'Genshin Impact' creator dives into AI for growth beyond games

The Star

12-05-2025

For decades, Chinese video games and American gamers just didn't mix. US audiences were receptive to all manner of weird and wonderful experiences, from Finnish Angry Birds to Japanese Pokémon , but sidestepped anything coming out of China.
That was until Genshin Impact arrived five years ago with two dozen plucky anime characters that fought monsters and took on quests. The HoYoverse production was an instant hit and went on to earn about US$6.2bil (RM26.64bil) from smartphone players purchasing the chance to win alluring fighters and their magical weapons, according to data from Sensor Tower.
HoYoverse, the international brand for Shanghai-based Mihoyo Co, has had an unprecedented hit rate with its anime-inspired fantasy games. It followed Genshin Impact with Honkai: Star Rail and, in 2024, Zenless Zone Zero , a trio of games that's collectively generated more than US$8.4bil (RM36.09bil) on mobile, per Sensor Tower. But recently, its titles have begun to cannibalise each other. With each new release, HoYoverse's audience migrated and the prior game's mobile revenue roughly halved in the two subsequent quarters.
Sales at the closely held company fell 23% to US$4.7bil (RM20.20bil) in 2024, according to data from Niko Partners. The need for fresh ideas is clear and urgent. As HoYoverse plots its next step toward growth, the answer will have to come from something other than cute warriors and selling tokens for in-game lotteries. Billionaire co-founder Cai Haoyu, now in his late 30s, stepped aside from running HoYoverse to help discover the answer.
He's segueing his video game success into a separate, California-based artificial intelligence startup called Anuttacon, where he's researching the use of cutting-edge technologies to develop nontraditional interactive media. The move in late 2023 was presented at the time as helping to "adapt to the company's future development needs', though a HoYoverse representative told Bloomberg News the two are "entirely independent entities'. Cai has recruited about a dozen former HoYoverse employees for the startup, according to a LinkedIn analysis. His first project is a spacefaring video game where the player interacts with a cute girl whose dialogue is AI-generated.
HoYoverse's slogan is "tech otakus save the world', referencing the Japanese slang for obsessive anime nerds. Employees boast of a fundamental optimism that the future's biggest problems are solvable with technology. Parent company Mihoyo has invested in everything from nuclear fusion technology and space rocket development to brain-computer interface technology. Its ambitious goal, according to an employee manual shared with Bloomberg News, is to create a virtual world that's "more real than reality' by 2030. HoYoverse compares itself to Apple Inc and Elon Musk's SpaceX, and claims that "We have never been a game company.'
Still, games are HoYoverse's first step. For its upcoming titles, the company has poached top developers who have worked at Western companies like Ubisoft Entertainment SA and Electronic Arts Inc. It's building new open-world and farming-simulator games, according to current and former employees. That'll be a necessary departure from the anime role-playing genre – to expand the potential audience – but a risky one as HoYoverse tests new ground in an industry with flat revenue, diminishing hit rates and increasingly higher costs.
The company's spokesperson declined to comment for this article, saying only that it contained several inaccuracies and unverified claims, without specifying or elaborating.
As a student at Shanghai Jiao Tong University, Cai dabbled in Flash games inspired by the iconic Japanese anime Neon Genesis Evangelion . In 2011, he teamed up with classmates Liu Wei and Luo Yuhao and established "MiHoYo' in a dorm room. The first two characters stood for mobile internet, while H and Y signified Haoyu and Yuhao. That's according to an exhaustive history of the company from local publication Game Grapes. In 2022, the company started going by HoYoverse.
"A lot of Chinese gaming companies founded in the mid-2010s were from people who had grown up with those types of games that maybe weren't mainstream at the time,' Daniel Ahmad, director of research at Niko Partners, said of mobile anime games. "They wanted to go mainstream with those ideas.'
Anime has exploded in recent years from a niche interest among deeply passionate aficionados to a mainstream hobby celebrated by the likes of rapper Megan Thee Stallion. Some 42% of Gen Z Americans watch anime weekly, according to a survey of more than 4,000 people by entertainment outlet Polygon. HoYoverse was poised to capitalise when anime's popularity surged.
"Otaku have a strong inner need to communicate with girls, yet are afraid to act,' Liu said in one 2011 video, where he pitched a project involving "sweet, cute, kawaii pretty girls' to a room of potential investors with an excited energy. Otaku are "lonely and isolated people', and with the company's virtual characters, "we are here to meet such needs.' HoYoverse released games on that theme for years that earned downloads, prizes and investors.
China's domestic video-game market has long been dominated by fast-paced mobile titles designed to entice players to continuously spend small sums of money. These games, much like their counterparts in Japan, typically involve purchasing digital currency – represented as sparkling diamonds, virtual gold coins or special keys – and spending it on a chance to win new characters or items. Westerners criticised this so-called gacha genre for its monetisation mechanics, which many consider predatory. On top of that, Chinese game makers had a reputation for cloning popular Western games – sometimes even before they were released.
Genshin Impact received criticism on both fronts when it launched in 2020. It also achieved what no other Chinese game had done before: popularity in the US.
The anime-style role-playing game drew from the world of 2017's The Legend Of Zelda: Breath Of The Wild for its aesthetics, borrowed Grand Theft Auto 's surprise events system, and built its missions much in the fashion of Bethesda Softworks games like Skyrim , according to the Game Grapes report. To Western gamers, it felt both familiar and fresh. Its charismatic cast of characters lured in millions of players stuck at home during the pandemic, while its super-polished gameplay kept them coming back.
Every six weeks, Genshin Impact gets new characters – a busty pirate or a mysterious prince – which players pay money to try and acquire. The game is free, but gamers build an emotional attachment to its fantasy universe and spend increasing amounts to build out their rosters with more virtual friends with varied fighting styles.
HoYoverse expanded from 500 employees to more than 1,000 over Genshin's four-year incubation period, according to the Game Grapes report. Development cost US$100mil (RM429.70mil), significantly less than Western peers' flagship titles, according to the South China Morning Post . It grossed more than its cost in just two weeks. A month after its September 2020 debut, it was the No 1 mobile game by global consumer spending, according to Sensor Tower. Cai led the game's development.
Aspiring Chinese game developers applied to work at HoYoverse en masse. The company prefers to hire younger people, even right out of college, who the founders feel are more in touch with the target consumers, according to current employees and the company's manual. The workers refer to each other as "classmates' and have been known to stay late into the night working in the company's Shanghai office.
HoYoverse's next two games varied on Genshin's theme. Honkai: Star Rail added more detail to its cast of anime girls and boys, increasing their polygon count from 10,000 to 40,000, according to lead game designer Chengnan An, who spoke at March's Game Developers Conference in San Francisco. "They can show more distinct personalities, which creates a deeper connection to players,' he said. Like its successor, Zenless Zone Zero , Honkai was reminiscent of the Japanese Persona series. Countless cosplayers dressed as characters from the games at a New York anime convention late last year.
"They have been able to reach a higher level of quality than we've seen on mobile – not just from China – than pretty much any other company out there,' said Javier Ferreira, CEO of Monopoly Go! maker Scopely Inc, in a March interview. "They are pushing the ecosystem forward.' HoYoverse now employs more than 6,000 people across China, Singapore, North America and elsewhere.
Others praise HoYoverse's success, but take issue with its strategy. "They take an economic system and then put on a veneer. For example, Genshin Impact is like Zelda. Zenless Zone Zero was Persona ,' says Robert Wynne, co-founder and chief operating officer of Rising Tide Studios, which operates in China. "They have mastered player behavior to the point where they know exactly what you want when. They're like economists and psychologists making video games.'
Today, HoYoverse is a top-ten video game publisher, according to analysts – but to keep growing, they say, it needs to expand beyond its comfort zone. The audience for its anime-led role-playing games may have peaked. It will branch out at least a little this year, judging by a teaser to a new game in the Honkai universe that suggested Pokémon-like gameplay.
Zenless Zone Zero , its most recent foray, did not perform on par with the company's expectations, according to two people with knowledge of the company. In its launch quarter, it earned less than half its anime predecessors' opening quarter revenue, according to Sensor Tower.
"They're dealing with cannibalisation,' said Sensor Tower analyst Sam Aune. "The launch of Zenless Zone Zero shows they may be approaching market saturation for what they can do with role-playing games.'
The company is now building games with more touchpoints for non-otaku. It's taking a leap of faith, according to one current employee who requested anonymity. On its website, for example, job postings reference a shooter game.
Evidence of strain with this focus shift has already emerged. The company's ambitious open-world game, for which it recruited talent from top Western studios, has been rebooted more than twice, according to two employees. Current and former employees said the game, initially codenamed Project Shanghai and inspired by Grand Theft Auto , is more ambitious than Genshin Impact . Cai also led that development. US-based staff have been laid off due to challenges with coordinating projects across time zones, according to current and former employees.
HoYoverse's next phase has been long in the works, but comes at a time of increasing uncertainty about the future of gaming and AI.
The employee manual waxes poetic about a vision for games built around AI-generated content, something akin to Roblox Corp but with 3D visual assets instantly created upon a user's command. Cai's Anuttacon is his first step in that direction. The technology will "create new, innovative, intelligent and deeply engaging virtual world experiences,' its website says. He is now worth US$7.9bil (RM33.95bil), according to the Blooomberg Billionaires Index, mostly from his reported 41% stake in Mihoyo.
A 25-year Microsoft Research Asia veteran, Xin Tong, now serves as a research manager at Anuttacon. The startup's founding engineer Xiaojian Wu leads a large language model development team after years of AI experience at Microsoft Corp and Meta Platforms Inc.
Yet the announcement for Anuttacon's upcoming test version of its space AI game, Whispers from the Star, made no waves. Video-game fans are ambivalent about AI and worry that the shift away from the human touch could hurt game quality and developer jobs. HoYoverse has faced a backlash after replacing voice actors who expressed concerns about AI.
Cai does not necessarily disagree: "We may as well consider switching careers,' he wrote in a LinkedIn post addressing the impact of AI on game development.
But HoYoverse has a soft cushion under it. Not only does it have the backing of the Chinese government – which it does as a noted pioneer in software development – but the entire games industry is on a yearslong shift eastward. At a time when Western studios are shutting down projects and laying people off, China has become a hub for top game development talent. And HoYoverse is part of that trend with its successful recruitment of developers from the likes of EA.
More than a third of available jobs at game companies globally are in Asia, according to an analysis of job posts on company websites by Amir Satvat, a business development director at technology giant Tencent Holdings Ltd, who compiled the data independently.
China is today the No.1 video game market internationally, generating an anticipated US$50bil (RM214.85bil) from games this year, according to Niko Partners. HoYoverse is a comfortable titan in that market, though the company has its sights set on conquering more distant horizons. To do that, it'll have to tap its deep talent pool of young otaku and rekindle some of the magic that helped it do unprecedented things in the past. – Bloomberg