Why Nintendo is partnering with DeNA

Nintendo’s partnership with DeNA is a bold move that couples DeNA’s significant experience in mobile services, in-app purchases, and user acquisition with Nintendo’s industry-leading IP. The strength of Nintendo mobile may lower acquisition costs for branded games, and the injection of IP and innovation may be enough to bring DeNA sustainable long-term success. Previously, we saw how the release of Pokémon on the iPad proved to be a smart move. But the news of the partnership also illustrates the major differences between mobile gamers and console gamers.

Guest post by Bryan Cashman of CONSULGAMER

Mobile ain’t console

There’s an overwhelming amount of evidence that most mobile gamers will not buy premium games. There are exceptions to this rule, especially for children’s games, but with three-quarters of total revenues mobile is a free-to-play world. Had Nintendo simply entered the mobile market alone, trying to sell mobile games as premium standalone experiences akin to console titles, the company have ignored the vast majority of the world’s billion plus smartphone users who tend not pay for premium games. Nintendo couldn’t have won the mobile battle by just porting their content to mobile devices and expected everyone to plop down several bucks a pop. In 2013, just 7% of mobile game revenue was from games without in-app purchases. For Nintendo mobile to succeed, they had to have a free-to-play. But will they?

Without DeNA, Nintendo mobile may have crashed and burned

Nintendo has minimal experience creating and managing games as a service and free-to-play products that are monitored and modified on a daily basis to optimize monetization and user retention. The company is a powerhouse at creating $40 to $60 experiences that a person can buy and play for up to 50 hours, but has little internal know-how when it comes to free-to-play experiences, the overwhelming revenue-driver in mobile. Free-to-play developers require large teams of monetization experts, who research and constantly test new approaches to get users to pay just a little bit more in in-app purchases.

You can count the number of free-to-play games released by Nintendo on one hand, and none of them is internally researched and iterated on a daily basis like today’s leading free-to-play titles. One of the company’s more recent releases, Pokémon Shuffle, did manage to accumulate 1 million players but still stands clearly in the shadow of titles like Clash of Clans and Candy Crush Soda Saga. The company also has no experience with mobile user acquisition, the critical marketing function of mobile game companies. User acquisition costs continue to increase and these resources—in demand at all mobile publishers—use algorithmic approaches to identify where to buy ads, how to buy them, and what data sets to use to identify which potential mobile game customer will spend the most money in-game. Nintendo has never had to do this in the console world, and is not likely to succeed here fresh out of the gates. Even seasoned mobile publishers struggle with this constantly.

DeNA brings the know-how for Nintendo mobile to succeed

Rather than enter the mobile games industry from scratch—as hundreds of developers try and often fail at on a daily basis—Nintendo is partnering with an established mobile game publisher who has already figured out how to monitor and enhance games, optimize free-to-play game monetization, and to efficiently acquire users on a massive scale.

In a conversation with Time, Nintendo President Satoru Iwata noted the need for DeNA’s expertise:

But for smart devices, in addition to the ‘product’ aspect of a game, the aspect of an ever-evolving ‘service’ is very important — a service that encourages consumers to play every day even for a short time. DeNA has extensive know-how in developing the ‘service’ side of things, and will be primarily responsible for the service-oriented operations. We will be able to greatly leverage strengths of each party.

DeNA will have lower user acquisition costs thanks to Nintendo IP

Nintendo’s game properties are some of the world’s most well-known brands, and DeNA will be able to significantly lower user acquisition costs thanks to the consumer awareness of—and interest in—the company’s major franchises like Zelda, Super Smash Bros., and Mario. Mobile game publishers are already experimenting with using established brands to organically bring in consumers, as shown with Glu’s Kardashian-branded efforts and more recently with Game of War’s Kate Upton experience. A mobile gamer is far more likely to respond to an advertisement with nostalgia flair and recognition like Mario or Pikachu. 

Nintendo is buying into DeNA’s long-term success

Mobile games are services, not packaged products, and Nintendo IP can enable a mobile product to succeed for years in the marketplace, significantly boosting DeNA’s long-term competitive positioning in the market. As industries age, they consolidate to fewer players and more stable profits, and Nintendo’s equity play with DeNA gives the company a long-term upside in exchange for lending Nintendo IP to the mobile publisher.