I find it interesting that the two largest social game companies, GREE and DeNA, generate virtually no press, while you can’t avoid articles about the third largest social game company, Zynga. I believe that because they are Japanese and not US companies they do not generate the same level of attention, but that is unfortunate. People do not draw conclusions about the viability of the airline industry by looking at Spirit’s performance or determine whether the auto industry is rebounding by analyzing Audi, so why look at the third largest game company when assessing the social game industry? If you are an investor, entrepreneur, engineer, etc., and trying to judge the opportunities in social gaming, it makes sense to benchmark against the biggest and best, and that is DeNA and GREE.
What are GREE and DeNA?
Let’s start with the most objective measure of size: Market value. DeNA and GREE are both publicly traded (as is Zynga), so the easiest way to compare the three companies is their market value. According to Dr Serkan Toto, DeNA has a market value of about $4.2 billion and GREE’s market capitalization is about $4 billion (for comparison, Zynga is $2.19 billion). In the second quarter of 2012, DeNA generated $609 million in revenue and GREE saw $510 million in sales (Zynga had $332 million).
GREE and DeNA also generate much higher income from their players. Although there are no official numbers, some of their titles have APRDAU (average revenue per daily active user) between $0.50-$1.00 (or higher) while a typical American social game will be around $0.05-$0.06. While it is easy to be skeptical of numbers like these, a game like Driland from GREE earned more than $26 million per month at its peak. Rage of Bahamut, from DeNA, reportedly has similar numbers and has been one of the top grossing titles in the AppStore since its launch. Some argue that these higher ARPDAU numbers are largely because of the differences between Japanese and American players, but both Japanese companies are reporting they are seeing US numbers starting to approach their Japanese results as they bring best practices here.
Overall, I find the argument that Japanese social game companies cannot succeed in the US comical. Japanese firms have dominated the console gaming space for over 25 years. If Nintendo, Sega, Sony, Capcom, Square, Konami and Namco Bandai (and I am sure I am forgetting some) can all succeed in the console space, why would GREE and DeNA be unable to appeal to social consumers outside of Japan? The short answer is they understand the US market and have as good a chance of success as their predecessors did.
I would also argue that one of the reasons these two companies do not have more visibility is convoluted branding. DeNA entered the US market by acquiring ngmoco:), and many of its activities are under the ngmoco:) name. Further confusing the brand is that DeNA platform is called Mobage, so when it publishes a game (either from Japan or ngmoco:)) it is listed in the AppStore as Mobage). GREE is doing a slightly better job at creating brand identity, but it entered the US by acquiring OpenFeint and only recently began using the GREE name for its platform. Moreover, its biggest games in North America came via its acquisition of Funzio, and the games are still considered by most people Funzio games.
Why they are important
The key reason more attention should be paid to DeNA and GREE is they are the best barometers of the health of the social game space. It makes more sense to judge the health of the market on these companies than on smaller companies who might be more visible. The fact these companies continue to grow and are profitable shows that consumers are not losing interest in virtual goods, and that if social games are done well the developers can be quite successful.
The other big reason that GREE and DeNA is important to readers of this blog is that they are probably the most likely candidates to make big acquisitions. GREE acquired Funzio for $210 million (cash) in late April and purchased OpenFeint for $104 million. DeNA acquired ngmoco:) for a reported $400 million. These are three of the seven largest deals in the social gaming space (the others being EA’s acquisitions of Playfish and Popcap, Disney’s purchase of Playdom and Zynga’s acquisition of OMGPop) and pretty much the only companies still making big deals. If you’re in the social games business and hope to sell potentially for nine figures, these are two partners with whom you should have relationships.
The Business of Social Games and Casino 