Japanese mobile giants GREE and DeNA eye North America for growth
This spring, the Japanese government outlawed a game mechanic called “complete gacha”, used heavily by mobile game makers GREE and DeNA. Described as a pseudo-gambling “random chance” monetization feature, the gacha allows players the potential to score expensive items for much less money. But their return can also be less than what they put in. The gacha accounted for as much as 50% of all mobile spending in Japan, and the ban hit GREE and DeNA hard—GREE posted it’s lowest net sales in July, following the ban. In an effort to offset the loss of this lucrative feature, both companies have set their eyes on North America for growth.
While feature phones games reign in Japan (the feature phone games market made $3.38B in 2011 according to the Japanese Ministry of Internal Affairs) the translation of these games to North American audiences has been a challenge, but not impossible. GREE generated North American revenues of $29.0MM for the first half of 2012, increasing 38% from Q1 to Q2 (though, thanks to the gacha ban, overall revenues fell 13%). DeNA is also seeing returns on international investments, with an estimated $26.8MM in North American revenue in Q3, 4.3% of its total revenue for the quarter.
However, the success of DeNA on the continent results from more organic growth than GREE’s acquisition-focused model. DeNA’s mobile card game Rage of Bahamut has been amongst the top grossing on the iOS and Android stores for months, and the newer Blood Brothers is seeing similarly lofty chart scores (#3 Android, #26 iPhone).
GREE has been less able in capturing the US market, with only one game—Monster Quest—breaking the top 100 grossing in iOS. GREE’s Driland, which had been earning $26MM per month in Japan, is only #122 on the US Android charts. The company subsequently launched an aggressive advertising campaign in the States. However, the lifetime value of a player in the US hovers around $2–$5, compared to $15 in Japan, so the returns on its pricy advertising will yield less robust results.
GREE’s new strategy features a focus on HTML5 development. The standard allows GREE to bypass the app stores and offer mobile browser-based games, increasing its potential reach and defraying the app stores’ cut of sales. But because the US market doesn’t use carrier billing as in Asia, making purchases within these browser-based games is much more difficult than in their native peers.
Time will tell whether GREE is able to adapt as well to Western markets as DeNA. The cultural game shift is not unidirectional, though. Western game makers have faced similar challenges in cracking the lucrative Asian market (average revenues per paying user (ARRPU) can be 5 times as high in Japan and Korea than in the West). It will take a combination of the right games and an understanding of the metrics of each market to make these translations easier.
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