFarm, one of the first two SNS farm games. Since copied and eclipsed by FarmTown and FarmVille.

But the frequent claim that Facebook developers copied this game is false. At the same time, US-companies playSocial and Take(5)Social released myFarm, the first farm game on Facebook. Tom Hansen, President of Take(5)Social, writes:

myFarm was the original farming game on Facebook.  We launched Nov 1^st 2008.  My team came up with the concept based on Lil’ Green Patch and the success that it was having.  If people wanted to collect and gift pets and flowers for their little green patch, how cool would it be to take animals gifted to you and raise them.  Being able to raise them on your own ‘farm’ was the obvious choice.  Then of course harvesting crops to earn cash fit perfectly with the farm theme and voila the concept was born.

Farm Town by Slashkey and FarmVille by Zynga copied myFarm, not Happy Farm.

Gameplay between Happy Farm and myFarm is significantly different: Happy Farm zooms in on a few plots while myFarm is a more expansive sandbox-style game with animals, gifts, and buildings.  Season Xu, co-founder of Five Minutes (developer of Happy Farm), writes:

myFarm, Farm Town, FarmVille, are different from Happy Farm and all Happy Farm copies. The game play between ‘Farm Town’ type and ‘Happy Farm’ type is very different… [they] did a good job of innovation. They invented a new type of farm game… Happy Farm is not the original Farmville Farm Town is.

In short, Happy Farm and myFarm—the first two social farming games—were independently developed and released in China and the US at almost exactly the same time. Both borrowed from earlier games, Harvest Moon and Lil’ Green Patch, respectively.

Two Lessons from the Field

#1) Being First is No Guarantee of Riches

Developing a new trend in social games is no guarantee. Unless you also happen to be genius in distribution, like Zynga.

myFarm enjoyed modest success, but bigger competitors like Farm Town and FarmVille have blown it up. Hansen writes, “We have since been inundated with copy cats that have big advertising budgets, so competition has since diluted the market.”

Slashkey released Farm Town in April 2009. It remains the 20^th most popular game on Facebook with 2 million DAU (daily active users). Following Farm Town’s success, Zynga released FarmVille in July 2009. The game we all know (and love?) took farming to another level, with 27 million DAU today.

Happy Farm has done well, but not great. It remains massively popular with an estimated 23 million DAU (includes clones across all platforms), but China’s users are challenging to monetize and social networks are closed or offer poor revenue share.

Being first is no guarantee of riches. Zynga has a speculative $5 billion valuation not because its “_Ville” games were first or original, but because it executes aggressive advertising and pushy virality (inundating friends with requests) better than anyone else. Again, the spread of social games is all about distribution, not original gameplay.

#2) Why Farm Games?

Every country has a concept of farming. But no tractors in China's vision.

Commentators like to pontificate on how Chinese city-dwellers are “returning” to the farms they only recently left. Isaac Stone Fish at Newsweek waxes poetic:

The game's success reflects a deep and growing nostalgia for China's traditional agrarian way of life… the game also taps into concerns among many members of the urban middle class that economic growth has far outpaced the country's environmental standards. Poor air and food quality are both major concerns, and Happy Farmer reflects a wistfulness for a rural China that at least in the romantic image does not suffer from such problems.

But these claims are farfetched and fail to explain FarmVille’s popularity in America, hardly a nation of farmers. In addition to farming, are social gamers also nostalgic about flipping burgers, hunting treasure, raising fish, and fighting mafia wars?

Farm games succeeded by crossing addictive game mechanics with an intuitive, accessible theme. Farm games popularized “appointment” game mechanics, in which players need to check-in every few hours to plant, water, tend, or harvest their crops. This game mechanic is dominant across the top social games today, having been applied to “growing” fish, pets, restaurants, cities, et al. But farming crops is still the best fit with these mechanics. And every culture has a concept of farming, though specifics may differ slightly (China’s version lacks tractors).

Lastly, there is certainly also an element of serendipity, that these games were independently developed and released in China and the US at the same time and then grew to popularity.

Farm games also demonstrate that game themes and mechanics are universal. Fish, pet, and restaurant games have since gone on to become global hits, with cross-pollination between China and Facebook.

Every country is at play in the digital agricultural revolution.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

There is no single dominant network, no Facebook for all of China. The actual Facebook.com is blocked by government censors (Chinese sites all obediently and quickly remove “objectionable” content). No single social network will conquer the China market in the immediate future, least of all a foreign one.

Instead, there is fierce competition between the top four:

• RenRen (formerly Xiaonei) copied the Facebook model: it started with students and has since opened to all.
• Kaixin001 attracted white-collar office workers by focusing on fun, addictive social games.
• Qzone gained young teens and rural users via cross-promotional traffic from QQ Messenger.
• 51.com started strong in lower tier cities, but growth has since slowed.

This post will assess market share, profile the top four, and boldly predict the future.

In addition, there is a long tail of social networks in China, which will be covered in part 2 of this series. Most Chinese are members of multiple SNS, on average 2.8, according to the Chinese Internet Network Information Center. A number of smaller SNS target niche demographics: the elite, females, techies, etc. The Chinese social network scene is crowded and competitive, though clear separation exists between the top four and ‘the rest’ in terms of mass-market viability.

Market Share: Lies, Damned Lies, and Statistics

There is no trustworthy data on users or revenues. Every social network in China claims to be the largest: Qzone, RenRen, Kaixin001, and 51.com. The short and sweet is this: Qzone has the most users, RenRen has the most active users, and Kaixin001 has the most highly active users. 51.com user’s are the most rural.

In addition to the rankings from Alexa and China Rank, the Chinese Internet Network Information Center conducted 3007 telephone interviews on SNS with respondents across China in July 2009. It found that Qzone has 22% market share of social network users, RenRen has 17%, Kaixin001 12%, and 51.com 12%.

Kaixin001’s users are highly active. It averages 34 pageviews and 33 minutes spent on the site per user, numbers that are about twice as high as the competition. Kaixin001’s white-collars love surfing the site at work, and occasionally in their free time too.

As scant as the user data is, that on revenues is even worse. The little data that the networks do release is questionable. Only rough snapshots are available of the positioning in China’s social network race.

Renren (formerly Xiaonei)

Renren’s design and business model are copied from Facebook. RenRen beat out a number of competitors at China’s elite universities and spread from there. It is aggressively courting the mass market.

Users: The majority of users are students, although RenRen strives to retain those users after graduation. In the fall of 2009, it launched a massive advertising campaign—both traditional and digital—urging Chinese to reconnect with old friends and classmates. The emphasis is on connecting with real-life friends online, just as on Facebook. As RenRen grows, it is encroaching on the turf of its rivals: teens (Qzone), white-collars (Kaixin001), and lower-tier cities (51.com).

User Interface: The user interface is nearly identical to Facebook (though it has not copied Facebook’s latest redesign). It has a few unique features, such as a “footprint” of who last visited your page and recently added game mechanics or 'funware' so that users can reach 'higher levels' for interacting on the site. It also allows custom skins, though the majority of users stay with the basic theme.

Platform: The application programming interface is open to 3rd parties, but revenue share is a capped at 56%. It boasts about 250 applications (almost all games) and is China’s most popular open platform. Foreign game developers are just starting to test the approval process, with FooMojo, RockYou, and PopCap leading the way. Access for foreign developers is certain to be a hot topic at the upcoming 2010 China Social Games Summit.

Games: RenRen has the most and best games, in large part due to its open platform. But RenRen also develops games in-house, leading to concerns that RenRen will favor its own games over those of outside developers. Other networks often copy the most popular games on RenRen.

Financing: Softbank purchased 35% of RenRen for $430 million, valuing the company at $1.2 billion. The company intends to hold an initial public offering as soon as 2011.

RenRen’s parent company is Oak Pacific Interactive, which also owns Mop, a smaller Chinese social network, forum, and humor site.

Revenues: Annual revenue was over 100 million RMB ($15 million) in 2009, according to one source from the company. The primary revenue channel is advertising (brands, games, and e-commerce).

Analysis: RenRen is the most popular, most open, and best-financed social network in China. Its management team is also the smartest and fastest-moving. It is actively developing advertising, gaming, and e-commerce revenues. Its user growth is impressive, in large part due to its aggressive marketing campaigns. The August 2009 name switch from Xiaonei (inside-campus) to RenRen (people’s web) signaled its ambition to become China’s dominant popular social network. By comparison, China’s other social networks are asleep at the wheel.

Kaixin001

While RenRen was still concentrated on students, the upstart Kaixin001 was able to attract white-collar workers (in large part via spam).

Its social games got entire offices addicted to parking cars, stealing crops, and other top games. Its white-collar workers are the richest and most monetizable demographic of social network users. Kaixin001’s critical battle is ensuring that the next generation of students “graduate” to its site upon entering the workforce, rather than remaining with RenRen.

Users: White-collar workers who can secretly farm crops and check friends’ photos from their office desk. Its users spend twice as much time on site, as compared to users on the other social networks.

User Interface: The interface is clean and very simple—Kaixin001 is a pared-down version of Facebook. It eases first-time users into social network: the most popular applications, like the popular “Buying a House,” even come pre-installed. Advertising is minimal.

Platform: Kainxin001 is a closed platform, although insiders say that it will eventually open up. It has about 50 applications, the majority of which are games.

Games: Kaixin001 launched the social games craze in China and its users are game-crazy. But its games now lag behind RenRen in quantity and quality, because it’s attempting to develop everything in-house. For instance, it took Kaixin001’s developers 6 months (an eternity in social game years) to copy a popular restaurant game on RenRen. That will damage Kaixin001 as it aims to attract new users and retain and monetize its existing users.

Financing: Kaixin001 has received a total of $23 million through two funding rounds. Investors include Sina, Qiming Ventures, and Northern Light Venture Capital.

Revenues: Kaixin001 has reached monthly revenues of 7 million RMB ($1 million), but is not yet profitable. Advertisers at ad:tech Beijing told BloggerInsight that Kaixin001 is the hottest site.

Analysis: Kaixin001 has seen rapid growth and has captured a desirable demographic of white-collar workers (appealing to advertisers), who spend tons of time on the site. But its management team is far more conservative and slow-moving than RenRen. It’s far behind in terms of its advertising and monetization channels. Its site design has changed little and its application programming interface remains closed. If Kaixin001 fails to innovate or at least keep up with the curve, it will lose out. Sudents will stick with RenRen rather than “graduate” to Kaixin001.

Qzone

Qzone draws traffic from QQ Messenger, which boasts 523 million active users and is also owned by Tencent. Qzone targets teens, rural, and casual users and claims a whopping 388 million active users, a highly suspect number. Tencent’s internet services, QQ Messenger, QQ Show, QQ Games, QQ Pet, and Qzone, do connect a huge number of Chinese people.

But the classification of Qzone as a social network is questionable. It has tons of dormant, skeleton profiles that are pulled from QQ Messenger. In that regard, it’s similar to MSN Spaces, which also has a ton of “users,” but low value and retention rates. Qzone users often use nicknames or aliases rather than real-life names.

Given Tencent’s awesome advantages and synergies in social networks, Tencent’s forays into “real-identity” social networking should be seen as a squandered opportunity.

Users: Teens and rural users. Qzone is attempting to funnel its older users towards its other social network, Xiaoyou (classmates), with limited success. It already failed with an earlier attempt called QQ Campus.

User Interface: Qzone is a lousy website: it’s ugly, unintuitive, and buggy. The site is very basic (for a social network), but not in a user-friendly way (like Kaixin001).

Platform: Qzone is a closed platform, though it is experimenting with licensing. It has about 50 applications (mainly games). Benjamin Joffe, Tencent expert and CEO of internet market research firm +8*, comments: “Applications are all copies or licenses or bought from social gaming companies, generally with terrible revenue share or poor valuation. Why? Because Tencent is a closed network and because they can. Problem is: operating social games is not the same as instant messaging or massive multi-player online games and there is a learning curve - even for Tencent.”

Games: Although Qzone should have a natural advantage (Tencent also owns QQ Games), the games, like much else on the site, are of low quality. Qzone develops in-house copies of popular games, but it lags way behind and prohibits users from adding games without paying at certain times. Perhaps Qzone’s comparatively young and rural users are so naïve that they pay Qzone when they can play the same—or better—games for free on the other networks. But it's doubtful that this a successful business strategy in the long run.

Financing: Tencent, Qzone’s parent company, is massively profitable and can employ incredible resources should it so desire.

Revenues: No public figures are released. There is a lack of advertising and quality games, so virtually all revenues must come from Qzone “Yellow Diamond” memberships. It is difficult to estimate that revenue stream, but it’s hard to imagine that too many Chinese users will stay loyal to Qzone in the long-run if they continue to offer lousy services.

Analysis: Tencent with Qzone is like Microsoft with Windows Vista: a near-monopolist (in instant messaging) that can thrive despite a terrible product and lack of vision. Tencent is still massively profitable: 2009 revenues were $1.8 billion, about three times Facebook’s estimated revenues. It’s unclear how much of that is attributable to the Qzone social network though.

Benjamin Joffe comments, “Tencent is definitely not the best in terms of products or innovation - similar to Zynga in that sense - but their ability to deliver a "good enough" mass market service and integrating it within their ecosystem is impressive.”

It holds the teen demographic, but poor site design and management have cost it ground against its competitors. Qzone is shut out of the market for older students and white-collar workers, and RenRen is now encroaching on its core demographic of teens. Qzone could still turn things around though, as its parent company Tencent is an 800-pound gorilla in the Chinese internet.

51.com

51.com was an early favorite with significant backing, but is now struggling. Growth has slowed and it has the lowest traffic rankings of the top four. In early January, the site was briefly blocked for “objectionable” content, so management is trying to clean itself of lewd users and content (it’s rumored to be a platform for the world’s oldest profession). Its Chief Strategy Officer recently resigned, citing illness.

51.com is a borderline mass-market contender at best. Urban and educated demographics have all turned to its competitors. It’s now in the precarious position of defending its core user base in lower tier cities.

Users: Users from lower tier cities.

User Interface: 51.com is a simple social network. It’s far more functional than elegant. Several popular applications are pre-installed and the skins are customizable.

Platform: 51.com offers an open platform. It has attracted about 50 applications (mostly games). It is expected to offer more favorable revenue share terms than RenRen.

Games: The games on 51.com are decent, though not as numerous or high-quality as on RenRen. 51.com also develops its own games in-house: it’s investing $15 million in a gaming portal, in an attempt to reduce its reliance on advertising and value-added services. It will also soon connect into the gaming platform from Giant Interactive, one of its investors.

Financing: Giant Interactive, a publicly-listed Chinese massive multiplayer online gaming company, invested $51 million for a 25% stake. Earlier backers include venture capital firms Sequia Capital, SIG, Redpoint Ventures, and Intel Capital. In early 2007 there was premature talk of an IPO in 2010, but nothing has been heard since.

Revenues: 51.com claims to have turned a profit in 2009, with advertising revenues of about 200 million RMB ($29 million). Its open platform generated roughly 12 million RMB ($1.8 million) in revenues.

Analysis: 51.com was likely doomed to the mass-market by its rural roots. Its lower tier cities approach initially allowed for quick user growth, but the site now has a low-brow reputation and is scorned by more sophisticated netizens. RenRen’s approach of starting with the elite students at China's top universities, BeiDa and Tsinghua, and then spreading outward (copied from Facebook), appears to have been far more successful.

Second tier social networks worldwide are falling to Facebook. Will China’s more “sophisticated” networks push into 51.com’s territory? BloggerInsight is inclined to think so. 51.com’s stagnation in user growth relative to other networks is not a good sign; spreading outward from elite users has been successful for social networks worldwide and for RenRen in China too.

There are certainly differing opinions though. Beijing-based internet guru Kaiser Kuo told BloggerInsight, “I wouldn't write them off at all: They've got a real hold in sub-secondary cities and with their tie-up to a major game company (Giant Interactive), they've got plenty of cash, and as far as I know, loads of traffic. It's also been cleaned up quite a bit within the last year, from what I've heard.”

51.com may or may not hold its ground in lower tier cities. But one thing’s for certain: 51.com stands little chance in China’s top-tier cities.

Future Predictions: One RenRen to Rule them All?

The competition is open and fierce between the top four networks, but BloggerInsight’s bold crystal ball sees RenRen’s on the rise in the future. Its management team is nimbler and more aggressive than its competitors. Where other networks are dabbling (licensing games), RenRen is blazing ahead (open application programming interface).

Because of its high value, RenRen is starting to push outward from university students into both younger and older demographics. As teens become savvier on the internet at younger ages, they will start to abandon Qzone for RenRen. As students move into the workplace they should remain loyal to RenRen, encroaching upon Kaixin001. 51.com, meanwhile, faces a difficult fight to retain its users in 2nd and 3rd tier cities and rural areas. China’s social network universe, though fractured by different demographics for now, may gradually coalesce around RenRen.

Kai Lukoff is an analyst at BloggerInsight and an editor on China Social Games. Follow Kai on Twitter @klukoff

Returning to Asia

Jia Shen and RockYou aren't completely new to China. Shen, a Mandarin speaker, and RockYou have previously launched two games on Renren in the early days of the open platform: Speed Racing and Superpets. Both games were modestly successful reaching the Top 5 applications list at the time but didn't last long. Shen is now returning to China with hopes of building more lasting relations.

RockYou recently announced their plans to begin partnering with Chinese social game developers to license and distribute games globally. RockYou wears three hats: it's an advertising network, a game developer, and a global publisher. Its advertising network, called the RockYou Monetization Plaftorm (RVMP) generates 20 billion impressions a month, making it the top network on Facebook and within the top 20-30 in the world according to Shen. It allows for developers to earn money on their games through advertising, offers, services and in-game advertising. As a application developer, RockYou is 3rd largest on Facebook, with Zoo World and Birthday Cards being its most popular apps.

It's this experience producing, marketing, and monetizing top games globally on Facebook and other networks that Shen believes sets their services apart from 6 Waves and other companies offering international distribution to Chinese developers:

"We're going to be very deep partners... it's not a large, long-tail pump-through lots of games type of system. It's definitely choose the right title, modify it, and create the right game that will actually work in a different market... the model is completely different from 6 waves."

The Hong-Kong based 6 Waves is currently the largest publisher for 3rd party developers on Facebook (No. 8 developer overall), focusing especially on Chinese developers. But its localization is often shallow according to industry insiders.

Made in China

The first game sourced from a Chinese developer to be launched by RockYou overseas is MyCasino on Facebook, released in March 2010. The game is currently in beta while it's tweaked before an advertising push to scale it up.

Shen believes that international Facebook user preferences for game concepts and play are very similar globally and not different from Chinese tastes. The localization process RockYou undertakes is detailed but mostly focuses on visual elements. In addition to translating the game's text, the graphics are "internationalized" to suit Facebook user's tastes. When testing and improving games, they typically launch games on Facebook and advertise in small markets with low player acquisition costs like Indonesia to develop a group of beta testers. After RockYou feels the game is ready for primetime, they will push it through multiple channels including their internal platform and Facebook ads.

Jia Shen cited two "gigantic things" that Chinese developers need help with when going global:

First, American companies are iterating... on a larger scale in terms of gameplay, functionality. The big games, like ours, Zynga's, they put out new releases everyday. The way you re-engage and tune the crap out of things, Chinese companies don't do that. They don't even have that mindset, so it's an education process. We're trying to get them to understand that better, but they have to be really aggressive at that.
The second is performance-marketing. The MMO world has skewed things in China in a very big way where people don't really understand the rest of the stuff. And that's a problem. Because when you go to the US, it's really by-the-numbers: go and buy your users and do all the right targeting to bring down the cost of the user acquisition. Buy as many users as possible, black out your competition, in one big fat advertising spend. That's not something that any Chinese company--and most US, for that matter--get.

Global Growth

RockYou is looking outside the US to grow their product development pipeline and to leverage Chinese development costs. A typical game developed in the US costs 200,000 - 300,000 USD compared to about 30,000 USD in China. RockYou will be sharing profits with the local developers to create an ongoing relationship to maintain and update the game over time. Revenues are much higher overseas for successful games. Shen notes the general rule of thumb is that a if a Chinese user would pay 1 RMB, a Facebook user would pay 1 USD (6.8x as much). User acquisition is far more costly on Facebook than on Chinese networks though.

Going forward Shen think RockYou might be even more integrated into the China social game ecosystem by providing seed funding to local teams and perhaps even opening a development office in Beijing. Shen is an advocate of the small social gaming startup and wants to continue to be a mentor for new entrepreneurs.

Kai Lukoff contributed to this post.