Strategies for playing at war: World of Tanks revenues have soared from €18m in 2011 to €218m last year

June 4, 2013 4:42 pm

Strategies for playing at war

By Jan Cienski

World-of-Tanks-11

Tanks for the memories: Victor Kislyi turned to the history on his Minsk doorstep for inspiration

To the dismay of wives and mothers the world over, huge numbers of men and boys adore powerful vehicles and big guns. If you put the two together, you have tanks. This insight has help­ed Victor Kislyi build one of the world’s fastest-growing computer game developers.

Mr Kislyi’s Belarus-based Wargaming.net is the creator of World of Tanks , the online game in which players get to drive a second world war-era tank and engage in team battles on an accurately depicted terrain or in city streets, using detailed and realistic maps.The appeal of driving a multi-tonne monster with a powerful cannon that blows up anything and everything – trams, buildings and other tanks to start with – has struck a chord. More than 60m people (98 per cent of them male) have downloaded the free-to-play game and about a third of those play regularly, making World of Tanks a behemoth among massively multiplayer online games, or MMOGs, in which large numbers of players can participate simultaneously.

Mr Kislyi’s eighth-floor office in Minsk looks out over the flat Belarusian countryside, where thousands of Sov­iet and German tanks duelled for supremacy in 1944, when the Red Army finally broke the back of the German war machine.

“Tanks are cool,” says Mr Kislyi, who at 37 was born long after those battles ended. Wearing a well-cut open-neck shirt and a big grin, he looks nothing like a hard-bitten warrior. He does have something to smile about, though. His company has 1,600 emp­loyees, up from 120 three years ago, and revenues have soared from €18m in 2011 to €218m last year, all thanks toWorld of Tanks.

That makes Wargaming.net a rare success story out of Belarus, better known as Europe’s last dictatorship. While Belarus’s politics have made it the subject of EU and US sanctions, its 12 per cent flat-rate tax (9 per cent for companies in special economic zones, such as Wargaming) and the highly trained but inexpensive programmers churned out by its universities make it an attractive base.

“We are a company that has generated more than 1,000 good jobs,” says Mr Kislyi, now head of one the biggest private companies in a country where the state controls three-quarters of the economy. It has taken almost two decades of hard work by Mr Kislyi, who owns 64 per cent of Wargaming with his brother Uladzimir, while two friends, Nick Katsleapov and Ivan Mikhnevich, control the rest.

His first love was chess, the pastime of choice for the educated elites of the Soviet Union. But computers kill­ed his love of the game. “There was no future in chess after one defeated the world champion,” he says.

Serious about games

● Victor Kislyi says his version of an MBA was playing ‘Civilization’, a computer game in which a player starts in the stone age and using politics, arms and economics advances to the space age. “Playing it made me a businessman. It’s sophisticated, relatively long and has a finely balanced economic system – and it’s fun!” However, he has signed up for a course at Insead business school to gain fresh insights into overseeing expansion.

● The founder of a games developer must hand over design to others at some point. “I realised these people would do it better and it freed me to concentrate on building this as a business. Most small gaming companies eventually fail because they have passion but they don’t focus on business,” Mr Kislyi says.

● One of the biggest challenges for the Wargaming business model is ensuring a balance between paying and non-paying players. “There is a very finely balanced in-game economy. We have a few dozen statisticians analysing the enormous amounts of data we generate every day. You have to study it because it’s very easy to ruin the economy with a few bad decisions.”

Mr Kislyi, who studied physics at university, turned to computerising a war game he, his brother and friends had developed on the linoleum floor of his scientist parents’ flat in Minsk. The result in 1996 was Iron Age, an MMOG of conquest that drew a global audience of a grand total of six. “And that included me and my brother,” says Mr Kislyi. But they persevered.

After two years they released an online game aimed at players of traditional war games using detailed miniature figures. The idea was to create pedantically precise computer vers­ions of 1,300 warriors from the bronze age to the Middle Ages. “The niche was so niche that none of the big companies had touched it,” says Mr Kislyi, toying with tin figures of a samurai warrior and a Greek hoplite on his desk. This game generated a few thousand dollars a month, enough for the team to think they could earn a living as game designers. Wargaming was set up and the first employee hired, on $25 a month.

It took a while but in 2003 the company releasedMassive Assault, a turn-based game Mr Kislyi calls “chess on steroids”, which sold 100,000 copies globally. “I could now shake the hand of a war-gaming guy at a trade show and they would have heard of us.”

To hedge its risk of running out of money between games, Wargaming developed a program to manage online banner ads. The spin-off was acquired by Yahoo, which generated about $10m. “We could have bought a Ferrari and a villa but we were happy we had money to fuel the gaming side,” Mr Kislyi says.

The next game, Order of War, did well but left a bitter taste because of battles between the developers and the publishers, the big companies res­ponsible for selling boxed versions in shops around the world. “This was a digital product that was being sold on a shelf in a shop in a same way that products were sold in Babylon 5,000 years ago,” scoffs Mr Kislyi.

The answer was to go completely online. The first thought was Tolkien-style fantasy, by far the most popular MMOG genre, but competition in the world of orcs, elves and dwarfs was fierce. So they turned to the battles they knew best: tanks and the second world war. “Tanks are very popular in Russia. Almost every Russian city and town has a tank monument.”

World of Tanks launched three years ago with a business model in which the game is free but players are encouraged to pay to advance more quickly, as well as buying decals and extra decorations for their tanks. About a quarter of users pay.

The model is relatively fragile. If free users sense that those who pay have gained a disproportionate advantage, they quit, but those who pay must have a sense they are getting something for their money.

For now Wargaming has hit a sweet spot. Peter Warman, chief executive of Newzoo, a games market analysis firm, says World of Tanks has managed to extract money from its users at a faster pace than any other MMOG. “Their performance on monetising and revenue per player is what sets them apart from any MMO game,” he says, pointing out that the rush of earnings is likely to grow even faster as the game gains popularity in the US and Asia.

One floor above Mr Kislyi’s office, a developer peers at a computer screen, tweaking the details of a Soviet tank. Next door, a programmer adds trees and bushes to a map of the Korean countryside, aimed at the company’s fast-growing audience in the Asia.

“It’s a curse and a blessing to have this online community,” says Mr Kislyi. “Any good news immediately spreads but if you screw anything up – if your servers crash, if you stop innovating – the bad news spreads faster than a forest fire.”

The company now has offices in France, the US, Germany and South Korea, and deals with partners in Vietnam and China. It has also bought Big World, the Australian group that built the core of its gaming software, for $45m. Developers are putting the finishing touches to versions of World of Tanks for warships and fighterplanes, as well as a mobile app.

“We can feel the pressure of the next big thing,” Mr Kislyi says.

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Bamboo Innovator Institute is set up to establish the thought leadership of resilient value creators around the world. KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia. The Moat Report is developed together with our European partners The Manual of Ideas (www.manualofideas.com), the idea-oriented acclaimed monthly research publication for institutional and private investors. The MRA’s paid-subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities and savvy private individual investors. KB has presented his thought leadership as a keynote speaker in global investing conferences with speakers including famed serious investors Donald Yacktman, Howard Marks, Jean-Marie Eveillard etc. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, macroeconomic and industry trends in Singapore, HK and China. KB has been rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm since 2002. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Mirae Asset Global Investments, Korea’s largest mutual fund company. He holds a Masters in Finance and degrees in Accountancy and Business Management, summa cum laude, from the Singapore Management University (SMU). He had also taught accounting at the SMU. He had published cutting-edge empirical research in the Special Issue of Istanbul Stock Exchange 25th Year Anniversary of the Boğaziçi Journal, Review of Social and Economic Studies, as well as wrote articles about value investing and corporate governance in the media.

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