Who Lost China? Amazon
Amazon is the world's largest online retailer. It keeps trying to make a go of it in the world's largest online retail market, China. It keeps falling flat.
Now it's happening again.
The idea was to leverage the popularity of e-sports, with 134 million viewers and a market worth $612 million annually by one recent estimate, to find youthful new audiences for Amazon's original, streaming entertainment programming. It seemed like a good idea at the time.
Not after Saturday night. That's when Wang Sicong, the playboy son of China’s richest man, announced via social media that he’s launching Panda TV, a China-based streaming e-sports platform that will compete directly with Twitch. In doing so, the listless Wang, who is perhaps best known for buying two gold Apple Watches for his dog, was aiming straight at Amazon. And Wang, with his money and instinct for a global gamer demographic to which he belongs, is in good position to win.
It was just the latest setback for Amazon in China. The company's typical path to success – buying market share – has been repeatedly blocked since it entered the market in 2004 with the acquisition of Joyo.com, then China’s largest online book retailer. Amazon’s Joyo was soon dogged by piracy and a failure to understand the local market. When Amazon moved into selling other goods it quickly earned a reputation for being more expensive than local options like Alibaba. Today, analysts peg Amazon's share of the Chinese online retail market at less than 1.5 percent. The situation is so dire that in March, in a quiet attempt to increase its customer base, Amazon opened a store on rival Alibaba’s Tmall platform, where it pays fees to the Chinese e-commerce giant.
In theory, the Twitch acquisition should have a role in reversing that trend. Asia is home to the world’s largest population of gamers and e-sports fans. Even better, from Amazon’s standpoint, had to be the lack of meaningful competition for Twitch, especially in Asia. That was surprising, since Asia is not only home to largest market for e-sports, it’s also home to top players, some of whom make over $1 million in prize money annually.
Yet the Asian and Chinese e-sports-platform markets remain fragmented and competitive. A range of companies, including Sina (owner of Weibo, a Chinese version of Twitter) offer their own portals, complete with celebrities, local-language announcers, and – on Sina - a channel devoted to attractive women playing games.
Panda TV will be in a good position to change those facts. Its primary asset is Wang Sicong himself. Though hardly anybody’s image of an entrepreneur, he’s a gamer who has taken to e-sports like a digital Jerry Jones. In 2011, Wang bought one of China’s most popular digital gaming teams, then known as Catastrophic Cruel Memory, for around $6 million. He's surrounded its members with luxury and support as they go around the world competing in tournaments watched by audiences that exceed those for the NBA finals.
More important than Wang's knowledge of China’s gaming culture is his lineage and resources. Local media reports that Wang is signing up Chinese and overseas gaming talent for his portal. Presumably, it’ll be exclusive, and unavailable to Twitch. It also helps that Dalian Wanda, Wang's father’s company, is the world’s largest operator of cinema chains (including U.S.-based AMC Entertainment) and is now moving into film and television production. In other words, the synergies between e-sports and other streamed entertainment – the motivation for Amazon’s acquisition of Twitch – are now being embraced in China, too, and with serious local advantages.
Wang’s most significant potential advantage will be the Chinese regulatory environment. For years, Chinese regulators have censored, slowed, or otherwise harassed foreign internet companies with designs on the Chinese market – especially when competing Chinese services exist or are being developed. Though there’s no indication that the authorities plan a similar treatment for Twitch and Amazon, any effort to inhibit Amazon’s access to Chinese gaming talent, much less audience, would place Twitch at a considerable disadvantage.
For now, though, Amazon must be steeling itself against the competition and an irony: having tried to earn market share in China, it’s now going to have to defend its market share from China. It’s not quite game over, but the level of competition just picked up.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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