Replicating Tencent’s Model? Forbes Quotes Our View on Vietnam’s VinaGame

I have been asked numerous times whether Tencent’s model could be applied to other markets. My usual answer is: parts of it can be used in many, but the whole model is best deployed by a local company in a developing market.

As mentioned in our quote on today’s Forbes’ column on VinaGame, Vietnam’s largest online gaming company, I believe some are already on their way.

Are there any clues? Here are three reasons to believe so:

• VinaGame already operates IM, portal, SNS and music services
• VinaGame has operational ties with Tencent
• Last, VinaGame purchased our researches on both Tencent and Cyworld from the first edition!

Surely, I am not the first one to suggest that – one commenter on this blog did that in October 2007. There are other companies on this track outside Asia: Mail.ru, the largest Internet portal in Russia, is also studying Tencent closely (and also bought our research). Mail.ru also has MIH as a major investor. If you don’t know MIH, it is a large South-African media group also known as NASPERS. It is the single largest investor in Tencent – they control 35.5% of Tencent, a share worth about 13.5 billion USD.

Another question ask by Rebecca Fannin, author of Silicon Dragon who wrote the column for Forbes, was the evaluation of the Vietnamese online gaming market. I did not have figures at hand but taking hints from an old interview exercise (a Google or Microsoft one I think) that was asking “How many gas stations are there in the US?” with no other information available (I heard another version about dentists), there is always a way to find an rough estimate based on a macroscopic view rather than go with a bottom-up measurement. If you ever wondered how research firms come up with estimates, this is as good a guess as many – and at least there is a methodology to it.

Here is how it goes:

Instead of looking at companies, you can look at market structure:

• Vietnam has similar structure as China in terms of income, GDP/capita, rich/poor (developing market).
• Around 20 million Internet users, so about 25% of the population (similar ratio to China).
• Several years behind China in terms of market maturity (2 or 3? IDG says 10 in the interview but that sounds exaggerated according to some conversations I had with various execs).

So doing just a very rough estimate:

• The China market was ~2 billion 2 years ago
• Vietnam has about 20 times less Internet users

Hence, I would say that Vietnam’s market is probably around $100 million, but has the potential to double or triple within 3 years as Internet spreads (note: this is confirmed by Vinagame’ growth rate of 50%). This number is surprisingly close to VinaGame’s own market estimate (since nobody seem to have a solid figure). The difference is: I know very little about the market and assumed nothing about VinaGame’s revenue. Is that cold reading?

Also, the market is heavily reliant on licenses from China and Korea, which cost quite a bit (also confirmed in the interview that only 5% of VinaGame revenue are from local games), so companies should be able to grow the capability to develop their own titles and potentially generate higher margins (cutting down on licensing + better cultural fit).

You can apply this method to any other developing market, then correct by a few factors like geographical barriers (Internet users don’t grow as fast in countries without densely populated areas), political instability (which harm business), etc.

So… is there a Tencent in your country? What is your market’s potential?

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