At a time when anti-China sentiments are high across the globe and ‘kick-the-dragon-out’ chorus is getting louder in every nook and corner in the wake of the somewhat mysteriously behaving deadly Novel Coronavirus, tech behemoths from the communist country are seemingly working all-out to somehow dominate the Indian online gaming sector- one of the few businesses which despite the general devastating impact of the pandemic, continues to prosper.
Alibaba and Tencent, two of the largest Chinese tech companies now have big stakes in some of the leading Indian online gaming companies including the Paytm First and the sole unicorn (a company worth over U.S. $1 billion) of the sector in India, Dream 11.
After the restrictions imposed last month by India on Chinese investment in the wake of the COVID-19 scenario, Alibaba backed Paytm First Games, a prominent gaming company in India, recently, joined hands with Pakistan based Daraz, an online marketplace and logistics company which operates in South Asia and Southeast Asia barring India, to launch a gaming platform Daraz First in Bangladesh.
Daraz, founded in 2012 in Pakistan, operates e-commerce platforms and logistics service in Pakistan, Bangladesh, Myanmar, Nepal and Sri Lanka. In 2018, Daraz Group was acquired by Alibaba which also has invested hugely in Paytm. Paytm First Games is a joint venture of Indian mobile wallet Paytm and Alibaba.
Chinese Giants’ Investment Strategy
The tech giants from China have been obviously investing with a policy to cash-in on the thriving Indian mobile commerce market and the related hidden benefits.
The total investment of the Chinese companies (including Tencent and Alibaba) in the Indian tech sector, including gaming industry startups, was a little over US$214 million till 2013 but it has risen almost 40 folds to the US $8 billion by December 2019, according to Bengaluru based start-up tracking firm Tracxn. Though the exact figures of investment by Alibaba and Tencent were not available, the two were believed to be among the largest investing Chinese companies.
Apparently Alibaba looked interested in making a bigger investment in companies like Paytm as an anchor and taking larger ownership, Tencent is seemingly following the policy of smaller ownership in multiple companies.
According to a Quartz India report, ‘Alibaba has invested in Indian companies including Paytm Mall, an online retail place under Paytm, food delivery app Zomato, online grocer Bigbasket, e-commerce platform Snapdeal and logistics firm Xpressbees. Apart from Xpressbees, which does not reveal its valuation, all the other five firms have achieved unicorn status, valued between just over $1 billion (Bigbasket and Snapdeal) to a whopping $16 billion (Paytm). Alibaba is the single largest shareholder of Paytm.’
‘Tencent, meanwhile, has invested in some of the strongest rivals of the firms that have received money from Alibaba. For instance, Tencent has invested in Swiggy, which is engaged in a food delivery fight with Zomato, as well as in Flipkart, the largest e-commerce platform in India, which Walmart bought in 2018 as it competes with Amazon.
The US e-commerce giant exceeds both Snapdeal and Bigbasket in terms of sales in India. Other unicorns Tencent has invested in include messaging app Hike, ride-sharing firm Ola, learning app BYJU’s, fantasy gaming platform Dream11 and B2B trading platform Udaan. It is difficult to calculate the total amount the two have put in Indian startups, as most of the funding rounds included other investors, such as SoftBank,’ the report said.
Other Chinese investors apart from Tencent and Alibaba that have become active in India in recent years include Tik-Tok owner ByteDance, smartphone maker Xiaomi, which has invested in sectors like entertainment and mobile apps, and Chinese conglomerate Fosun, which has invested in more than five Indian startups, including logistics firm Delivery and booking website ixigo,’ it said.
The Online Gaming Sector
The Indian online gaming industry is among one of the few businesses in the country which had not only flourished during the slowdown before the Covid 19 crisis but has also continued to boom even after it. In the nearly two decade old Indian gaming industry, initially games were played on consoles and later on PC’s only. But with the surge in the numbers of smart phones and availability of cheaper internet data, it saw a quick growth in last 5 years or so. Almost 90% of all the gamers now play on mobile phones. It grew by 40% to reach Rs 6500 crore (US$855 million) in annual revenue size last year. It was projected to be almost triple to over Rs 18700 crore (over US$2.5 billion) by 2022, according to a recent joint study of the Industry body FICCI and the professional services provider firm Ernst & Young.
According to another report the gaming industry revenue, including both transaction based and non-transaction games, in India was projected to cross Rs 25000 crore (US$ 3.3 billion) mark by 2024. The number of gamers in this country of 138 crore (1.38 billion) people with a large chunk of young population, has increased exponentially to nearly 38 crore (357 million) last year and was constantly rising.
Even during the pandemic caused lockdown when most of the businesses have either shut shop or taken a big nosedive, gaming sector is still flourishing. According to the Industry players, there is over 2 fold rise in the number of gamers during the lockdown. Because people with more leisurely time, are now playing such games on mobile phones as a favourite pastime, to keep the Coronavirus anxiety at bay.
The sector has been a hot-favourite of the investors from all quarters but the Chinese players have seemingly left everyone else behind in this regard. And now that the fantasy gaming segment, which had seen the quickest growth of over 118% last year has failed, Alibaba is apparently using other tactics by expanding its wings through players like Paytm First. Its recent tie up with Daraz, the China backed company in Pakistan is also being seen as one of these tactics. Tencent has invested Dream 11- the biggest Fantasy sports platform in India which is now almost completely shut due to unavailability of real sports events as the fantasy gaming depended on such events. In Fantasy sports, participants pay a fee to assemble a virtual team of professional players from any ongoing event and then win cash or prizes based on how those players perform in real-life games.
A recent report said that more than a third of India’s 1.3 billion people are internet users, and most of them used budget category smartphones with cheaper data-usage plans. The local smartphone market was growing by 10% per year before the Covid crisis.
According to Girish Menon, head of media and entertainment for KPMG in Mumbai, the Indian scenario is attractive to Alibaba and Tencent because their entire ecosystem is developed around mobile phones. The time spent on gaming is far higher in India than any other form of entertainment.
Meanwhile, on the launch of the Daraz First games the Paytm in its statement said, ‘We are thrilled to share that Paytm First Games, has teamed up with Daraz to enter South Asian markets. The company has launched its premium gaming app in Bangladesh, and will soon be bringing its innovative gaming experience to Nepal, Sri Lanka, and Myanmar as part of its international expansion.’
Launched in 2012, Daraz is South Asia’s premier online shopping marketplace with 5 million consumers across the region. The partnership will help Paytm First Games get access to one of the fastest-growing gaming regions in Asia, the statement added without any kind of mention of Daraz’s links with either China or Pakistan.
It quoted Sudhanshu Gupta, COO, Paytm First Games as saying, ‘Mobile gaming has been exploding in South Asia region and we endeavour to partner with players who share the same mission. We are thrilled to partner with Daraz.’ Chief Growth Officer, Daraz Group, Edouard Gheerbrant said, ‘This platform will enable Daraz to capture the fast-growing mobile games market opportunity in South Asia. I’m confident that the collaboration with Paytm First Games will accelerate DFG’s growth in becoming the market leader of the region’s gaming industry.’
Data Security & Other Risks
According to a report by the Gateway House: Indian Council on Global Relations, a reputed foreign policy think-tank, Chinese funding to Indian tech start-ups is making an impact disproportionate to its value, given the deepening penetration of technology across sectors in India.
‘Investments made by Chinese tech companies and funds, led by giants like Alibaba, ByteDance and Tencent have funded 92 Indian start-ups, including unicorns such as Paytm, Byju’s. 18 of the 30 Indian unicorns have a Chinese investor. This means that China is embedded in Indian society, the economy, and the technology ecosystem that influences it. Unlike a port or a railway line, these are invisible assets in small sizes – rarely over $100 million – and made by the private sector, which doesn’t cause immediate alarm,’ the report said.
‘If Alibaba, Tencent and other Chinese tech majors replicate their internet ecosystems in India, this can create a systemic risk. An ecosystem such as this controls access to end-users; it means other companies (retailers, financing firms and media) will have to follow the standards/technologies prescribed to them. Alibaba/Tencent will be in a position like Google – they can decide which firm will succeed or fail by controlling user access, using their own technologies. Imagine: the Indian economy could use Chinese tech for critical applications,’ the report claimed.
‘Chinese companies such as Alibaba and Tencent have their own ecosystems, which include online stores, payment gateways, messaging services, etc. An investment by them can pull the Indian company into this ecosystem, which may mean loss of control over data,’ the report claims adding that the reliance of Indian start-ups on overseas venture capital funding has proved success for China and some of the unicorns like Paytm and Flipkart have been acquired outright by such companies.
To a query about the increasing Chinese investment, Gaming sector expert and founder and MD cum CEO of Ability Games, Kolkata based independent research and game development company, Suraj Chokhani said, ‘Today when the whole world has turned in to a global village, technological collaboration and investment from other countries is required for growth and doing big things. But so far as China is concerned, it should also open its doors for the Indian companies to invest there in the same manner its companies were doing here in India. It would also help in achieving trade balance of sorts. It should not be a one-way affair.’
Well known nationalist activist, writer and founder of Jan Ki Baat, Pradeep Bhandari said that India should see to it that the dragon did not succeed in economic imperialism in the name of investment in India. ‘In the post Covid world, China is facing a global distress. And in that context it is extremely imperative that India does not look at China as a true friend but a competing power that can hamper our strategic interests. India should not have an open door policy with regard to Chinese investment but rather have a restrictive, cautious policy which scrutinizes Chinese investment and prevents economic imperialism’ in the name of investment,’ he said.
Ahmedabad based online gamer Manoj Dave (name changed) said that he was annoyed to see such developments. ‘At a time when all Chinese investments without government approval are prohibited in India and when Pakistan is increasingly facing economic and social sanctions and boycott from most countries across the world, it is shocking that companies like Paytm, which keep preaching about Make in India and nationalism, are entering into a strategic partnership and JV with a Chinese-backed Pakistani company. I will not use this platform and would also urge my friends to boycott it for this type of behaviour. All those companies running their businesses with Chinese money should be boycotted by the public,’ Dave said.