Tencent has high score in mobile gaming, but Baidu and Alibaba want next turn

In 2010, Jack Ma, the founder and chairman of Alibaba Group, pledged to none other than former premier Wen Jiabao that he "would not invest a penny into games" because it wasn't a worthwhile way for the country's children to spend their time.

And yet that is exactly what Alibaba is doing. In January, the e-commerce giant announced it is branching into mobile games, market that could be worth as much as 50 billion yuan. And now China's Big Three Internet companies – Alibaba, Baidu Inc. and Tencent Holdings — are all playing.

The director of Alibaba's mobile gaming unit is Liu Chunning, who was the vice president in charge of digital entertainment at Tencent before joining Alibaba in September. The goal is nothing short of breaking Tencent's dominance in online gaming, he said.

"We are very unhappy about the dominance of Tencent games," said Alibaba spokesman Wang Shuai. He said Tencent took about 90 percent of a game's profits, leaving their developers little room for growth. (Tencent denies this. Wang Bo, its vice president, said the company takes about 60 or 70 percent.)

Alibaba's plan is to provide free distribution for developers for a year, and afterward keep 20 percent of the profits, Liu said. Developers would keep 70 percent and the rest would go to charity.

Alibaba has been in talks with companies in Japan and South Korea about bringing their popular games to China, a source from Alibaba said.

Tencent, however, remains the dominant player. In May 2013, it took steps to make more games available on its different products, especially WeChat and Mobile QQ, an instant messaging app. As of march, Mobile QQ was attracting 500 million players every day and WeChat 355 million.

Cao Di, an analyst at iResearch, which studies the country's Internet sector, said the social nature of WeChat and Mobile QQ made them better game distributors than Taobao Wallet, the app version of Alibaba's online marketplace and its main game distributor.

In addition, Tencent has a large group of users who are in the habit of paying for virtual products, such as songs, virtual decorations for QQ accounts and emoticons, he said.

Even though a large number of people have Taobao Wallet, they mostly use it to get physical goods, and Cao said this will affect Alibaba's ability to profit from mobile games.

Tencent is trying for an even higher score in the industry. Mobile games account for 80 percent of all the contracts it has signed with game developers this year, said Cheng Wu, vice president of interactive entertainment at the company. (The company also sells PC-based games.) And in March, it bought a 28 percent stake in CJ Game, a subsidiary of South Korea's CJ E&M Pictures, for US$ 500 million.

Search engine giant Baidu is the other major player in the industry. Last year, it paid US$ 1.9 billion for 91 Wireless, one of the country's most popular app stores, giving it a substantial game distributor on the mobile end. In April, Baidu said it would launch a mobile game platform consolidating the resources on 91 Wireless and Duokoo, a subsidiary that provides games, e-books, music and download services.

Baidu plans to use its search engine and video sites to generate traffic for its game platform and then get gamers to use Baidu Tieba, an online community with close to 1 billion users and 8 million groups devoted to different topics.

Such a setup would meet the needs of both heavy and casual gamers, Baidu said. Daily downloads of game app has already surpassed 100 million, a company source said.

With Tencent already established, Baidu forging ahead with big plans and Alibaba jumping in the game – despite Ma's concern for China's youngsters – its game on in the country's mobile game industry.