ByteDance Gaming Strategy: How TikTok's Parent Plans to Disrupt the Industry

ByteDance's Expansion into the Gaming Market

Over the past several years, ByteDance, the organization behind the popular TikTok application, has been actively pursuing diversification of its income sources. This effort extends beyond traditional advertising and aims to unlock new monetization opportunities within its vast user base.

A key focus of this diversification is the gaming sector, a historically profitable component of China’s digital economy.

China's Dominance in the Global Gaming Landscape

Currently, China represents the world’s largest gaming market. Revenue generated in 2020 reached $40.85 billion, as reported by Newzoo, a leading market research organization.

The United States followed as the second-largest market, with revenues totaling $36.92 billion during the same period.

A Highly Competitive Market

However, the Chinese gaming market is characterized by intense competition. Established industry leaders, such as Tencent and NetEase, have maintained dominant positions for a considerable time.

Emerging companies like Mihoyo and Lilith are also achieving notable success and challenging the status quo.

Analysys data from 2019 indicates that Tencent controlled over 50% of the Chinese gaming market share.

NetEase and 37 Interactive held approximately 16% and 10% respectively, creating a challenging environment for smaller competitors.

ByteDance's Gaming Strategy: Nuversegame

Despite the competitive landscape, ByteDance is actively progressing with its gaming initiatives.

Last month marked the official branding of its gaming division as Nuversegame, accompanied by the launch of a dedicated website.

ByteDance’s strategy encompasses several key elements:

• A diverse portfolio spanning multiple game genres.
• An aggressive recruitment drive to attract talent.
• Implementation of established monetization models.
• A dual focus on both the Chinese domestic market and international expansion.

Kevin Meyer, during his tenure at ByteDance, was entrusted with overseeing various international operations, including the gaming business.

A Long-Term Perspective

ByteDance appears confident in its ability to succeed, even when compared to the industry's established giants.

Yan Shou, a gaming executive at ByteDance, articulated this perspective in a social media post last year, stating: “Gaming is fundamentally a content-driven business, and maintaining a monopoly is difficult with sufficient patience.”

Competition for Skilled Professionals

Over the past few years, ByteDance has actively recruited a significant number of former employees from the companies known collectively as BAT – an abbreviation representing Baidu, Alibaba, and Tencent, three of China’s leading technology corporations.

Yan, for instance, previously held a strategic role at Tencent for more than two years before accepting a position with ByteDance in 2015. While employee movement between companies is typical within China’s rapidly evolving tech sector, ByteDance has gained a reputation for offering highly competitive salaries.

Many technology professionals are attracted by the potential to receive employee stock options, anticipating a future public offering by the company. This prospect serves as a powerful incentive for many.

Furthermore, employees with significant tenure at established companies like Alibaba and Tencent, both exceeding two decades in age, may experience a sense of limited growth opportunities. ByteDance, established just nine years ago, is currently experiencing rapid expansion.

A Beijing-based technology headhunter explained to TechCrunch that ByteDance’s current stage and its emerging ventures offer an ideal environment for ambitious individuals to realize their career goals.

Expansion in the Gaming Sector

ByteDance has also significantly increased its recruitment efforts within the gaming industry. The company’s gaming division now employs nearly 3,000 individuals, a substantial increase from the 1,000 it employed just last year, as confirmed by an informed source.

These employees are strategically located across key technology centers throughout China, including Beijing, Shanghai, Hangzhou, and Shenzhen, and operate within ByteDance’s various gaming studios.

To illustrate the scale of this growth, 37 Interactive, China’s third-largest gaming company, reported approximately 4,000 gaming staff as of January. It took 37 Interactive a decade to achieve this level of staffing.

ByteDance, in contrast, has been actively involved in game development for around five years. This demonstrates a remarkably accelerated growth trajectory.

ByteDance’s Response

ByteDance chose not to provide a statement regarding this report.

• Key Takeaway: ByteDance is aggressively expanding its workforce by attracting talent from established tech giants.
• Growth Rate: The company’s gaming division has tripled in size within a single year.
• Competitive Advantage: ByteDance offers attractive compensation packages and opportunities for rapid career advancement.

The Rise of ByteDance in the Gaming Industry

Entering the gaming arena later than established companies may, in fact, present certain benefits. ByteDance’s ability to observe the strategies employed by firms like Tencent provides valuable learning opportunities. Notably, ByteDance is concurrently developing a broad spectrum of game genres, ranging from ephemeral mobile experiences to independent titles featuring unique designs and themes.

This diversified approach distinguishes ByteDance from Tencent, according to Daniel Ahmad, a gaming analyst at Niko Partners. Tencent, currently the world’s leading gaming company, initially focused on board and card games during the 2000s, gradually expanding its portfolio over time.

A diverse game portfolio from the outset requires substantial financial resources, something ByteDance possesses. Supported by a thriving advertising business stemming from its short-video platform Douyin and news aggregator Toutiao, alongside over $7 billion in equity funding, ByteDance has the capacity to fund expansions not only into gaming but also into education and Software as a Service (SaaS).

Beyond actively recruiting talent from other technology leaders, ByteDance also strategically acquires smaller companies to augment its workforce. Since 2018, ByteDance has made investments in at least eleven gaming companies, completing full acquisitions of six, as per public records. These acquired assets and personnel are then integrated into ByteDance’s internal gaming studios. This “acqui-hiring” strategy is a well-established practice within ByteDance.

Kelly Zhang, the product manager instrumental in the success of Douyin (the Chinese version of TikTok), also joined ByteDance following the acquisition of her photo-sharing startup. Like most gaming companies, ByteDance employs a dual monetization strategy: distributing third-party games and developing original titles.

Recognizing that high-quality games require time to develop, this approach allows the gaming division to generate revenue while investing in potentially lucrative original creations. Simple, casual games are well-suited for advertising placements between levels. More intricate games, however, depend on player engagement and typically generate income through in-app purchases.

Several of ByteDance’s licensed casual games have already achieved a position within the Top 10 free games on the Chinese iOS platform, including titles like the car racing game Drift Race, the music game Yinyue Qiuqiu, and the puzzle game Brain Out. While these collaborations haven’t yet yielded significant profits, they demonstrate the effectiveness of ByteDance’s traffic generation strategy.

ByteDance reported in 2019 that it had 1.5 billion monthly active users across its suite of applications, acknowledging potential overlap in user bases. A key element of ByteDance’s game marketing strategy involves integrating native advertisements into users’ content feeds. According to Niko Partners’ Ahmad, these videos are “interactive, user-friendly, and offer higher conversion rates compared to traditional advertising formats.”

These advertisements can direct users to download dedicated gaming applications. However, mirroring the functionality of WeChat and other popular Chinese apps, Douyin and Toutiao also support third-party “mini-games” within their platforms, allowing users to play lightweight games directly within the apps.

With a substantial base of hundreds of millions of monthly users, ByteDance possesses a strong understanding of user preferences and behaviors, enabling it to effectively recommend relevant games. The company’s underlying principle is that increased user interaction and feedback will lead to more accurate predictions.

ByteDance’s gaming developer handbook explains that its “algorithms” will automatically present mini-games to users in various formats through targeted “recommendations.” The handbook further states that “all games have an equal opportunity for initial exposure.”

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