Return to 1958 and build a century-old giant

Chapter 905 The Opening of Game Console Platforms

On September 17, Yang Wendong arrived at a large building in Silicon Valley, USA. The building was not very tall, but it had a large area.
"Mr. Yang, welcome to Honor Electronics' largest new R&D base in North America." Honor Group CEO Wang Zhiqun, along with several senior executives from the US region, greeted Yang Wendong at the building entrance.
Yang Wendong nodded, then looked around and said, "This is the North American headquarters and R&D base that cost $6000 million to build? It looks much better than in the photos."

With Honor Electronics' business development in the United States becoming increasingly successful, it is inevitable that they will build a super-large headquarters in the United States.
So the project was approved by Yang Wendong three years ago. However, the work efficiency in the United States was relatively low. The headquarters, which would have taken a maximum of one and a half years to build in Hong Kong, took more than three years to build in the United States.
Wang Zhiqun said, "Yes, but the original budget was 6000 million, but it actually cost about 6800 million, which exceeded the budget in many aspects."

"Well, it's fine. As long as the subsequent review confirms that it's really necessary, then it's okay." Yang Wendong didn't seem to care.
It's normal for many projects to increase their budgets in the middle of the project. In Hong Kong, this is relatively well controlled because of familiarity, but it's different in North America.

However, a mere tens of millions of US dollars is nothing to Honor Electronics, which now has annual profits of hundreds of millions of US dollars.
"Please come in, Mr. Yang. We'll show you around first," Wang Zhiqun continued.

Yang Wendong nodded and said, "Okay."

For the next hour or so, Yang Wendong followed Wang Zhiqun and others to visit different departments inside the new headquarters, including the core market operations, research and development, testing and so on.
Finally, we arrived at a huge office of at least 200 square meters;
Wang Zhiqun said, "Mr. Yang, this will be your office from now on. What do you think of the view? If you have any complaints about the decoration and appliances, we can make changes."

Yang Wendong glanced around, then went to the floor-to-ceiling window, looked at the lake view in front of him, and said, "Not bad, this is fine. I don't come here more than a few times a year anyway. Let's get down to business. I'm here to take a look at our game console platform."

“Okay, we’re ready. Please move to the conference room next door,” Wang Zhiqun said.

After the group arrived next door, Yang Wendong saw a new home game console on the conference room table, connected to a color television. A game was playing on the screen, but it was paused.

Wang Zhiqun said, "Mr. Yang, this is our Famicom H3 model. Not only is it more compatible with our own games, but with the release of some of our underlying code, other game developers can also make their games compatible. This will be the first compatible game console in the world. Any brand in the world can develop different games based on our code."

"Hmm, how long did it take to develop this Famicom?" Yang Wendong asked in return;
Wang Zhiqun replied, "It took about two years. This was done in the United States. We recruited many elites from the world's top IT companies, and we also received direct assistance from Intel, which was paid of course. The total R&D cost was about $8000 million."

Yang Wendong nodded and said, "This research and development is indeed very expensive."

Atari, a former gaming giant, also spent hundreds of millions of dollars on research and development around the 80s, but it ended in failure and they eventually had to sell themselves to Warner Bros.

Apple's new computer, which cost hundreds of millions of dollars to develop, failed and led to Jobs being ousted from the board of directors.
While game consoles are indeed less difficult than PCs, they are still on the same level.

The fact that our research and development is progressing so smoothly is probably due to a combination of factors.
Wang Zhiqun said, "Yes, just this one game console requires far more people involved in its development than the total number of technical personnel in Hong Kong. It seems that Mr. Yang was absolutely right to place this development in the United States."

“Hong Kong is too restrictive. It’s fine for a headquarters or some small-scale R&D, but for anything too complex, even the UK can’t handle it now. It can only be located in the US or Japan, but Japan is too xenophobic,” Yang Wendong replied.

In the 80s, the only dominant forces in the IT industry were the United States and Japan, with the latter still struggling to catch up. If it weren't for political factors, it's hard to say whether Microsoft and Intel could have maintained their dominance after 85.
Wang Zhiqun said, "Mr. Yang, these are some other good games that were on the market a couple of years ago. We have already collaborated with their company to develop game cards that are compatible with our devices. Please take a look."

"Yes, I've heard of these games too," Yang Wendong said after looking at the game images and names on the screen.

Over the years, Honor Electronics has launched blockbuster games that have almost monopolized the world. However, this kind of cultural industry does not have strong exclusivity. No matter how strong one company is, other companies will always have their own products, and some of them will become very popular.

Furthermore, as time goes by and the market gradually expands, the advantages held by monopolists will become less and less, because more and more new companies will enter the market, which is an inevitable trend.
However, hardware platforms can be monopolized because they are highly exclusive. Once a customer buys a game console, they are unlikely to buy another brand. This logic is the opposite of that of games.

Therefore, before the advent of the internet, to truly achieve a "monopoly" in the gaming industry, one had to succeed in this field.
However, to succeed in the hardware market, technical quality is one aspect, and compatibility is another. Because neither Honor Electronics nor he, the time traveler, can make a limited number of games. Only by accommodating all kinds of elites in the industry can they truly rest easy.
This is actually similar to the logic of many internet websites or apps in the past: they would focus on building a platform and attract others to create content, eventually relying on each other to form an industry monopoly.

Over the next few minutes, an employee played several different games, all of which could be easily controlled using his own game console.

After reviewing the presentation, the technical staff left the meeting room. Yang Wendong then asked, "Are there any other companies in the industry researching game consoles right now?"

The time traveler's idea also came from the elite figures of the previous life, and the elite figures of this era would naturally think of this as well.
Even if they didn't, given Honor Electronics' current industry influence and the huge scale of its R&D on a compatible platform, they would have received the news in advance.

Such things cannot be kept secret. Just like the first generation of Apple phones, which started in 2005 in my previous life, even if Jobs tried to keep it a secret, it was fine in the early stages within his own company, but later when he needed to cooperate with multiple suppliers and technical support providers, it was impossible to keep it a secret.
Wang Zhiqun replied, "Yes, Atari, HP, and IBM are all researching their own game consoles, but we can't find out their progress." "IBM, that's a formidable competitor," Yang Wendong nodded.
It may also be due to its own reasons that the gaming industry experienced an early boom, and Honor Electronics also gained far more profits than Atari had ever made in the past, which attracted the attention of IBM, a giant in the industry.
Many people in the past may have heard of IBM, but they didn't take it seriously. By around 2000, it had already declined, but in the early 80s, it was still a top giant, and its overall strength was comparable to the sum of Apple, Microsoft and Google 45 years later.

Apple's decline in the early 80s was due to internal reasons, but also external factors, namely the rise of IBM's personal computer.

If it were to enter the gaming field, it would definitely be a formidable competitor to Honor Electronics.

Wang Zhiqun said, "Yes, IBM is also poaching people from other companies. Of course, we are doing the same thing. Relatively speaking, IBM is still more financially powerful."

“Compared to companies of this caliber, we still can’t compete. Don’t worry too much about it; just focus on doing our own thing well.” Yang Wendong shook his head and asked, “So, how are our collaborations with third-party game companies arranged?”

Wang Zhiqun replied: "My idea is that we split the profits 50/50 with the game developers. The developers only need to develop the game, while we are responsible for other aspects such as production, quality control, and marketing channels."
This is similar to Hong Kong films. Hong Kong film companies are basically only responsible for making the film; everything after filming is handled by Changxing Cinema Line Company.

The cinema chains corresponding to Hong Kong film companies have been completely monopolized by Changxing Cinema Chain Company. This is not only the case in Hong Kong, but also in the Asian market and even the Middle East market. They are completely controlled by the Changxing Group.

Of course, although it has been brought under control, the huge capital investment in the early stages has made the scale of the overseas market more than ten times larger than before.
Therefore, even though the Cheung Hing Group took the lion's share, many Hong Kong film companies still earned much more than during the Shaw Brothers era.

“What you said later is correct, but the profit sharing in the beginning is not acceptable.” Yang Wendong shook his head and said, “Let’s make it 37%. Now is the time to seek allies, we can’t be too stingy.”

By sharing higher profits with our partners, they will be more willing to cooperate with us, which will help us dominate the entire game industry.
Once they successfully monopolize the game console market, profits in other areas will only increase.

In this era, given the power of distributors, a 55% cut is already considered good; however, in the future internet market, a 37% cut will be very common.

Of course, this refers to the initial stage of market expansion. In order to compete for market share, it's normal for some platforms to give content creators 100% of the profits. But once a platform monopolizes the market, it's a different story. For example, the company that makes a certain Antarctic animal icon operates on a 90/10 revenue split in the gaming industry. That's right, they take 90%.
"37 points? Yang Sheng is really generous." Wang Zhiqun said with a smile;
Yang Wendong added, "In the early stages, we still need to give our partners enough benefits. However, getting 37 points is not without its price. The game they produce cannot be released on other platforms and can only be sold through us."

Wang Zhiqun thought for a moment and said, "Mr. Yang, if we do this, it will be fine in the early stages, but once we gain enough market share, we may violate the US antitrust law."

Yang Wendong said, "I've considered this possibility, so if it's not an exclusive license, that's fine too. You can still use our platform, but the revenue sharing will definitely be less. This way, the legal risks will be much smaller. Even if it does end up in court, an investigation under the Anti-Monopoly Law would take at least a few years to conclude. We'll talk about the future later."

He wouldn't intentionally violate antitrust laws, but outsiders making money using his platform is definitely tiered;

If you grant me exclusive rights, I'll naturally offer a higher return; if not, then we can discuss it further.

“Okay, I understand,” Wang Zhiqun nodded and said.
Yang Wendong added, "There's another point. Not just any game can be uploaded to our platform. They have to go through our review process or be tested in a small market before they can be released. We absolutely cannot arbitrarily open up permissions and allow any kind of trash game to get onto our console."

In its previous life, Atari collapsed because its adaptation of "E.T. the Extra-Terrestrial" was so bad, but in reality, this was just the last straw that broke the camel's back.
Prior to this, Atari's arbitrary opening of platform permissions allowed a bunch of low-quality game companies to develop and sell games, and even some illegal groups used this opportunity to launder money.
The proliferation of low-quality games caused countless players to lose patience with the gaming industry, and ultimately, the final straw broke the camel's back, causing the entire industry to collapse.

“We’ll audit them? Okay, that would make it easier to control those partner companies,” Wang Zhiqun nodded and said.
Yang Wendong said, "We still need to maintain control, but we can't skimp on the benefits either. In short, we must maintain a fair situation. As long as any third-party development company's game is good enough, they will definitely be able to make enough profits, millions or tens of millions of dollars. As long as it's theirs, then give it to them."
The more companies like this there are, the easier it will be for us to successfully monopolize the entire home game console market. Initially, our profit margins may seem low, but in the later stages, the lion's share of the profits will definitely be in the hands of outsiders.

You have to cast a long line to catch a big fish. Many internet companies in the past burned money to grab market share in their early days. Once they succeeded, they could make money effortlessly in the future. For example, Meituan burned billions or even tens of billions of dollars in the first few years and then made a fortune.

Of course, the gaming industry in the 80s was somewhat different from the internet industry, but the underlying logic was similar.

“No problem. With platforms like ours, many small workshops will be able to start their businesses more easily,” Wang Zhiqun said with a smile.

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(End of this chapter)