ByteDance has quickly built up a gaming division to enter a mobile arena currently dominated by Tencent Holdings. The company purchased gaming studios and exclusive rights to title distribution as well as building a team of 1,000 people by hiring and poaching talent. Its first two games will be released this spring to a global market. ByteDance first debuted Toutiao, a Chinese news aggregation app and launched TikTok and its Chinese version Douyin. Via the latter app, ByteDance has access to 400 million daily active users.

Bloomberg reports that, although Tencent and, in second place, NetEase, have dominated gaming in China, “ByteDance might be the one company capable of upsetting that status quo, having already defied convention by surviving and flourishing outside the orbit of Alibaba Group Holding and Tencent.”

Niko Partners analyst Daniel Ahmad noted that ByteDance’s “acquisition of established game developers and other experienced game firms will give [it] a strong starting point.” ByteDance has already released several casual games, but made most of its money through ads. This “new foray into gaming involves a much bigger investment and is shaping up to be a major strategic shift, targeting more committed gamers who will splurge on in-game weapons, cosmetics and other perks.”

ByteDance, which is also testing a paid music app in Asia, is potentially looking for “steady revenue sources” to position it for “an eventual initial public offering.” Wang Kuiwu, who came from major game developer Perfect World, heads up one of the new creative teams, and ByteDance chief of strategy and investment Yan Shou “oversees operations.”

The company has expanded its search for new hires globally as well as looking for “people to work with influencers and internal platforms to promote games … [and others for] managing indie mobile game publishing projects throughout their life cycle.” ByteDance acquired several game studios, including Shanghai Mokun Digital Technology, Beijing-based Levelup.ai, and the core developer team from NetEase’s Pangu Game studio.

Tencent, however, is an intimidating rival, as parent of “three of the world’s most popular multiplayer mobile titles in ‘PUBG Mobile,’ ‘Call of Duty: Mobile’ and ‘Honor of Kings’ … [which] are the blueprint for games that are free to play but rich on in-game purchases.” Tencent also has “locked in a billion-plus users across Asia into a WeChat app that mashes elements of payments, social media, on-demand services and entertainment,” and, with NetEase, has established relationships with Chinese regulators.

That’s significant because, “getting into gaming potentially exposes ByteDance to more regulatory scrutiny domestically, even as it battles U.S. lawmakers’ accusations that TikTok can be used to spy on Americans.”

App Annie reported that gaming is responsible for 72 percent of all consumer spending on mobile, underlining ByteDance’s rationale for entering the field. “Gaming is a strategic vertical for tech companies in China as it is a key way to generate additional revenue from a large audience,” said Ahmad. “Whilst they may be able to develop a number of hit titles in the China market, we believe it will still be difficult for them to truly challenge Tencent in the gaming space.”