Alibaba Makes 1 Billion Yuan Game-Distribution Play

(Beijing) — E-commerce giant Alibaba Group Holding Ltd. on Friday announced a major new push into the lucrative but extremely competitive global online gaming sector, with plans to invest 1 billion yuan ($145 million) as it plays catch-up with well-established players.

At the core of its new push into game distribution is an alliance with four existing operators: Russia’s Mail.ru Group, Holland’s TFJoy, China-focused Efun and Middle East-focused ONEMT. That combination reflects Alibaba’s view that while Western gaming markets are more mature, there is still plenty of room for growth in developing markets like the Middle East and Russia.

“European, American, Japanese and South Korean markets are already considered mature markets, while the Middle East in the past two years is seeing rapid development, and Latin America and Southeast Asia as emerging markets show very high potential in mobile games consumption,” said Simon Shi, president of Alibaba Games. “We are doing very well in emerging markets like India and Indonesia already,” he added.

In addition to providing new funds, Alibaba will also pump its own related resources into the new alliance, including its UCWeb browser, its Youku online video business, Alibaba Pictures filmed entertainment unit, and Alibaba Literature, all of which have strong distribution arms.

China’s online game market has grown by double-digit percentages over the last 10 years, crossing the 100 billion yuan threshold in 2014. Sales reached 166 billion yuan last year, up 17.7% from 2015.

The market is already extremely competitive, dominated by leading players Tencent Holding Ltd. and NetEase Inc.. That pair posted gaming revenue of 18 billion yuan and 9 billion yuan respectively in their latest reporting quarters.

But whereas that pair have strong focus on game operation and development, Alibaba’s new alliance will be mostly focused on distribution. Still, the company will face a long uphill road to compete with more established competitors, said Ryan Roberts, an analyst at MCM Partners.

“They will face some challenges from Tencent and NetEase,” he said. “Tencent already has a dominant share in distribution, particularly for mobile. Alibaba has a lot of cash, but I'm not sure how successful their strategy will be. They have reach, for sure, but ultimately, game quality is what keeps mobile players engaged and playing.”

Contact reporter Yang Ge (geyang@caixin.com)