Alibaba plans to take a piece of China’s growing mobile gaming sector by offering its own gaming platform, directly competing with current sector leader Tencent Holdings Ltd (HKG:0700) (OTCMKTS:TCEHY), whose products are already being used by half of all Chinese smartphone users, report Paul Carsten and Adam Rose for Reuters.
Last year the Chinese mobile gaming sector brought in $1.86 billion, and Tencent Holdings Ltd (HKG:0700) (OTCMKTS:TCEHY) made $55.86 million, but with the world’s largest number of smartphones and an economy that is still growing rapidly compared to the US and Europe, there’s plenty of room for growth. Alibaba doesn’t have any plans to start creating its own games, and to steal market share from Tencent it will offer software developers access to its platform free for one year. A new game developer facing tight margins on freemium games (free to play, with premium options), will find that offer hard to turn down if the level of service and performance is comparable.
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Alibaba can afford to invest in new business ventures
Alibaba can certainly afford to take the initial hit. It’s selling consumer electronics in such high volumes that it is investing in the Chinese logistics sector to make sure that its orders can be handled reliably. Like other tech giants, it is just using its strength in one area to pay for expansion into other parts of the market (e.g. Google supporting everything with Search, or Microsoft relying heavily on Windows). Even though its main business isn’t yet mature, founder Jack Ma isn’t wasting any time finding other sources of revenue.
Alibaba’s IPO may be delayed to 2015
Its IPO was one of the most anticipated off 2013 until disagreements with the Hong Kong exchange pushed it back to 2014, when it will likely list in the US. Now there are even rumors it could be delayed until 2015, which could make it one of the most anticipated IPOs three years in a row, if that counts for something.
A company’s buzz can easily die down over such a long time period, especially if there are any costly missteps along the way, but if it succeeds in gaining a foothold in online gaming, Alibaba will only become more attractive to investors who want to increase their exposure to China’s growing middle class.