How much brand recognition must a company have before its super-loyal customers tattoo its logo on their bodies?
Razer, the high-flying startup that offers top-of-the-range technology for online gamers, is the latest to attract such cult-like devotion, putting it in the elite company of world-leading brands such as Apple and Nike, whose superfans have also gone under the needle.
According to co-founder and CEO Min-Liang Tan, such brand loyalty and high user retention is what makes Razer not simply a company, but the leader in the global gaming community and a brand that represents the deeper values of gamers.
“There are many new businesses coming out and that is not because of the huge numbers that they make,” Tan told FinanceAsia in an exclusive interview. “These businesses and companies stand for something. And we stand for something.”
Tan was referring to the rapidly-increasing popularity of online gaming as a form of entertainment and the fact that it has become the centrepiece of a vibrant global subculture, reversing the conventional wisdom that playing games is an unproductive activity for lone teens in their bedrooms.
Often dubbed the Nike of eSports, Razer has achieved an almost unshakable position in the electronic sports industry by developing products that offer a premium experience for online gamers. The brand is best-known for its high-end gaming devices, which include customisable, flashing colour keyboards and high-precision mice.
Over the last three years, Razer says it has shipped more than $1 billion in hardware to customers across the world.
According to Tan, Razer’s success lies in the fact it was one of the pioneers of online gaming and achieving widespread recognition as an integrated gaming and lifestyle brand globally in a sector that now boasts a global audience of 2.2 billion.
And this is all just getting started.
“Think about [eSports] like the early stage of basketball,” Tan said. “Now you have NBA; you have viewer and team rights; you have all these sportwear brands and you have schools teaching young people how to play basketball. But eSports is just at the beginning.”
One common misconception of Razer is that it is a pure-play hardware manufacturer.
“It is hard for us to change the view of people who see us as a mouse-making company,” Tan told FinanceAsia. “Hardware is a big part of our business but there is potential to monetise so much more from our software and services business.”
Tan said the main difference between Razer and pure hardware companies lies in its relationship with customers.
“When most hardware companies sell you a product, they don’t want you to come back because [if you do] it means there is a quality problem,” Tan explained. “But at the moment you switch on your Razer hardware, our software pops up. And that’s how we connect with our users.”
Razer’s software lineup includes Razer Synapse, a gaming configuration system that allows users to save their customised controls and settings to the cloud, so they can be easily installed on any device. It also operates Razer Cortex, a price comparison engine that finds the best deals across multiple game developers and game-selling platforms.
The company’s latest software development is a virtual credit called zGold, which can be exchanged for digital content and items across multiple game developers and content providers.
Razer distributes zGold in partnership with Malaysian online payment company MOL Global in Southeast Asia. In Hong Kong and Europe, Razer works with Three Group under CK Hutchison, the flagship entity of Hong Kong tycoon Li Ka-shing.
Li is also a financial backer of Razer through his venture capital firm Horizons Ventures.
But perhaps the most exciting software push is Razer’s proposed development of a new electronic payment system in Singapore, a plan revealed after Tan had a Twitter exchange with the city’s Prime Minister Lee Hsien Loong in August.
“Today we have 40 million users on our software platforms and if we are monetising millions of dollars tomorrow, people will start recognising us as an internet company,” Tan said. “There is so much potential to monetise so much more.”
Earlier this week, Razer started pre-deal marketing and analyst presentation for its planned initial public offering, which could raise $600 million and value the company at over $6 billion according to equity analysts.
Speaking ahead of what promises to the first eSports concept IPO in Hong Kong, Tan said he believed investors could be underestimating Razer’s potential, because the gaming industry is a relatively new sector to the financial market.
“There wasn’t any industry report back then and even now we have industry reports, there are people who don’t fully understand the gaming ecosystem,” Tan said. “But the question should be whether you think eSports will be growing. As long as eSports is growing, we will be growing.”
According to Tan, there are certain elements of the gaming sector that may not be correctly valued using traditional criteria. One of them is brand loyalty.
Over the years Razer has built its brand based on strong social media presence, viral marking and event sponsorship, creating an extremely loyal fan base that sees the brand as the epitome of gamers’ passion.
“When we launched our new concept store in Hong Kong [in June], we had nearly 2,000 people queuing in the rain looking to pay the first visit,” Tan said. “This is something not quantifiable – not that we can guarantee by putting in a certain amount of marketing budget, or something that analysts can write in their research reports. But this is the real intrinsic value of the brand.”
Such brand loyalty allows Razer to expand beyond a gaming company into a lifestyle brand. Razer recently invested in an energy drink, which Tan sees as an important step to enhance the brand’s value.
“For a financial analyst, the move [to invest in an energy drink business] may be interpreted as risky expansion into unfamiliar territories,” Tan said. “But if you are gamers yourselves, you will see the connection between gaming and drinking and understand the synergies between them.”
Apart from gaming gear, Razer also has its own T-shirts, caps, bags and other accessories. All these show Razer’s value as a standalone lifestyle brand and differentiate it from other companies in the same sector.
Razer positions itself between gamers and game publishers. On the one hand it provides hardware and software support to gamers, and on the other hand it offers gameplay feedback to game publishers and helps them promote their games.
The company has entered into long-term strategic partnerships with developers including Activison Blizzard, Electronic Arts and China's Tencent.
One thing this unique model means is that Razer will never develop its own games because that would mean direct competition with its partners. As such, Razer could never enjoy the same overnight success some game publishers earn by developing red-hot games.
But on the flip side, this business model ensures Razer will never suffer from any unsuccessful game launches. By controlling the environment between gamers and game publishers, Razer stands to become a proxy for the eSports industry and leaves it well positioned to benefit from the sector’s estimated 24% compound annual growth rate over the next five years.
Big bet on entertainment
In another expansion outside the gaming industry, Razer last year acquired US company THX, which develops premium audio and visual solutions for cinemas, in a bid to tap into the movie industry.
“I am betting all of entertainment, not just gaming, is going to be very popular in the next 10 years,” Tan said of the rationale behind the THX acquisition and his decision to take his company public.
With further development of artificial intelligence and automation, there will be fewer labour-intensive jobs and at the same time, more free time for people to engage in leisure and entertainment, Tan believes.
“I see entertainment as a massive thing. Therefore, what I am going for is not $10 billion, but a $100 billion-dollar company," Tan said.