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Why Japan Mobile Companies are refocusing its strength back to Asia

One common theme in the West in 2015 – 2016 was that anything and everything mobile companies from Japan was doing in North America was probably going to fail. 2015 – 2016 saw the closing of Gumi Vancouver, DeNA Vancouver, DeNA San Francisco, Gree Vancouver, restructuring of Namco Bandai Vancouver, Gree San Francisco and the list goes on.

The aggressive nature of these studios to develop a market share in the West was definitely recognized but not necessarily embraced. When the movement started back when Gree and Dena released their mobile ‘web’ platform, leading them to open up their platform publicly for more content and a cut of the revenue., These 2 companies effectively were tapping into a blue ocean market, with users thirsty for new mobile content. This led to multiple $100 Million / Month revenue games / application being created domestically, and these titles were paving the way for what is known world wide as the freemium social mobile application you see currently embedded in the top gross rankings today.

  • Dragon Collection

  • Doriland

  • Tsuri Star

  • Rage of Bahamut

  • Kaitou Royale

The Perfect Storm

In 2008, a Global recession was at the forefront as Lehman Shock and the AIG bail out was the catalyst for the world market to collapse. This inadvertently caused the Japanese Yen to appreciate due to the risk off nature of the currency and quite possibly created the perfect storm for Japanese mobile companies to enter the West. Gree and Dena were making Billions with Freemium IAP application while the West were still meddling with Freemium but mostly involved in Premium Applications.

For the Japanese Mobile Companies, everything was 40% cheaper, the most opportune time for small start up mobile venture companies to get their 15 minutes, carve out a piece of gaming history, ‘Make the world a better place’ or some other bs that overseas consultants were whispering in their ear as they dropped millions of dollars on M&A

Notable Acquisition were:

  • Gree’s Open Feint Acquisition for $104 Million

  • DeNA NG Moco Acqusition for $303 Million

  • Gree Funzio Acqusiition for $210 Million

At the time, the mobile content market in Japan has reached over 90% saturation and entering a new market was necessary for growth. A lot of these companies were adopting the Nintendo 80/20 model where 80% of their revenue come from overseas and 20% come domestically.

Web and Native Platform

Smartphone market was a blue ocean globally, and the Web Platform was non existent in the West. Whereas in the East especially Japan, the Web Platform was a multi billion dollar industry with a thriving community and strong support.

Unfortunately, Web Tech didn’t translate too well during the first generation smartphones which caused a lot of friction with the User Experience questioning these companies product approach.

So many years of mobile development knowledge that applies to Web didn’t work for the smartphone market, which Gree and DeNa had to learn through trial error, and it inevitably costed them their reputation in the West.

As much as Gree and DeNa struggled to find relevance in the West, their Web Platform still remains their cash cow today. Below is a breakdown of Gree’s revenue.

This chart shows that over 63% of the coin consumption (Revenue) that Gree is generating is through Web. The main market in the West still remains as a Native platform and with no other option for developers or publishers to take. The mobile dynamic in Japan still remains a float as Web games are still a viable business model for developers and publishers alike. Gree Revenue breakdown is a microcosm of that the mobile landscape is still like in Japan as many analyst assumed that users will migrate over to a native gaming platform but it seems this is not true.

Emergence of HTML5

As Gree and DeNa refocused their strategy back to the East it seems that this comes with a bit more competition as both Rakuten and Yahoo have both announced or are going to announce their HTML5 based mobile platform.

This is surely going to eat into both Gree and DeNa’s revenue share which will definitely affect their bottom line.

That being said, Gree and DeNa’s main strength was always Web and competing in the West where ‘currently’ Native apps are the only viable business model, was over ambitious as they had no chance with a plethora of strong engineers with native programming experience versus web technology.

The 80/20 Objective

(note: 1 Billion yen = $9 Million USD)

In light of the all the acquisitions and restructuring Japanese Social mobile companies have experienced in the last decade, the negative backlash is well overblown as the ‘Hot Take’ era really likes to take things out of context.

The original objective was for these Japanese companies to recreate the Nintendo business model of 80/20, but if you look at Gree revenue chart for the fiscal year ending 2016, its the complete opposite, as Japan makes up 87% of their revenue and everything else overseas only comprises of 13%. Re focusing their attention to the domestic market only makes sense in the short term as the Japanese Mobile companies have conceded defeat in the West with their original approach.

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