VNG in the news

Here come the Viet gamers

05/02/2010

Can IDG add its Tencent magic to a mini-Shanda?

In character: VinaGame CEO Le Hong Minh left his financial suits behind.

Perched above a Big C supermarket on a street jammed with bipeds dodging mopeds, the Ho Chi Minh City headquarters of VinaGame is easy to miss. But inside, amid funky warehouse decor and lots of young staff glued to big computer screens, sits Vietnam's leader in online gaming and social networking services. VinaGame aims to be one of the first homegrown Internet successes in its would-be tiger economy, a Vietnamese counterpart to China's huge hits, Shanda Interactive Entertainment ( SNDA - news - people ) and Tencent.

With stated 2009 revenues of million on the back of what it says is 50% annual growth, VinaGame is capitalizing on Vietnam's rapid rise of digital communications and consumerism. Its chairman and chief executive, Le Hong Minh, 32, is an avid gamer himself.

So much of one, in fact, that he aborted a financial career to start VinaGame in 2004 with a few fellow gamers. Duty calls now, however: The Saigon native has cut his playing time to one hour a day from his previous four to five hours.

Shy and modest about his accomplishments, which previously entailed posts at Vina Capital Group (no connection) and PricewaterhouseCoopers, Le nevertheless has big dreams. In a barely audible voice, he confides that he wants to take his startup public within a few years on Nasdaq or the Hong Kong Stock Exchange.

A large player in a relatively small pond compared with China or Korea (see table), VinaGame, by its own estimate, has a commanding 65% share of Vietnam's 9 million online-games market. Its titles, such as a localized version of Kingsoft Corp.'s Swordsman Online, attracted 3.5 million to 4 million gamers a month in 2009.

VinaGame also has moved into social networking--and plans to rename itself VNG to reflect its broader services. Two years ago it introduced the Zing.vn portal. Web research service Alexa.com ranks Zing.vn behind only Google ( GOOG - news - people ) and Yahoo ( YHOO - news - people ) in national Web traffic. Meanwhile, ZingMe, which offers music, entertainment, news, e-mail and instant messaging, leads the market with 4 million active users. "VinaGame is being modeled after Tencent," says Benjamin Joffe, chief executive of Asia-focused digital strategy and research firm Plus 8 Star in Beijing, referring to Ma Huateng's popular Internet and instant-messaging service, now worth billions on the Hong Kong exchange.

The two share IDG Ventures of San Francisco as an early backer. IDG invested 0,000 in VinaGame in early 2005 after it made 0 million on a million venture bet on Tencent--IDG's best deal in China. "The Vietnamese market is where China was ten years ago," says Henry Nguyen, managing general partner of IDG Ventures Vietnam.

Tencent is a minority investor in VinaGame and has struck a deal to bring its QQ chat and casual games to VinaGame. Tellingly, Johnny Shen, Tencent's former M&A director, joined VinaGame in 2008 as chief financial officer and executive vice president with a key role in strategy and development. (Another holder is investment banking giant Goldman Sachs ( GS - news - people ), where, it so happens, Nguyen once worked.)

Also looking to China for its lead, VinaGame has borrowed on the profitable gaming experience of companies such as Shanda and Kingsoft. For instance, VinaGame says it became cash-flow-positive by early 2006 largely by relying on a prepaid card for playing games at Internet cafes. "It's almost like bragging, but at the beginning it was kind of like printing money," beams Nguyen, 36, who says VinaGame is now profitable and reinvesting in the business. The company, when pressed, says its margins approach those of listed Web outfits broadly.

The well-connected Nguyen (his father-in-law is Prime Minister Nguyen Tan Dung) helped to mold VinaGame from the start. Shortly after meeting Le through a friend, he teamed him with a serial entrepreneur from Los Angeles, Bryan Pelz, who had moved to Ho Chi Minh City eight years ago to work with IDG on building businesses. Pelz signed on as a cofounder and advisor to VinaGame. "Bryan is the big picture, higher-level strategic partner with strong international experience, and Le is the day-to-day manager with strategic execution," observes Nguyen.

Le, who returned to his homeland in 2001 after picking up a degree in finance from Australia's Monash University, prefers to share the spotlight with his inner circle of six managers. (He reluctantly agreed to pose solo--and colorfully--for a FORBES ASIA photo.) He's adopted the Silicon Valley culture and has granted shares to 150 of the key managers among his 1,000-plus employees.

VinaGame needs to begin developing more of its own in-house games, currently only 5% of the mix. The rest are licensed and adapted for the local market from Chinese and Korean gaming companies--with some misses, such as introducing hard-core, martial arts features to Vietnam's less advanced gaming market. "Gaming is a content business. It has to do with current tastes in the market," says Le. "The cartoons and fun games are most popular in Vietnam." Le adds that VinaGames is planning to soon introduce a game it's developed called Heavenly Sword, drawn from Vietnamese history and culture.

VinaGame also faces struggles with juggling the distinct businesses of gaming, social media and an online music, news and entertainment portal. "The online game business is not unlike the movie business," says Nguyen, in pushing diversification. "Certain shows or games are big hits, and in between you can have jagged business. You can't just rely on a big hit."

There's another constant concern in still-Communist Vietnam: giving political offense on the Web. Social media such as Facebook are sometimes blocked, and some games in Vietnam have been taken down, mostly because of violent content. So far VinaGame has gone unscathed.

In Nguyen's words: "There is quite a lot of ambiguity about what's acceptable and what's not. It's a different job with every company, to figure out how to manage content and if it meets community standards--is it a violation or contradiction to explicit or implicit laws or unwritten community standards? The gray area is the hard part."

COUNT THEM IN

Though online game playing is still small in Vietnam by revenue compared with China and South Korea, VinaGame is making the most of it, with a 65% market share (by its own estimate).

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