CFA Society Singapore
SINGAPORE (July 23): Singapore stert-ups base themselves in Singapore for a variety of reasons. The usual checklist includes ease of doing business, easy access to growing regional markets and the availability of funding from various investors. For Forrest Li, the China-born and Stanford-educated founder and CEO of game publishing company, Garena, there was another critical reason: his then-girlfriend and now wife, was at Stanford too on a Temasek Holdings scholarship, which entailed her serving a six-year bond in Singapore.
"Her father told me, 'If you don't go to Singapore too, no negotiation'," recalls the 35-year-old Li, first with a mock grimace, followed by a laugh during an interview with [email protected] of The Edge Singapore. Li probably knew he needed to do something of his own while in Singapore, and decided to marry his passion for playing computer games with his entrepreneurial zeal.
In 2007, together with nine friends, Li founded what is known today as Garena. The company helps to publish games and reach out to players in different markets. While Garena does not create games, it provides a service of sorts by hosting the games for the burgeoning online gaming community and helping to sell virtual "add-ons" such as weapons, armour and different "assets" that players pay for with real money, so that they can "level up" in their fantasy world.
Game titles, mostly the fantasy role-playing types that are handled by Garena include League of Legends, Heroes of Newerth and Blackshot. It has attracted a rocketing user base, measured by so-called "peak concurrent user" (PCU) — the number of players slaying monsters and playing heroes at any one time. From just a few thousand in late 2010, the PCU hit nearly 600,000 in early March and most recently, 730,000 — within striking distance of the company's goal of one million. Total registered users across dozens of countries are in the tens of millions.
While the company was initially funded with savings from the founders themselves, Garena has been able to attract notable investors such as industry regulator Media Development Authority (MDA), and the Kuok family, which controls palm oil giant Wilmar.
Stay hungry, stay foolish
Li did not start out wanting to be an entrepreneur. After graduating from the Shanghai Jiaotong University, he worked at MTV Networks and Motorala China, before heading to Stanford University to do his MBA. It was those two years in the US that gave Li the chance to pick up a host of entrepreneurship skills. There were, of course, visits to technology companies and venture capitalist firms in nearby Silicon Valley. In between classes, Li spent plenty of time indulging in his passion: playing computer games. The highlight of his time at Stanford was when he heard the late Apple founder Steve Jobs deliver that famous commencement address, urging them to "stay hungry, stay foolish". "That gave me the ambition, the feel, that everyone can build a great company," says Li.
Li and his friends must be doing something right. Garena's first office set up in 2007 was a 300 sq ft corner lot in Technocentre at Bukit Merah Central, probably just big enough to fit the founding team of 10. In 2009, the company moved to a more central location at Murray Terrace, in between the central business district and the Chinatown conservation area. Even so, Garena has, with its 10,000 sq ft of space at the current office, reached capacity and is now looking for more room. Headcount, in the meantime, has ballooned to more than 400, spread across Singapore, Malaysia, Vietnam, the Philippines, Thailand, Indonesia, Taiwan and even the former Soviet republics.
The company is not at all coy about making its presence known. Early this year, to raise its profile in Taiwan, where the League of Legends (more popularly known as LoL) has a strong following, the company took out a billboard on the façade of Taipei 101 — the tallest building there.
Garena's growth is an indication of how playing games is now a serious business in the region. According to Niko Partners, the market consisting of Malaysia, Singapore, Indonesia, the Philippines, Thailand and Vietnam, estimated to be worth US$474 million (RM1.48 billion) last year, will likely double in size to US$1 billion by 2015. Key growth drivers include the intense interest of Thai gamers in the multi-player, online role-playing games created by China, notes Niko Partners. Li is clear on the piece he wants from the US$1 billion pie: "We aim to have a 25% market share — at least."
The business of games
Li believes that Garena's business model is the right one. Previously, the gaming industry was the domain of so-called box and console games, where players fork out $50 for a copy of the game in a disc, and then play the game using specialised consoles — the likes of PlayStation and Xbox. "That is kind of like a finished product," Li notes.
These days, the most popular model in the gaming industry is the so-called "free to play" game, which means it is free for downloads from the Internet, or, given out for free in discs. For the business of creating and publishing such games, the upside is in the optional additions for the gamers. "There is a lot of cool stuff, for example, if you want to have a better experience, you want your character to look more beautiful, you can just pay a bit more to continuously improve the gaming experience," Li explains.
"From this perspective, the game is not the product anymore. The launch version of the game could be very different in say, two years' time, because every month, or every two weeks, there would be newer, richer content. In a sense, the game is like a service. What you want to add into the game is based on users' feedback, what they love and what they want more of. It is not a one-time sale," says Li.
Garena, in this context, aims to be more than just a delivery platform. "It is almost like opening a restaurant, and we care about customer service. Developers are experts on how to make a game, how to make a game attractive, but for us, our expertise is how to improve a gamers' experience, and how to serve the local customers better," he adds.
There is also the "social" element of the gaming business. Garena has made it easy for gamers to communicate with one another via its online applications. Depending on the type of applications used, they can call one another, chat using instant messaging or just find out more about a certain player. "Sometimes, the gamers just come for a game, but they end up making a lot of friends here; it doesn't matter what game they are playing, they can keep track of what their friends are doing," says Li. Of course, this has the effect of making the whole experience "sticky", creating, in the process, a society where gamers rate each other on their skills and how high they can reach in certain games.
Is Garena planning to move up the industry chain, and create its own games? Li thinks this is not something the company plans to do for now, although publishers in more mature markets such as China and South Korea are coming up with their own games as they gain heft and obtain the necessary resources. "Compared to game publishing, you need a very big upfront investment; compared to publishing, game development is riskier, because when the game is done, the market's tastes might have changed," he explains. Each game created from scratch can easily cost tens of millions of dollars. Thus, for now, Garena's focus is to approach the business like a portfolio manager — some of the games might be wildly successful, some perhaps less so, but with lower risk.
Li plans to focus on pitching Garena as the company game creators should go to if they want to reach out to the market in Southeast Asia, Taiwan and Hong Kong. "That is a very big advantage, because, when we talk to developers, we say, we want to publish your game in our region; other publishers only want to cover their one, or two markets. Developers will prefer to work with us because we give the whole package — you work with one partner — us, and we help you settle the whole region," says Li.
Interestingly, given Li's background, Garena is not in China, which is also a leading gaming market. Niko Partners, the industry tracker, says the gaming industry in China grew 21% to US$5.8 billion last year. This figure will likely hit US$11.1 billion by 2015 while double-digit percentage growth can be expected in the foreseeable future. For example, industry leader Tencent, a Hong Kong-listed giant in this turf, has a market value of more than HK$430 billion (RM172.53 billion).
Li acknowledges the gaping hole in Garena's geographical coverage. However, he feels that it is still not quite the right time to go to the Middle Kingdom. "China, in terms of game publishing and game operations, is more mature than Southeast Asia; competition is very, very tough too. But, for Southeast Asia, it is still like a 'Blue Ocean', not yet mature. We still have a lot of opportunities here," says Li, referring to the market development idea by Insead business professors W Chan Kim and Renée Mauborgne, of focusing on markets with little or no competition instead of wading into bloody price wars with numerous rivals.
However, that does not mean Li is ready to concede that market without even trying. "China is a very big market, and considering that many of us came from China, we speak the language, there's no cultural gap, maybe at the right time, we will go. But for now, we want to make our home base here, build a strong foundation first. We still see huge growth potential in Southeast Asia," he explains.
With or without China, Garena's business has been surging rapidly. Li declined to share specific figures, but says that between 2009 and 2010, the company's revenue rocketed 10 times; the following year, another 4.5 times and between 2011 and this year-end, he expects the company's revenue to at least triple. "We are very happy with this growth rate and I think at a certain time, when we think we are big enough in Southeast Asia, and when we cannot maintain the same growth rate, then we will look at new markets," he says.
Inadvertently, there will be questions about Garena's investors wanting to cash out with some of their money, most typically in the form of an IPO. Li has a ready answer. "We do have plans, we are looking at 2014, that is the time line we are aiming for at the moment. Of course, along the way, there could be changes, depending on what's going on in the capital markets, what's going on with the economies but based on our current growth rates, we think we will be pretty much ready by then," he says. So, for potential investors, besides gearing, price-earnings ratios and all those financial jargon, here's a new term to take note of: Garena is ready to "level up", and Li's father-in-law should be quite happy.
This story appeared in The Edge Singapore in the July 23, 2012 issue