DeNA starts social gaming battle with Ngmoco buy
The highest profile social gaming acquisition involving an iPhone games developer
DeNA has a mobile social gaming platform called Mobage Town with 20.5 million users and is an industry heavyweight in Japan with estimated revenues set to hit the $1 billion mark for 2010. DeNA has already acquired four social gaming service providers, but at $400 million US-based Ngmoco is DeNA’s highest profile acquisition so far and is strategically important in strengthening DeNA’s push into western markets.
Ngmoco, an iPhone games developer, is showing solid growth, having crossed the 50 million downloads mark on the App Store as of September 2010, and has over 12 million users on its Plus+ network across 119 games. It has also grown the business through a clutch of companies in the social gaming realm – Miraphonic, Freeverse, and Stumptown Game Machine.
Although DeNA is a leader in social gaming in Japan, the local market is highly competitive, particularly as western companies such as Zynga make inroads.
DeNA needed to ramp up international expansion to help maintain longer-term growth. Prior to Ngmoco, DeNA had acquired US Gameview studios which specializes in iPhone games. It has also invested in US Aurora Feint, which provides a 20% share and use of the OpenFeint platform to create mobile social games, and has set up a $27.5 million fund to invest in social gaming start-ups.
The beginning of the battle for mobile social gaming real estate
This can be seen as a strategy to counter Zynga’s increased presence in the Japanese market. Zynga has been going from strength to strength in Japan having recently acquired a series of Japanese start-ups including Unoh (a social gaming company), and also announced partnerships with social networks such as GREE and Mixi, as well as mobile carriers. Moreover, Zynga recently raised $147 million in funding from SoftBank, one of the largest telecoms operators in Japan and the main shareholder in Yahoo Japan.
The battle for social gaming is indicative of the strong growth trajectory expected of this market, but to stand out players will need to cater to regional differences in user behavior and preferences. For instance, the emphasis on virtual personas (avatars) is far greater in the east than it is in the west. This makes it even more important to have local acquisitions with indigenous knowledge of the gaming market. It will be interesting to see whether this growth model of reliance on smaller, local talent will enable it to replicate DeNA’s success in the US and Zynga’s success in Japan.
Convergence of two parallel social gaming strategies
Zynga and DeNA became leading players in the social gaming realm by following two distinct strategies to gain traction in the market. Zynga used Facebook’s large user base to gain visibility in the market and is currently tied to the Facebook site, with a relatively smaller presence on the mobile phone. In contrast DeNA has a heavy presence on the mobile phone and has built up its business by distributing its games direct to the consumer, via operators and through platforms such as Apple’s App Store.
However, as the social gaming space gets even more competitive we expect to see these strategies converge. Zynga is making efforts to reduce its dependence on Facebook (through its Zynga Live portal), especially after the recently implemented 30% revenue share by Facebook. Similarly DeNA is only now making its way to the desktop through alliances such as Yahoo Japan.