World Report sits with Wargaming co-founder and CEO Victor Kislyi to discuss why the award-winning online game developer, publisher and industry leader chose Cyprus as a base and how business diversification and his perspective on innovation is proving Wargaming is more than just entertainment
We are here in the context of a wider recovery and obviously Wargaming has played a key role, particularly in the financial sector, but more broadly in terms of reputation and confidence building in Cyprus. How did that affect Wargaming and how do you see the evolution of Cyprus post 2013?
We moved to Cyprus in 2012 and, yes, the 2013 crisis hit us. Obviously it was not a pleasant experience, but we realized that this is just a reality of the world we live in. A world in which anything can happen anywhere, at any time, and this time it was Cyprus.
When facing it, we behaved confidently and bravely. We had already chosen this country and, thereby, we had to stay and make our way through bad and good times. Of course, due to the fact that most of our players are overseas, spread through every continent, our sales and the user base were definitely not affected. This was also the case for our production and distribution, which are also situated outside Cyprus.
Yes there was a bail out of some banks and cooperatives and a bail-in, for the first time, of two private banks, which was not a pleasant situation. However, we were realistic, we knew that this is the country, these are the people, and this is the establishment; we had no need to panic.
Now these days, as you can see in various reports, due to drastic measures, Cyprus has become much more disciplined. We realized that our recovery was in our own hands, and that we, as a country and as a business, had to remain strong. We were understanding of the situation and as a company and as individuals, we are seeing the numbers get better and better, with positive GDP growth for the second quarter of this year. I am not a politician or economist, but what I see here, where I live every day, is good. People are smiling, the sun is shining, and tourists are coming.
Now, coming back to Wargaming, our business is not a one or two year hit and run kind of enterprise. We are building a sustainable global company, which will stay here in Cyprus, and around the world, for decades. We are building something big here in Cyprus, with our hard-working people, transparency, teamwork, and best business practices. Currently, our top-management team is being relocated to Cyprus and all of these individuals and departments of our corporation are contributing to the economy. Of course, we are not the only international company in Cyprus, but obviously the country is benefiting from what we have at this stage of our business. We bring smart well-educated and experienced professional to the country and we employ a lot of local professionals. We have managed to acquire a dynamic harmony in development here, helping the country and helping ourselves.
As you acknowledge, Wargaming is really a global company working across many different markets. In terms of your global operations, what markets are you currently focusing on developing?
With the development of online social mobile gaming, many tech and gaming companies have been moving from physical presence economy into the digital world. So when we talk about markets, the whole world is your market. If you're smart, if you do the right thing, if you understand this global scope, you have a chance to become a global company, in terms of your market and in terms of your production and distribution force. You can be global as long as your products offer quality and you provide good services.
Historically, our markets were Eastern Europe and CIS, just because we lived there and we understood the people's mentality. It was then our creation of World of Tanks that really appealed to middle aged gentleman who would love to come back home from work and play a couple of battles alone, with their friends, sons, or brothers. They look forward to competing against each other on this historical photo-realistic battlefield with historically accurate tanks, getting their skills upgraded, getting new tanks, participating in tournaments or just blowing some stuff up. We are an entertainment business, the same as the music industry or the cinema, even though I think it is a little bit more sophisticated than just watching a movie, because you have to be strategic, you have to understand tactics. I've played computer games for 25 years and I can tell you that they have made me a better person.
Our market is the global community, wherever you have computers, Internet, gaming consoles and mobile devices, you have a market. Just five or ten years ago the gaming industry was very much located in the western world, let's say America and Western Europe, and big companies were very successful in a retail strategy of selling games in boxes in big retail chains like Wal-Mart, GameStop or Dixons. Meanwhile, there were some very exotic online games in China and in Korea following a different path. Now, these Massively Multiplayer Online (MMO) games started gaining popularity, and now, going into mobile devices, we are seeing it as a global phenomenon.
Previously, you could concentrate on one given country, for example Russia or Turkey, or America, and it used to work, and it may still work for smaller companies. However, this industry is unpredictable, you never know what will happen tomorrow; trends and demands of players may change, so that is why it's good to have a global presence.
In terms of our regional offices we have Singapore for Southeast Asia and Australia, we have Tokyo for Japan, we have an office in South Korea, and in Minsk we cover Russian speaking former Soviet Union. Our Paris offices cover Western Europe, and San Francisco covers all of North America. In Latin America, where there is huge potential, we are actively working to tap into and understand that market by calling on regional expertise. Uncovered regions for us are the Middle East and Africa, which are not yet major consumers of computer games. All that remains is India, which also does not yet to have an appetite for computer games.
That is more or less the whole world and as soon as you establish your bases and presence, then the next steps are very obvious: more effectiveness, deeper penetration, better understanding of local consumers and providing them with more and more products, more exciting features, new game play modes, new platforms and most importantly staying true to the player. We have to make them happy within the couple of hours or minutes that they spend a day playing our games, and in return they spend a little bit of money on us.
As a MMO free to play game, monetization is central to being able to provide the quality and commitment the player expects. How has Wargaming pursued your new concept of free-to-play and free-to-win?
The free-to-play and free-to-win concept is very different to how things have been done in the past. Imagine you are paying 60 euros per box, and you would receive the physical disc of the game, and you put it in your computer and start playing. That would cost you 60 or 70 euros upfront and you could not know if you would actually like the game or not.
Free-to-play has a dramatically different approach; you have the game that has the same top quality when it comes to graphics, sound, network interaction technology, and in all of the other features of the game, but you don't charge money upfront. You allow anyone to download the game for free, which is good for them, and also for us as you don't have to spend money in the physical distribution or retail, line shares or shelf space, which costs a lot of money and is relatively unfair for the developer.
In our case, you download the game for free and if you don't like the game you stop playing and erase it from your hard drive. Easy and fair. Now, if you like the game, you play it and interact with other players, you upgrade your character and you start liking it more and more, you start understanding on a deeper level the tactics, and strategy, and you start playing with other players, maybe you enter a team, maybe you enter a clan, you participate in tournaments and you get engaged.
Here we have done our fair share of giving, so you have played the game for two months, it means you like the game. Within the game we offer certain things, like exchanging time for money, as in the progression time could be a little bit shortened by boosting your experience with in-game currency. For example, if you play a battle you get 1000 experience points, which you may use to upgrade your tank. So, this premium account, which costs around a movie ticket per month, lets you achieve this 50% faster. This upgrade makes your life a little easier, but not to the extent that you can dominate the game. This is a fair version of free-to-win where there is no situation in which you can pay $1,000 dollars or $10,000 dollars and dominate the battlefield. The game is fair for those people like schoolboys/girls or students who don't have those extra 10 dollars. They can also enjoy the game for months and years and, the game treats them fairly. It's about your skills, like in any fair sport.
Previously, there are certain elements that you could only acquire in exchange for real money, but most of them can also be purchased now for in-game currency. So it is free-to-win, you just need to take a little longer. This concept was a gamble, because something you previously had to pay money for is now available for free as well. It is now an even more deliberate choice for customers to pay or not to pay.
However, people recognize this fair approach from us as developers and they do not mind spending $10 dollars on the game. Statistically, even though it differs from territory to territory, 25% of people don't mind paying.
I would say it is our quality that also sets Wargaming apart from competition. In our case, in spite of the fact that this is free, we cannot afford to lower the quality, even for non-paying users. We have to maintain the highest possible, AAA standards of quality. Again, they appreciate this because they get retail quality games that are usually $60 US dollars, for free from us.
In the recent PwC 18th Annual Global CEO Survey, you talked about the idea of seemingly small disruptions brought about by new technologies or applications that change the way things are traditionally done. Where do you see the ability of Wargaming to evolve and become a disruptive force in the industry? What direction will you take Wargaming in the future?
We will keep our global focus and really make sure that as our users and their tastes are changing, and competition strengthens, we can improve ourselves and remain better than the competition and better than our self yesterday. In terms of disruptions, we have come from a place where the old school industry would say, “are you crazy? What do you mean free?” But, we continue to prove that there is huge potential for free-to-play games, especially in markets such as Russia, China or in Eastern Europe, where people cannot afford a $60 US dollar per box game. That's why free-to-play is the way to go. Yes, America is the strongest market in the world, but the world is a little bigger than just the US, we would be blind and stupid not to notice that.
When I say disruption it is not that we invented free money, it’s still entertainment but there are certain disruptive elements like our free-to-play and free-to-win concept, our global distribution, and capitalizing on a historical niche. However, there is not one thing that will allow us to dominate the world forever, supply needs to be constant. This world is developing, in every aspect, incredibly fast, so we have to keep true to our path. Like in any well built and structured company, we need to have certain stable elements based on compliance, discipline and best practices, even though it may bring some extra bureaucracy and extra discipline, which creative people, and developers are very creative people, are not very fond of.
We are also dedicating significant resources to this innovation, or however you would describe it. You have to work hard and, of course, be adventurous and take risks. You cannot live without innovation. Half a year from now we may find a new game style, maybe a new monetization style, a new business model, or we may link, for example, gaming with the social aspect in a very special way. We don't know what that next innovation will be today, but we have hundreds of people thinking, as their full time job, of ways we can innovate.
We are a high-tech industry combined with entertainment and a global, multiregional business, so we have to innovate everywhere and everyday. Now, as a company you also have to have innovative business people, who may not necessarily be good game designers, composers or artists, but who understand compliance, structure, responsibility, chart techniques, taxes, etc. Cyprus is an excellent place to source these people. Most of our administration here are local Cypriot people and administration is not just about counting money, there are different and sophisticated professions in this administration and now we are having more and more highly qualified professionals from Cyprus.
The strength of Cyprus’ human capital and particularly professional services is certainly part of its attraction to international companies and investors, as it ties in with the pursuit of building Cyprus’ reputation as an international business hub. Do you see more opportunities for companies like Wargaming to set up their base in Cyprus?
Of course, everyone is welcome. Cyprus is a EU country, with all the benefits of being a EU member. This means the democratic way of ruling the country, the regulations, and the infrastructure create a stable business environment. Then you have the weather, the beaches, not to mention, Cyprus is a good place to raise and educate kids. The way of life, the quality of life, the medicines, transportation, mean that Cyprus is only one-stop from anywhere in the world.
Infrastructure is perfect. Yes, it is not a big country, it is relatively compact, but it has everything a normal modern country should have, starting from historic heritage, to food and tradition, music and food. Did I mention food? It doesn't hurt to mention food twice..
For us, Cyprus is a relatively small country where a big company like ours can make an impact and not just in terms of being a consumer of local services, but also a meaningful contributor. We contribute from the taxes we pay, the consumption we create, as well as participating in an active social life, from cultural events to forums and sharing our expertise in some University lectures. We have integrated in this society very harmoniously and we can make a difference by being an example of more than just a pure financial contributor. I see no reason why any big company would not be here with their head quarters.
So yes, we would love to see new players, as even though we enjoy being one of the largest companies here, we are not arrogant, we are friendly and hospitable. If Google comes here tomorrow morning we will be more than happy.
Back in the early 1990s when you originally developed these concepts and ideas, you were working from home. Did you ever imagine that you would become one of the most successful game developers and publishers in the world?
That's the aspiration of any game developer. Even if there is one or two guys in their bedrooms somewhere in Silicon Valley, Hamburg or Shanghai making their first game, there is no other way but dreaming to make the best game of all time. That's the mantra: you have to make the best game of all time. So, you make your first game, given whatever budget capacity you have and in most cases these are small, low quality and very limited. But that's ok, you have two choices: look at this and realize it is nothing, from the financial point of view, and give up. Alternatively, you learn from the experience and take the hit, decide that giving up is not an option, and face another project.
For us, if I go back to the bedroom times, which was in 1995 or a little earlier, it took us 20 years of financial failures, but we were patient, we were reasonable and we stayed true to the values that our potential players would appreciate. We knew that because we were passionate strategy game players ourselves, we knew what we wanted; I am my own consumer. I play World of Tanks, World of Warships, World of Tanks Blitz, for an hour and a half a day average. I play with my son, I play alone, and with my colleagues; so we are consumers of our own products, I know what I am talking about. I am not just the corporate CEO counting money, I play it as a player and very passionately.
Of course, if I look back, many things could or should have been done differently. Many of my decisions were wrong. You make many mistakes, choosing partners, choosing people, hiring and firing, choosing the right timing, the right concept. You just have to be persistent, brave, a little bit adventurous, take risks and you have to have some integrity to keep to the values.
At the end of the day, if you ask me to name the most important thing in our success, it is definitely the people. If the company building comes crumbling down, we would rebuild after that. But when it comes to people, teamwork, brains, experience, hard work, attitude, transparency and honesty, you need to have this. You have to employ the management leadership structure, the best HR practices and techniques, to still push your vision, your values, your culture, through all of those people and make sure that they are operating within this framework of values.
Being a little bit crazy when it comes to the creative part but being disciplined and structured when it comes to business' aspects, this is the key in surviving and maintaining steady growth in this very competitive and hostile environment.
You mentioned before some of the advantages of basing Wargaming in Cyprus, however, perhaps the question still remains; why choose Cyprus?
We ask this question to ourselves all the time, “Why Cyprus?” We get this question from pretty much everywhere we go around the world. We talk to people and they always ask the same question, and yes, when it comes to the IT business, we could be anywhere. There are a lot of good places in this world to base an IT business.
Considering all possible aspects of this country, this society and community, and having offices in other parts of the world, just by pure reason, and a little bit of heart as well, we realize that for us, and every company like us, Cyprus is the place to be. You can have offices in San Francisco for certain reasons, you can have them in Minsk, Moscow or Tokyo for certain reasons, but the heart of the company being here in Cyprus is unparalleled. Today, with other options, which we consider from time to time, just because as a business you have to know what is going on, Cyprus is looking better and better for us, and we have the choice to be anywhere.