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Will Mobile Gaming Empty Out China's Man-Cave Internet Cafés?

An Internet cafe in Taiyuan, China on May 25

Photograph by Imaginechina via AP Images

An Internet cafe in Taiyuan, China on May 25

China’s Internet cafés have long been the definition of man caves: dimly lit rooms filled mostly with young men blinking at glowing screens, many of them fervently engaged in such multiplayer online games as World of Warcraft, discarded soda bottles and candy wrappers tossed nearby. Such patrons pay hourly for Internet access and often stay late into the night. But the rise of smartphones and mobile gaming in China may soon make Internet parlors as obsolete as phone booths.

According to Niko Partners’ newly released “Chinese Mobile Games Market Report 2013,” China’s mobile game market—which netted $750 million in revenue in 2012—will grow to $1.2 billion in 2013. “Mobile games make up the fastest-growing segment in the Chinese games market and have taken market share from PC-based casual and social online gaming,” Kevin Hause, a senior partner at Niko Partners, said in a statement. The new report was produced in cooperation with Beijing’s Umeng Analytics.

In early 2012, only about 100 million smartphones had been activated in China. By the end of this year, Niko Partners, a research firm specializing in the Asian gaming market with offices in Shanghai and Silicon Valley, predicts that some 500 million smartphones will be in use in China. That figure shouldn’t surprise anyone who’s spent time lately in Chinese shopping malls, subways, even factories—where smartphones are already ubiquitous accessories for young people of widely varying incomes.

The rapid adoption of smartphones has been accelerated by the rise of cheap models marketed to the Chinese market. Currently, 61 percent of the smartphones purchased on Alibaba’s e-tail sites are models selling for less than 1000 renminbi (about $160). Xiaomi, a dynamic Beijing mobile company founded in 2010, sold 100,000 of its new Hongmi (“red rice”) model in just 90 seconds last month, when the phone was first released. The smartphone retails for 799 renminbi.

Xiaomi recently made headlines for poaching Hugo Barra, formerly vice president of Android product development at Google (GOOG), to spearhead the young company’s international business development. Chinese tech companies have so far been slow to find success abroad, but that may soon change. Shenzhen-based Tencent Holdings (700:HK) popular social-networking app, Weixin, is already the fifth most-used app in the world, with about 100 million users outside China.

Larson is a Bloomberg Businessweek contributor.

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