Interview

GREE CEO Yoshikazu Tanaka on becoming the Nintendo of social mobile games, but bigger

GREE CEO Yoshikazu Tanaka on becoming the Nintendo of social mobile games, but bigger
With the acquisition of Funzio for $210 million, Japanese social gaming platform GREE stamped its ambition on the global market.

Combined with its $104 million OpenFeint deal 12 months ago, not to mention its rapid hiring policy, the company now has over 330 developers in San Francisco alone.

And that's not to mention its offices through Europe and Asia and exclusive - often still secret - deals with dozen of developers including the likes of Gameloft, Cave, Hoolai, Haypi and IUGO.

Prior to the deal, and news that hit the company's share price yesterday, we caught up with CEO and co-founder Yoshikazu Tanaka to find out more about the history of the company, and his vision for the future.

Pocket Gamer: What was your background before GREE?

Yoshikazu Tanaka: It goes back to when I was at university, when I was interested in the internet, and even further back to companies like Netscape. Seeing that sort of company and reading about them made me really interested in the internet.

After I graduated, I joined Sony's internet division. After a year, I left Sony and joined Rakuten, which is a big Japanese e-commerce company - the biggest in Japan. Bigger than Amazon, and very much like eBay.

When did you set up GREE?

While I was working at Rakuten, I basically started up a social network site as a hobby, working when I had time off. It was in December 2004 that I went from part-time hobby to forming the company.

What were your ambitions?

Originally I was involved because I really liked internet services. I liked providing a service. I rented a whole load of servers, providing the service through them.

At the time I was using my own money for all of this. My friends would ask "Why on earth don't you charge people to be part of this network. Why don't you sell some of the artwork you're creating?", but I was doing it because I really loved it.

When did it start making money?

I got to the point where if I didn't make money out of it, I wasn't going to be able to continue doing it. And it was in 2007 that I made a decision to shift away from PCs to mobile.

It was from that point by providing virtual items within social games that users could purchase, I started to monetise the service.

What were the first successful products that you worked on?

The first successful social game was a fishing game, and then a virtual pet game, then a treasure hunting game, and then a gardening game.

At this point, how many games was GREE producing a year?

Two in 2007. I was only making one or two a year.

In fact, we're now into the fifth year of the fishing game, and it's now making more money than it has ever made.

Did you create these games yourself or outsource them?

For the first two years I was involved in the programming side, but since then I've been managing and running the company.

Which mobile platforms were you developing for then?

Just browser games - HTML and Flash.

When did the number of releases start to ramp up?

For the first three or four years, GREE's growth was on the back of those four or five titles.

For example, the fishing game got about ten million users in Japan. It's said the internet population of Japan is 100 million, so we basically got a tenth of those users.

What were the first virtual items you sold?

To begin with we sold background images to go on your user profile, for about two to three dollars.

You could change the background, change the colours - that sort of thing. It was quite successful, and I realised that users are prepared to spend money if you give them the ability to customise.

How many games does GREE produce a year now?

We have around 30 titles of our own, but if we include games from our affiliate studios over the world, it's more like 100 titles. And if you include games using our platform, then it's many more games - over 1,000 in Japan.

All of your revenue currently comes from Japan so how much overseas revenue are you aiming to reach?

In terms of who we look to - as a model if you like - Nintendo gets 70 to 80 percent of its revenues from outside of Japan, and that's the sort of level we'd like to achieve.

How quickly would you hope to achieve that?

We're looking at somewhere between three to five years - that's our ideal scenario.

But, of course, it's not just a question of how much effort we put into it. A lot depends on where we are with telecoms carriers, and the infrastructure that's available to us.

Whereas three to five years is what we'd like to aim for, it may well be that there are other factors which mean we can't achieve it that quickly. It's an important thing to say that every year the telecoms environment improves - I don't think there are any countries where next year you're going to see worse telecoms environment or infrastructure.

I think what we're going to see is more and more countries will come to have the kind of telecoms infrastructure we've got in Japan, and obviously the more countries that happens with, the better it is for us.

How far behind Japan is the UK?

About a year. UK, France and Germany are the best. The Nordics seem to be ahead on the developer side of things, but the telecoms are actually still quite conservative.

It depends on how much investment the UK carriers are prepared to make in the infrastructure.

Will the arrival of 4G networks make a difference to your business?

It's not really a question of 3.5 or 4G. As long as we can have one or two Mbps, we're alright.

It was the advent of broadband ADSL that really triggered everything in Japan, so that's kind of the minimum. You also need to be cheap, and have good coverage.

To be blunt, your first two US games weren't very good. When will GREE be releasing better Western-developed games?

The games we released last month in the US were made in our US studio, and what we're looking at with these titles is, on a per-title basis, how much is each player prepared to spend? How long do they spend on each game? And looking at all of this data, how much is the KPI (Key Performance Indicator) rise for each title?

What we'd like to see, therefore, is what do we need to develop more to further improve the KPI? At the same time, we're also looking to release games developed in Japan onto the US market.

Over the next three months, you'll see between 30 and 50 titles released. Each of those games will be different in terms of their game design and the way the characters are designed.

We'll be analysing what differences we see. Who uses what, and in what way?

When it comes to social games, there are three things. You've got the number of users, revenue per user, and retention levels. If you can get your retention rate on the same level as your competitors, then basically it just boils down to the number of users you've got.

So, our initial focus is to get good products, good retention rates on the same level as our competitors. Once you've got that, then you just have to increase the number of users and analyse what's the best method of marketing.

How steep a learning curve has it been launching games overseas?

In terms of our globalisation strategy, we've only been doing it for just over a year. Maybe we could have started a bit earlier!

Obviously, there is a learning curve. At the moment we have 1,600 employees on a global basis, and this is increasing at a rate of about 100 people per month. Everybody is making, or is involved in one way or another in mobile social games.

Our operations are worth about one billion dollars. The key is to keep making one billion dollars!

Is GREE's current business model sustainable?

I think the mobile social game market outside of Japan is going to receive really rapid growth. If we look at Japan four or five years ago, there was no mobile or social game market. If you look at Russia, you'll see that there's nothing there now, but in five years there's going to be a big mobile social gaming market.

I don't think that what we've had in Japan is particularly rare. No matter what country you're in you're going to see this kind of shift to mobile social games.

Is it a case of tailoring your content to each market, or do you believe your existing strategy has the potential to be successful globally?

We're planning to adopt a two-pronged approach. One is you're going to have games with international appeal, and you're also going to have those that are specific to each domestic country.

But I think the most important thing is to create products that have worldwide appeal.

Do you believe GREE has the potential to become the Nintendo of mobile?

Yes, in that respect, we are trying to be the new era game platform. If you look at the Japanese market now, the mobile social games market is larger than the console market.

How do you see mobile games in relation to console games?

There has been some cannibalisation, but not much between the two. Basically, if you look at the figures, the console market has slightly declined, but has pretty much stayed very much where it is.

Over the course of the past five years, you've see the mobile social games portion has expanded to be slightly larger than the console market. In five years, the games market [in Japan] has doubled in size, and I think you're going to see the same phenomenon across the world.

You could say the impact is you're going to have another market the equivalent size of the existing console market. The games market has reached historically large levels.

Do you think that the players in the console market have been too slow to recognise the potential of the mobile market?

It's not that they didn't notice, it's just that it's a very different business, and before you embark on a new business, it does take some time.

Would you foresee the likes of Nintendo eventually getting into the mobile market?

I think that the console hardware makers are fundamentally different from the software makers.

If you think about it, the console hardware manufacturer puts its creativity into coming up with new game hardware that people are going to want to buy.

Whereas from the software publishers' point of view, yes they can still develop games that are fun to play on consoles, but at the same time you can look to the new era, the new generation of people who have mobile devices. They have the hardware. They don't need to buy new hardware, but they can make use of your games if you develop it for that platform.

From a software maker's point of view, the Xbox, PSP, DS, Android, iPhone, whatever it is, you can develop the software for it. But I think the most important point is the fact that the writing is on the wall: the mobile market is going to be bigger than the console market.

If you think about it, there are 200 to 300 million consoles out there, and by comparison, a billion smartphones. So, already, the market size is pretty much ten times the size of what we have on consoles.

What's your acquisition strategy?

I'm unlikely to tell you! [laughs] But I will say, our basic stance is we want to create good game ourselves. We won't just go out and buy anything. The key driver is to make good games ourselves.

However, having said that, if we see a company that's got really good IP, or a company we really feel we could learn from, then we would definitely be looking to acquire and work with those companies.

In fact, another immediate expansion is that we invest in other companies who want to work with us. We've currently invested in minority holding with about ten companies, and we are developing games with them.

Are you already working with UK developers?

At the moment we are working with various studios and developers in Europe. Unfortunately we can't tell you who they are right now.

Were you a gamer before setting up GREE?

I was always playing games when I was a kid, for example Street Fighter II in the arcade.

In fact, recently, a relative said, "When you were a kid you were always playing games. We used to say 'What is going to become of him?'," and look at me now!

You never know what's going to be useful when you grown up. They were really glad they didn't pressure me to study and let me do my thing.

Do you play any current games?

Every now and then, yes, on my PS Vita. Unfortunately because I'm on planes a lot, I can't play many mobile titles.

What handset do you use?

Samsung Galaxy Nexus. In Japan, the Android market share is high.

The iPhone has nowhere near as big a market share as Android in Japan, so obviously I need to be using the device that's used by the most users in Japan in order to be able to relate to their experience.

Who would you identify as GREE's key competitors?

To be honest, there isn't really anyone doing exactly what we're doing. For example, compared to Facebook, we're much more focused on games. We're not restricted to any particular device, so we can have a multi device strategy.

And, compared to our Japanese competitors [DeNA], in terms of globalisation we're ahead of the curve.

Final question, Jon Jordan [PG.biz editor] has asked: when is GREE going to buy Glu Mobile?

[Laughs] Who is Jon? [hysterical laughter].

Thanks to Yoshikazu for his time.

There's no such thing as 'not enough time' in Kristan's world. Despite the former Eurogamer editor claiming the world record for the most number of game reviews written before going insane, he manages to continue to squeeze in parallel obsessions with obscure bands, Norwich City FC, and moody episodic TV shows. He might even read a book if threatened by his girlfriend.

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Damaged Goods
GREE currently has a game called Modern War....until recently, it has been fun...and a money earner for GREE. It is interesting to see how release of upgrades prior to completely being debugged will cause retention loss, especially when coupled with dismal customer support. Is this a reflection of GREE as a whole....it is the sum of its parts... Investing into GREE....I think not.
Damaged Goods
jon jordan
Well done Kristan. But Who is Jon?
Daniel Boutros
Quality interview mate. Especially the question about the U.S-built games.
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