Competition in the game industry is becoming increasingly intense, product homogenization is serious, and users' ability to pay is generally weakening. Facing the severe market environment, game companies must think about how to develop a unique approach in the Red Sea market to create a differentiated competitive advantage.

In the context of this industry, the Hong Kong stock listed company IGG (0799.HK) showed an impressive report card through its 2023 financial report. According to last year's financial data, the company achieved steady revenue growth, and net profit to mother also turned a year-on-year loss into a profit, which is expected to usher in a second increase in valuation.

What is the operating strategy and business layout of IGG game products in the game industry over the past few years? How is game product development carried out? How will we further innovate and differentiate in the future? Recently, after studying IGG's financial report for last year and conducting an exclusive interview with IGG Executive Director and Chief Operating Officer Xu Yuan, Gelonghui gained a deeper understanding.

Long-term principle to achieve everlasting gaming

As a world-renowned mobile game and mobile application developer and operator, IGG's game product operation philosophy and practice believes in long-term principles and always maintains a high DAU (number of daily active users) level of games.

IGG Executive Director and Chief Operating Officer Xu Yuan further explained to Gelonghui that this is the company's core operating strategy. By operating a game product for a long time and maintaining a high DAU level at all times, when the DAU target is reached, and then considering user payments, the revenue target is likely to be achieved. For example, the company's game product “Castle Clash” has been around for ten years, and “Kingdom Age” has been in production for eight years. This fully demonstrates the company's ability to operate games for a long time and maintain a high DAU level at all times, thus maintaining stable game flow and everlasting gaming.

Judging from the data, taking “Age of Kingdoms” as an example, this game currently has a global DAU of 2 million, making it one of the SLG (strategy type) games with the highest DAU in the world. How did IGG manage to maintain such a high DAU?

Xu Yuan told Gelonghui, “Since the beginning of “Kingdom Era,” the company has been steadily advancing at a rate of attracting 2.3 million new users per day. IGG differs from other companies in terms of buying volume strategies: many companies tend to attract high-quality players accurately, while IGG focuses more on attracting a wide range of users. Looking back over the past 8 years, IGG's strategy has achieved remarkable results - “Age of Kingdoms” has generated a total revenue of 4 billion US dollars and joined 4BillionDollarsClub along with more than 20 games from around the world.”

He further stated, “By operating a game product for a long time and maintaining a high DAU level until the fourth or fifth year, we can have enough data to analyze user needs and behavioral habits to judge the next three or five years of development. It is in this way that it provides valuable guidance for the development and long-term operation of our two new strategy games, “Doomsday: Last Survivors” and “VikingRise.”

According to public data, at the beginning of 2023, after the company increased the promotion of “Doomsday: LastSurvivors”, the monthly turnover broke through the HK$82 million milestone and climbed to the level of HK$100 million in March 2024. Another Viking-themed product, “VikingRise”, was officially launched in December 2022. Through continuous updates and promotion, promotion is expected to begin in the second half of 2024, and is ready to go.

Xu Yuan said, “In terms of quality and data performance, these two new games are not inferior to the same period of “Age of Kingdoms”, and even some data performance is even better. However, the current market competition in the game industry is more intense than when we launched “Age of Kingdoms” in 2016, and customer acquisition costs are increasing year by year. As a result, our operating strategy is constantly being adjusted. Despite this, we have always put the long-term operation of the game and the creation of a strategy to maintain a big DAU first. For example, our operating goal for “Doomsday: Last Survivors” this year was to double DAU without setting specific revenue or profit targets. We believe that when the DAU target is set, the revenue target will naturally be achieved.”

Diversified development of the new tour+app business will drive “profit and growth” in 2024

Recently, IGG released its 2023 financial report. According to the data, the company achieved revenue of HK$5.266 billion last year, an increase of 15% over the previous year; net profit to mother of HK$73.03 million was achieved. Compared with losses in 2022, the company achieved a major transformation of turning losses into profits.

In addition to turning a loss into a profit, another surprise in the financial report is that IGG's revenue structure has undergone major changes, which can be described as achieving a major strategic breakthrough. According to the data, “Kingdom Era” contributed about HK$3.108 billion to the company's revenue last year, accounting for 59% of the company's total revenue. In the same period of 2022, the game's revenue was 3.67 billion yuan, accounting for 80% of the company's total revenue for the year.

Source: Public Information

The new game “Doomsday: Last Survivors” exploded in revenue last year, achieving revenue of HK$679 million, accounting for 12.9% of the company's total revenue; in 2022, the game's revenue was only around HK$42 million, accounting for only 0.9% of the company's total revenue for the year. In addition, IGG's other new game “VikingRise” also exploded in revenue. Last year, it achieved revenue of HK$409 million, accounting for 7.8% of the company's total revenue; in the same period of 2022, the game business accounted for almost zero share of the company's total revenue for that year.

As can be seen from this, IGG has evolved from a company that mainly relies on the “Age of Kingdoms” game to contribute revenue sources from “Age of Kingdoms”, “Doomsday: Last Survivors”, and “VikingRise” games.

Looking at IGG's 2023 financial report, another highlight of IGG is the rise of the app business. The business grew significantly from around HK$105 million in 2022 to HK$580 million in 2023, accounting for 11% of total revenue from 2.3% in 2022.

Regarding the subsequent development of the company's app business, IGG's management said that the app business changed from “barbaric growth” in 2023 to “careful cultivation” this year, and the business direction also changed from tools to content-oriented app services, opening up a new space for growth. The 2024 monthly turnover was adjusted for a short period of time, and the March turnover returned to the level of 8 million US dollars.

Furthermore, with the support of AI technology, the number of employees in the company has been greatly optimized from 3,100 during the peak period to more than 1,900 in 2023, but R&D efficiency has been greatly improved, and the number of research projects has remained the same. Currently, there are 21 games under development. In terms of costs, R&D expenses were reduced by 28% year on year in 2023, and IGG achieved significant cost reduction and efficiency.

Looking ahead to 2024, it is foreseeable that through years of careful long-term operation and diversified strategic layout development, IGG's core products will expand simultaneously in multiple business fields, and multiple horse-drawn carriages go hand in hand, and usher in a good trend of “profit and growth”.

The following is a conversation between Gelonghui and IGG Executive Director and Chief Operating Officer Xu Yuan:

Always put the long-term operation of the game and the strategy of maintaining a large DAU first

Glonghui: Seeing that the company's core game “Kingdom Era” continues to have a large number of active users and has maintained stable revenue for a long time, how has the company successfully maintained the medium- to long-term operation of this game over the past few years? At the same time, we also want to know what progress has the company made so far in developing new users?

Xu Yuan: “Age of Kingdoms” is an SLG game. This type of game places great emphasis on social interaction. Therefore, our core strategy is to maintain the game's high DAU level.

Currently, “Age of Kingdoms” has a global DAU of 2 million, which is probably the SLG game with the highest DAU in the world. Our usual operating strategies revolve around this core goal, so that “Age of the Kingdom” has maintained strong vitality and profitability over the past eight years. Over the past eight years, it has generated a whopping $4 billion in revenue. This is our insistence on maintaining the game's long-term results through big DAUs.

In terms of new user development, we have attracted around 70 million new users for “Age of Kingdoms” in the past year. On the one hand, we use a global marketing strategy; at the same time, since the game has been around for a while, it has become relatively difficult to attract a large number of new users by relying on advertising alone. We have also collaborated with many well-known IPs, such as “How to Train Your Dragon” and “ACW World Armor Fighting League”. These collaborations have helped us effectively increase the number of users.

This year, we are further collaborating with movie IPs such as “Shrek” and “Godzilla vs. King Kong”, as well as the famous sports car brand “Pagani”. Through this linkage with third party IPs, we are further attracting more new users.

Gelonghui: In addition to the core game “Kingdom Era,” we have noticed that the company has also launched many new games, and these new games have also become a new growth point for the company. These include two new SLG games: Doomsday: LastSurvivors and VikingRise. I wonder if the operating strategy of these two new games will be any different from “Age of Kingdoms”? Some investors have determined that the two new games “Doomsday: Last Survivors” and “VikingRise” may be more profitable than “Age of Kingdoms.” What are your thoughts on this judgment?

Xu Yuan: These two new games are not inferior to “Age of Kingdoms” in terms of quality and data performance, and even some data performance is even better. However, the current market competition in the game industry is more intense than when we launched “Age of Kingdoms” in 2016, and customer acquisition costs are increasing year by year. As a result, our operating strategy is constantly being adjusted.

Despite this, we have always put the long-term operation of the game and the creation of a strategy to maintain a big DAU first. For example, our operating goal for “Doomsday: Last Survivors” this year was to double DAU without setting specific revenue or profit targets. We believe that when the DAU target is set, the revenue target will naturally be achieved. Judging from some current metrics, “Doomsday: LastSurvivors” and “VikingRise” have indeed shown the potential of popular products. This is mainly because we incorporated a number of late-stage new gameplay into the design of these two games.

Gelonghui: Among gamers, data shows that there are currently close to 300 million domestic female gamers, and there are more than 1.2 billion female gamers worldwide. The company has previously launched the women's dress up game “Time Princess”, and will it continue to consider launching new games for female players after that?

Xu Yuan: “Time Princess” has achieved good results in terms of game quality and player reputation, and the flow is also very steady. Although its distribution is not on the same level as our other SLG games, it has played an important role in enhancing IGG's brand recognition and cultural communication value. For example, “The Princess of Time” collaborated with the Xi'an Museum in China, the Louvre in France, the Vienna Art History Museum in Austria, and the Flamenco Dance Art Official Museum in Spain to spread culture and art around the world using games as carriers.

In the future, our company hopes to continue to launch more games and gameplay that can be enjoyed by female players around the world.

Continuously evolve and optimize business models

Gelonghui: From the perspective of the game industry, how can we maintain steady operation and strong competitiveness under fierce competition in the game industry and domestic version restrictions? What is your company's overall business strategy?

Xu Yuan: We mainly adopt a global operation strategy, so there are few domestic version restrictions. At the same time, with the rapid development of AI technology, game companies also need to fully embrace AI technology in order to gain a foothold in this industry. By embracing AI technology as soon as possible, the company is at the forefront of the industry in the application of AI technology. Currently, AI is being used in depth at the level of R&D, planning, art, and procedures to enhance R&D strength and efficiency, and achieve large-scale cost reduction and efficiency.

Judging from our last year's financial report, the company's R&D expenses fell by about 28% year on year last year. Despite this, the number of the company's R&D projects has not been affected in any way. Currently, there are still 21 research projects in progress. Through the deep application of AI, our development efficiency has been greatly improved, and our R&D costs have been greatly reduced. This is one of the competitive advantages brought by the company's active embrace of AI technology, which has enabled us to gain a foothold in the industry and maintain strong competitiveness.

At the same time, AI has also played an important role in localized customer service, global game language translation, and promotional copywriting and video production, helping the company achieve efficient and refined operations.

Gelonghui: Does the company have any plans for the future business model of the game industry?

Xu Yuan: The core of our business model has always revolved around the long-term operation of games and maintaining a large DAU model, which is a core factor in the company's ability to move through the industry cycle. Since the beginning of “Age of Kingdoms”, we have been steadily progressing at a rate of attracting 2.3 million new users per day. In terms of buying volume strategies, we are different from other companies: many companies tend to attract high-quality players accurately, while IGG focuses more on attracting a wide range of users. Looking back over the past 8 years, our strategy has paid off remarkably — with a total revenue of $4 billion. Results like this are rare in the gaming industry, and are sufficient proof of the uniqueness and effectiveness of our strategy.

Of course, we will also continue to advance in our business model, and tactical innovations such as subscription systems, internal purchases, and advertising implantation will follow up at the same time. At the same time, we will continue to optimize strategies such as in-game gift package pricing and launch pace to stimulate players' desire to spend more.

Gelonghui: Facing the challenges of reduced online time and reduced ability to pay for users in the entire game industry, does the company have any strategies to deal with it? Are there any new investments or plans to develop higher quality games?

Xu Yuan: The company is already planning to launch higher quality games and provide more novel gameplay. We will use innovative gameplay to motivate user activity and improve game performance. For example, a pioneering free immigration campaign was launched in DLS games to reach out to active users and increase players' online retention rates.

At the same time, we will also continuously optimize commercialization methods for players' payment potential, including strategies such as adjusting the frequency of in-game activities and optimizing gift packages to tap payment potential.

Additionally, we'll also make games lighter to accommodate the trend of players spending less time online. For example, in terms of gameplay, games like SLG may have been too heavy in the past. One game took a few hours, but now it may be over in ten or twenty minutes. This is an adjustment we are slowly making in a general direction.

Gelonghui: The trend of integration between the game industry and short video platforms is becoming more and more obvious. What do you think of this trend? What is your company's planning and layout in this regard?

Xu Yuan: The integration of games and short videos reflects the continuous innovation trend of game companies. With the rapid development of AI technology, integration across industries and devices will become possible. For example, the advent of Sora text-generating short video software, its innovative features transform what was once seen as an unattainable imagination into a reality within reach, bringing unprecedented convenience and creative space.

As a game company dedicated to globalization, we understand the importance of technological innovation to the development of the industry. Therefore, we will closely follow cutting-edge developments in technology and actively explore the potential for integration between new technology and games. Whether it's advanced technology such as augmented reality, virtual reality, or artificial intelligence, we will maintain a keen insight and an open attitude to find and seize every suitable opportunity to stay ahead in an ever-changing market environment and bring players a more immersive and interactive gaming experience. Our goal is to continuously explore, be brave in innovation, and inject a steady stream of vitality into the game industry.

Pay more attention to good products and continuous growth, and insist on creating long-term value

Gelonghui: What is the company's development plan for the app business?

Xu Yuan: The APP business is one of our priorities. Since last year, our app business has developed by leaps and bounds. Currently, we are mainly focusing on content-oriented app services, and have made good progress.

Judging from the turnover, the current monthly turnover of our app business is about 8 million US dollars. The main revenue of the app business comes from third-party advertising. There is no platform sharing, and profit margins are stable. Therefore, this business is expected to bring good net profit growth to IGG.

Gelonghui: Although your company's 2023 earnings report shows record revenue, the stock price performance does not fully reflect the company's value. What do you think of this phenomenon?

Xu Yuan: Stock prices are affected by various factors, including the market environment, investor sentiment, etc. As company management, we pay more attention to core tasks such as improving products, enhancing competitive advantage, and achieving continuous growth to create long-term value. With the release of the next few financial reports and the continued growth of the company's performance, we believe that Hong Kong stock investors will once again pay attention to and recognize our value.