ANALYSIS: Social mobile turf war

Christopher Dring
ANALYSIS: Social mobile turf war

A war has erupted in the mobile games space, with two Japanese giants hoping to buy their way into the hearts of Western gamers.

DeNA and GREE may not be household names in the US or Europe, but they are the two most lucrative firms in mobile games.

The pair are ‘Social Networking Services’ (SNS). They build their own games and let third parties develop games for their mobile social networks – think Xbox meets Facebook.

And they are hugely successful. GREE generated $560m during Q1 this year, while DeNA – which runs SNS platform Mobage – reported revenues of $529m. In comparison, EA’s mobile division recorded revenues of $87m for the same period. And Asia Pacific research firm Macquarie Securities says more money is spent on games via these Social Networking Services than via Apple and Android.

So it is no surprise that third party publishers – particularly those from Japan – have jumped on board. Particularly as the console games space becomes an increasingly hostile market to operate in.

Konami is one such publisher, which has seen its profits in its last financial year more than double on the back of SNS mobile games.

“With the increased popularity of SNS sites, opportunities to reach an even greater audience are increasing,” a Konami spokesperson says.

However, GREE and DeNA are approaching market saturation in its home territories. Meanwhile a lucrative revenue stream for their games dubbed ‘complete Gacha’ – which is a system that requires users to buy multiple virtual items from an in-game slot machine on the chance of unlocking a rare item – has fallen foul of Japan’s regulators, causing concern to SNS shareholders.

As a result GREE and DeNA have set their sights on the rest of the world.

GOING WEST

GREE and DeNA have been splashing the cash in their bid to conquer the West. GREE has acquired California-based OpenFeint ($104m) and Funzio ($210m), while DeNA has bought US mobile publisher Ngmoco ($403m), plus a handful of indie developers.

But even with high profile acquisitions, it’s not going to be easy for these Japanese specialists. There are already a string of publishers and SNS firms in the West who either have a social element or are set to launch one – the most high profile of which are Google Play, Zynga, Facebook and even Apple. But on top of that there’s Gameloft Live, PlayStation Mobile, EA Origin, PlayPhone, Papaya Mobile, Habbo, Tequila Planet, Kongregate and a whole lot more. 

And you thought the console market was a battleground.

How can the likes of GREE hope to compete with this level of competition?

“It depends which one you’re talking about,” says GREE’s Senior VP of marketing and developer relations Eros Resmini

“I would say we are the largest when it comes to social mobile gaming. At 230m-plus users, there is no-one else in this space that has that many mobile gamers on their network.

“The fact that we are providing both games and the platform makes us really interesting for our partners, because we can not only bring our own content and our own understanding of the space, but also share that with third parties and indie developers who want to come to the network and come to mobile. 

“And finally, Eastern-style,  gaming has been around for years now. So as the devices have caught up here in the West, it is very unique for us to deal with and share those experiences of using high-powered gaming devices that are in your hand in Japan that are now showing up in the US and Western markets.”

It has become a turf war in the global mobile games space, and GREE and DeNA has some serious competition in the West. EA has the benefits of its in-house teams at Playfish, Popcap and Chillingo. PlayStation has partnered with its Sony Ericsson business, HTC and will even allow for PlayStation Mobile titles to be playable via Vita.

Then there’s Apple, who is set to upgrade its Game Center to include social features such as challenges and Facebook integration. This will go live this Autumn with the arrival of iOS 6. 

And finally there’s Zynga, which has joined GREE and DeNA as one of the firms looking to consolidate the mobile and social markets – in March it acquired Draw Something-studio OMGPOP for an eye-watering $183m. The cost of acquiring social companies and their customers is spiralling.

Resmini says: “We are always looking at great companies. If the right one comes along for the right reasons at the right time, we will always consider it.”

CUSTOMER?ACQUISITION

According to an Insight Consulting Survey, 93 per cent of people who use existing SNS do not want to use another. So encouraging customers to jump to their platform can prove to be an uphill battle.

Buying companies such as Ngmoco, OMGPOP and OpenFeint has become the most successful – albeit expensive – way for these casual giants to ‘acquire’ customers. 

“There is a tremendous apathy from consumers to change and use the new Mobage or GREE networks and hence cost to acquire customers will rise rapidly,” says Macquarie analyst David Gibson.

Resmini wants “players to learn about GREE through the games,” suggesting that word-of-mouth could prove to be its most powerful marketing tool. And both GREE and DeNA have expressed the “paramount” importance of developing local content for European and US consumers. 

However, there’s also a hope that certain Eastern IP can crack the Western market. Already we have seen one hit – DeNA has played its part in the success of card game Rage of Bahamut by Japanese developer Cygames, which has been a top grossing game on both Android and Apple in the US.

But it’s not all about localised content and word-of-mouth. GREE will spend $50m in above-the-line advertising in the US this year. It may not sound a lot to those used to the big budgets in the console space, but it’s a significant investment for mobile games.

GREE even took to E3 this year with a booth that was comparable to the sort of stands EA, Nintendo, Microsoft and Sony had.

“We are telling the world that we are here and we are going to make a big impact in the gaming space,” Resmini continues. “And what better place to do that than on gaming’s biggest stage.”

GREE, DeNA and the rest believe the mobile phenomenon that has dominated Japan for years is on the brink of reaching the West – due to the proliferation of tablets and smartphones and the increase speeds of mobile networks. And they believe that one-time purchases of apps will make way for the freemium model, where players get their game for free, but are encouraged to pay extra for in-game items and weapons.

“The future is not about one-time download, the future is about freemium,” says Nick Earl, head of EA’s mobile division EAi “Players can grind your way without paying anything, but a decent number will pay. They don’t have to spend a lot, but they do pay more than perhaps you’d think.”

ONE?BILLION?USERS

Tokyo firm Ichiyoshi Securities estimate that the global mobile-game market will grow from $3.8bn in 2010 to $17.6bn in 2015. It’s no wonder that so many  want a piece of that. 

And the growth of mobile gaming is happening so rapidly, that GREE even believes it can go from 230m users to 1bn over the coming few years.

“The number of handsets out there is just growing dramatically every week,” concludes Resmini. “And there are these developing countries that are now getting these high-powered mobile devices. That is a huge leapfrog over consoles, which are just too expensive and too hard to penetrate in these emerging markets. When you see countries like China, India, Russia adopting these handsets, getting to 1bn users in a matter of years is very possible.”

GREE has been boosted by support from big third party Western companies. Ubisoft has commissioned an Assassin’s Creed, 2K is developing a Civilization, while Mind Candy is working on two Moshi Monsters titles for its SNS platform.

These networks are by no means sure things in the West. But as the traditional console market continues to struggle, the worlds of DeNA and GREE are proving highly attractive to the games industry's biggest names.

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Tags: facebook , social , war , mobile , origin , Gree , mobage

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