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In-depth look At Mihoyo's History, misconception about Gacha gaming industry, and Genshin Impact's future

Hi all, I see there is a lot of anger and anxiety toward Genshin Impact due to the wide audience it brought to the table, as well as a lot of misconceptions about the gacha gaming industry. I am 40 years old and have been gaming for over 30 years. I have 300+ DAYS /played in World of Warcraft and recently, over 1000 hours in Path of Exile with popular build guides with hundreds of replies. I also have played just about every major hit of every era on every platform. I really want to tell you who Mihoyo really is, how the gacha gaming industry works, and what Genshin Impact's future looks like.
Mihoyo's History
In 2011, three college students from Shanghai Jiao Tong University (comparable to Cornell in America) released their first game, FlyMe2TheMoon. When they graduated in 2013, they used their own money to make the first Honkai game (released as Zombiegal Kawaii overseas). This game allowed players to farm gold coins to buy all weapons and gear, only spend real money to speed up progress and came with glorious two players co-op way ahead of other mobile games at the time. At end of the day, players just didn't pay money for it. When they took it to investors, they were laughed at and ridiculed by everyone. Nobody is going to pay money for this silly anime stuff! You guys don't know how to monetize a game! Both of these games are still available on App Store, feel free to download them to check them out!
In 2014, on the verge of bankruptcy, the team learned monetization model from Puzzles & Dragons, the first-ever mobile game to break a billion dollars, and released Honkai 2 with the same art style and gameplay. The biggest change was moving to the gacha model. The game became a top-10 grossing title in China, released to overseas market as Guns GirlZ - Mirage Cabin and Guns Girl - Honkai Gakuen. Mihoyo the company was born. Today, Mihoyo has over 1000 employees and pays them more money than titans like Tencent and Netease, and runs their office in the ultra-expensive heart of Shanghai business district. Despite Genshin Impact's smashing global success and player's thirst for more content, they gave many of their employees a full 8 days break, standard with the 10/01 Chinese national holiday, for the historic job they did with the global launch. They understand it is a marathon, not a sprint.
For Mihoyo, the most important metric for their title will always be LIFETIME REVENUE, and they do not abandon their titles. All of them are still available. Honkai 2 is still getting content updates six years after release, even if the game itself is nothing more than a piece of history for them at this point. Honkai Impact 3 hit an all-time high revenue month this year, still makes a few hundred million dollars a year in China/Japan, three years after release, and Mihoyo took every dollar they made and spent an unprecedented 100 million dollars on a mobile game we know as Genshin Impact. You can count on Mihoyo to treat its most ambitious title ever with love and care, but you must remember they will always prioritize LIFETIME REVENUE over any other metric, which is what successful companies do because it is the only way to make the product best in class.
Fate Grand Order - Genshin Impact's TRUE inspiration
In 2015, Fate Grand Order was released as a turn-based mobile JRPG, the first six months it scored just $100 million dollars, and was on the verge of sinking into irrelevance. Five years later, the game grossed 4 billion dollars and became the most successful PVE game on any platform since GTA 5. How did it happen?
Many say it is the fate IP, but the truth is fate's IP is nothing special in a sea of big IPs trying to make a splash in mobile and failed miserably, just ask Nintendo how their two Mario games performed, or Square about their countless Final Fantasy mobile games. 80% of the billion-dollar games on mobile are actually brand new IP's.
The biggest challenge for every PVE game-as-a-service is monetization. PVP games like League of Legends and Fortnite do not need huge content updates to stay fresh and can maintain much higher daily active user counts to sell cosmetics, make $5 per player, and still hit a monster year. Monetizing PVE games is much harder. Players simply run out of things to do and quit the game, no matter how quickly you can produce content. Games like Path of Exile and Warframe struggle to break 100 million a year in revenue.
PVP gacha games like Summoners War and AFK Arena can rely on whales dueling each other to force meta changes, and they grew into billion-dollar franchises in their own right. But Fate Grand Order had a different idea in mind, what if you design amazing characters that are truly desirable, and price them at a low gacha rate so it takes thousands of dollars for rich players to max out their box by pulling multiple copies? You are never going to have the player base of a Candy Crush, let's try to maximize our revenue ceiling from whales instead, and make players emotionally attach to their characters because they are so well designed. The rest was history.
While there are indeed many generous gacha games like Granblue Fantasy, Azur Lane, Dragalia Lost, etc, none of them are in Fate Grand Order's tier if you look at their annual numbers, not even in the same ballpark. Other multi-billion dollar franchises like Puzzles and Dragons, Monster Strike also follow the same concept of greatly increasing the limit of what a whale can spend on a PVE game to max out a character. And yes, we are talking about providing strong benefits for getting multiple copies of the same character.
The numbers have proved time and time again, that maximizing whale spending in a PVE game is far more revenue than maximizing the number of monthly card players.
Genshin Impact's Target Audience
Any product that tries to be everything for everyone is doomed to fail. Mihoyo has very clear audiences in mind:
  • Players who love anime graphic and ARPG, there is simply no AAA game out there in this genre. Tales series, Xenoblade, etc. are all low budget, low sales games. Granblue Relink is single platform and dead on arrival. There is no dominant franchise at all.
  • Players who love Zelda's open-world exploration and environment interaction, but hate the difficult puzzles and survival/weapon durability/ammo aspect, and want constant content updates. Hey, a co-op mode with a real RPG system sounds amazing!
  • Mobile players who want more than a simple game like Fate Grand Order. They want to do dailies during commute and don't mind doing harder content on PC/console. The game needs to look good on a big screen at home. They don't want to learn/maintain two different PVE games given how time-consuming these games are.
  • Players who retired from MMORPG/ARPG's due to real-life commitments. Many of us who played World of Warcraft have kids now, and the outdated graphics, 20 buttons skill bar, the social requirements for raids . . . it is just too much to keep up. We want a simpler game that looks good and takes far less time to learn and play.
And let's just say they hit it out of the park with the greatest launch in gaming history. Never before a game hit PC/PS4/iOS/Android with cross-play on day one in 100 countries, 13 text language and 4 fully voiced languages, never before a game hit top 5 grossing in China/Japan/US/Korea at the same time, I don't even recall a marketing campaign did so well across so many drastically different regions and cultures. The AAA graphics, sound, incredible polish, you don't need me to tell you why this game is amazing. But from the competition's standpoint, the launch itself was like watching a bronze player climb to grandmaster overnight, and the game's biggest strength. Far bigger companies, franchises, do not dare to even think about launching a game at this scale. Mihoyo released the failed Honkai 1 overseas when the company was on the verge of collapsing, they always punched way above their weight when it comes to global releases.
Make no mistakes about it, this was never meant to be a single-player AAA game or a direct Diablo 3 / Path of Exile / Warframe competitor. It was meant to be a game that converts PC/console players to gacha gamers, by casting a wider net than any mobile game ever. They only need a small percentage of PC and console players to change their behaviors. The rest of them can play for free or leave and it won't hurt them at all. The monthly card is designed as a super good deal (look, WAY cheaper than World of Warcraft $15 per month) to get PC/console players to spend for the first time ever, breaks down their "why pay for a free game" defense. Once they pay once, the pity 5 star is always just a few dozen more pulls away, let me buy another pack! Before you know it, monthly cards are converted to dolphins, dolphins are converted to whales. It is by far the strongest business model for a PVE game today, and people who are new to the genre won't know what hit them.
Genshin Impact has an excellent chance to end Fate Grand Order's reign as the #1 most successful PVE game on any platform since 2016, by the virtue of being on every platform, and the same version across all regions.
LIFETIME REVENUE = Active Player Base * Spend Per Player * Longevity
For every game as a service, balancing these three variables is an incredibly difficult task. Can Mihoyo increase the rate on an event (like Cy Games gala events), put up a Diluc banner, and greatly increase spend per player? Yes, but they will provide less reason for people to pull on other days and lose out on long term revenue.
Likewise, the resin limitation is to prevent even whales from maxing out their characters and moving onto other games, that is why they have a hard limit on resin refill. Player progression is meticulously controlled to ensure content can keep up. A huge part of internal testing is to test how quickly a player of each spending level can go through content. Two-day, three-day, seven-day, and thirty-day player retention are critical metrics to F2P mobile games, you will always lose a huge number of players during these transitional phases. These are tried and true methods in gacha gaming to preserve the maximum number of players over the long haul. It is basically a much more advanced progression control than say, World of Warcraft's weekly raid lock outs. You have to FORCE your players to take breaks, or you will lose them way faster than you can churn out new content.
All four dailies, spend resins, and open-world exploration for crafting/ascension materials, a couple of chests/quest you missed, that is a health 60 minutes of gameplay. Gacha games provide resources for the next pull on every daily, every quest, every event. Getting a five star is a better feeling than getting any item drop in MMORPG/ARPG. Gacha games have a much stronger hold on its players because of this addiction, you are always very close to the next pull! Genshin Impact takes it a step further to actually encourage you to do single pulls over ten pulls. Over time resources will inevitably be loosened up as more contents are released, and daily quests and slowed down progression is there to keep you playing.
Behind the scenes, there is an ultra-complex data model that works tirelessly to balance all three variables. Looking at Mihoyo's track record with Honkai Impact 3, they know what they are doing to maximize LIFETIME REVENUE. With every gacha game like this, the developer has a price point they need to hit on a five star, then based on the competition they usually adjust the price significantly higher than what they consider to be acceptable. Whether it is gacha rate or stamina, once you reduce the price, you can never, ever increase it again. Start high and drop it when you need to is a much better strategy, and players think you listened to their feedback, win-win! If the daily active user doesn't drop while you keep the price high, why lower the price? The developer and player are always in a tug of war, with the developer testing player's limit on what is acceptable. It is just like how Apple kept iPhone with 2GB of memory and tiny screen size for a very long time because they are looking at the overall LIFETIME REVENUE, not because they didn't know their product needed these features.
Genshin Impact is priced at a premium because it has no competition, just like how Apple iPhones were priced at an ultra-premium when it first came out. Over time, prices will drop, resources will come easier, but until there is a real competitor, they do not need to care what lesser gacha games do. Do you think KeQing should be priced the same as a gacha character with PS1 graphics?
Genshin Impact's Future
100 million dollars estimate from Sensor Tower in two weeks does not include PC, PS4 and Chinese Android. Chinese Android revenue has been 1.8 times of China iOS for Honkai 3, many in the Chinese gaming industry speculate the true global revenue number of Genshin Impact is easily double of what Sensor Tower shows. Mihoyo is a private company and it fired one of the employees who bragged about the 09/15 China PC numbers, which was 10 million dollars, so we will never know the exact figures unless they go public. Don't expect Mihoyo to ever share revenue/player base numbers, that is just not how they operate.
There is no way the game can continue the 100 million dollars a week pace, that is 5 billion dollars a year, so for haters out there, you will see a massive decline in the player base between content updates, you will see the game falling out of top 10 grossing, you will get your "I told you so" moments when the weekly revenue drops by 50-70%. It is perfectly normal for gacha games between banners, and what Gensin Impact is doing is completely unsustainable. This is called filtering out users and building a stable player base.
However, even with the inevitable massive decline, this is a game destined to be a multi-billion dollar franchise. I personally give it a very conservative estimate of two billion dollars in three years. It will easily outperform the likes of BOTW, Cyberpunk 2077, etc. by the end of the first year in terms of the player base, hours played, and revenue. It will take money away from all other gacha games and force other developers to step up their game. It will take money away from long-standing multi-billion dollar PC PVE franchises like Dungeon Fighter Online, and to a lesser degree, MMORPG's like FF14. It will encourage companies to play with bigger budgets and provide PC/console releases for bigger mobile releases like Diablo Immortal, instead of relying on emulators. It will even change the monetization model for western F2P games. Iksar, lead designer of Hearthstone has been playing Genshin Impact since release. Imagine if Hearthstone didn't allow you to craft cards, and provided benefits to getting multiple copies of the same card. It is way too late for Hearthstone to change now, maybe there is still time to change Diablo Immortal's monetization model, I believe they will need either gacha or real-money auction house to be competitive.
But will Genshin Impact shake up the AAA industry? My personal opinion is no. Japanese developers do not have the technology to make mobile games at this level, you just need to look at the top 20 grossing Japanse mobile games. Western developers do not have the artwork to make characters so attractive, I mean just look at Baldur's Gate 3 and Cyberpunk 2077 characters, will whales spend $1000 on them? Whales spend enough money in gacha to pick up girls in real life many times over, many of them are ultra-rich and live a lavish lifestyle, just showing anime assets is not enough to win them over.
In all of my years playing Western games I have never been attached to a female character as I did with Artoria aka King Arthur of Fate Grand Order, I played the game for six months even if I don't really like turn-based JRPGs, and always enjoyed listening to her "Excalibur". Mihoyo is coming very close with some of Genshin Impact's character designs. I am not sure if Western culture is capable of creating the type of characters that can connect with players on an emotional level. Lara Croft is definitely not it. I believe Western gaming's general pursuit of realism and grittiness hurts them when it comes to creating an idealistic world and dreamy characters. Top western games tend to expose the harshness of real-world to players, instead of offering an escape. In many ways, Mihoyo's mastery of anime is closer to a Japanese company than Chinese company, it is not something you can just hire a couple of artists for. Likewise, the western market will always be 15-20% of the overall revenue for gacha games at best, it is difficult for western companies to justify making them with a AAA budget.
It is also incredibly hard to make a cross-platform PVE game on PC, Console, and Mobile look this good. It is not something you get from just licensing Unity. There are maybe a handful of companies out there capable of dropping 100 million dollars on a game like this, but until their main cash cow die, which studio dares to take this kind of risk? The tier 2-3 companies are simply not capable of spending 100 million dollars even if they went all in. I don't see a real competitor in two years, not even from Tencent and Netease, the bar is that high.
How You Should Approach It As A Player
If you are not a fan of gacha games, no problem! The best way is to play it like a free AAA game with unlimited free DLC's. With the amount of money this game makes, in a few years it will have more content than any other open-world game, and the developer will also be more generous over time as end game contents become more abundant. As their tools mature, the amount of time it takes to release contents across all platforms at the same time will shrink significantly, there will also be more events they can queue up. Every F2P player can get at least one five star character without rerolling if they complete most of the quests and use up their gifted currencies. I expect 100% F2P players will get at least 4 five-stars per year, 3 from pity, 1 from luck. I believe F2P with limited resources is a lot more fun and only spend money to support the developer. I am still 100% F2P on Genshin Impact as of today, because getting 20 pulls from the monthly card is not that exciting. I will wait for a one-time-only deal later in the game's life cycle.
For players who want to be a bit more involved, you can buy a monthly card, do your dailies, enjoy new content, enjoy the thrills of pulls, and pity 5 stars. Once Mihoyo gets a stable end game loop out there, they will definitely loosen up on resins. Just don't expect to play it like a Path of Exile season start. Save currencies and pity timer for a banner you want. Take it slow! Gacha games are designed to be played over many years, alongside other games. Take your Cyberpunk 2077 break, take your Call of Duty break, but in the end, there is simply no anime ARPG competition on any platform, and if you are into this kind of game, you will be back.
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