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What happens when global expansion goes bad: A cautionary tale from Japan

What GungHo and Mixi learned from GREE and DeNA
What happens when global expansion goes bad: A cautionary tale from Japan
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This article was originally published on August 29th 2016. In light of the news that GREE has closed its Western studios and operations, less than a year after DeNA shut down its US subsidiary DeNA Global and ngmoco LLC, we have republished this article to provide an in-depth insight into the problems faced by these companies.

Five years ago, I was walking over the Hohenzollern Bridge in Cologne on my way to Gamescom when I received a phone call.

It was someone from Japanese mobile games platform GREE.

They were complaining about a story I had written about the company's recent quarterly financials.

Apparently, I had used an incorrect currency conversion between yen and dollars.

GREE announces its numbers in yen and I'd converted to dollars at the rate of the announcement day, not the rate at the end of the quarter.

My dollar revenue figure was, thus, too large.

'If you don't correct it, the percentage increase in sales you write next quarter won't be correct. It won't be big enough," I was told.

True story.

But that was then

The reason I recall this incident so strongly is nothing better demonstrates the crazy growth of the early 2010s.

The whole mobile games industry was growing double or triple digits, and with +30% margins Japanese platforms such as GREE and arch-rival DeNA (pronounced D-N-A) were some of the most profitable games companies in the world.

Apparently, they didn't care whether you got their revenue numbers correct, or not.

GREE and DeNA were prepared to spend big to get more growth.

But they certainly cared you got their growth numbers right.

And they were prepared to spend big to get more growth.

Between 2010 and 2012, DeNA announced a $400 million deal for US startup Ngmoco, GREE followed up with $100 million, $200 million and $170 million deals for OpenFeint (US), Funzio (US) and Pokelabo (Japan), respectively.

(In keeping with the times, Nexon bought Japanese mobile game developer Gloops for $490 million in cash, but that's another cautionary tale.)

Fast forward half a decade and the mobile games industry has matured to single digit growth, and GREE and DeNA have long retreated from their plans of global domination.

Recent history is a downward spiral
Recent history is a downward spiral

The only numbers they care about are profits.

The quarter-on-quarter revenue percentages are all negative.

Licking their wounds in Tokyo, they are looking outside of games but within Japan for future growth.

DeNA now breaks down its financials into 'Sports' and 'Excluding Sports' categories.

Both have plans in healthcare and general online commerce, while DeNA is also doubling down on its baseball franchise, the perennially sixth-placed Yokohama DeNA BayStars.

Indeed, despite games being 68% of total revenues, it now breaks down its financials into Sports and Excluding Sports categories.

Heart of the matter

So what's this cautionary tale really about?

Fast-growing companies over-expanding, spending their cashflow imprudently, hiring badly and losing focus?

Yes, but the cautionary tale of GREE and DeNA is more.

It's about what happens when companies believe they are special; that they have cracked the market, when in actuality, they are riding the wave, not understanding how little they understand, and how quickly the market is changing.

At its heart, then, this is a cautionary tale about not understanding the fundamentals: about not understanding mobile games.

#1: The feature phone dilemma

The era of the smartphone dawned on 10 July 2008 when Apple launched the App Store. But, as with all history, that 'fact' is layered in cultural assumptions.

Certainly, in Japan, the switch from feature phones to smartphones wasn't anything like as revolutionary as experienced in North America and western Europe.

Granted, Japanese feature phones weren't as advanced as the iPhone but the sophistication of Japanese mobile networks and infrastructure certainly were.

By 2008, DoCoMo's i-mode mobile internet service had been providing the Japanese with email, weather forecasts, the ability to book tickets, and play browser games on the move for nine years.

And it was on the back of such infrastructure, and integrated billing, that the Japanese mobile games industry grew.

6 deGREEs of separation

Founded by Yoshikazu Tanaka as a hobby project, GREE was launched as a social platform in 2004.

By the end of 2008, it was listed on the emerging stocks 'Mothers' section of Tokyo Stock Exchange, gaining full access to the exchange in 2010, making Tanaka one of the youngest self-made billionaires in the world.

Behind such growth was an early concentration on mobile games; established rivals such as Mixi and DeNA were focused on social networks and ecommerce websites.

The foundation of GREE's growth: a feature phone running <em>Fishing Star</em>
The foundation of GREE's growth: a feature phone running Fishing Star

Indeed by mid-2010, GREE had launched six self-developed games, such as Tsuri Sta (Fishing Star), but following a move into the distribution business, it had made over 200 games from thirdparty partners available.

And it was this very open platform approach that by early 2012 had boosted GREE into the #1 position in Japan.

User numbers doubled during four short months in mid-2010 to 46 million, while the consumption of the platform-wide coin currency rose 10-fold between July and October 2010.

By January 2011, there were 560 games on the GREE platform.

As the company starting talking seriously about rolling out a western smartphone app, it also made a mark on the world stage, with a $104 million cash deal for US social mobile gaming platform OpenFeint.

Yet, as slowly became clear, GREE's global expansion - as well as US acquisitions, it set up partnerships in China and Korea - all the company's revenue was coming from Japanese gamers, the majority of whom were still using Japanese feature phones.

As late as 2014, DeNA's Japanese Mobage platform was light on native smartphone content but heavy on browsers and feature phones
As late as 2014, DeNA's Japanese Mobage platform was light on native smartphone content but heavy on browsers and feature phones

It had a great business model but one that was shaped and honed by the distinctive nature of the Japanese mobile market, and which would prove impossible to replicate elsewhere.

Different DNA

From DeNA's viewpoint, GREE was the scrappy startup that came out of nowhere and became its arch-rival.

The two companies sued and counter-sued each other a number of times between 2009 and 2012 over copyright infringement and competitive practises.

Always a more substantial business, DeNA was founded in 1999 by Harvard MBA graduate and ex-McKinsey partner Tomoko Namba.

It operated several online ecommerce and auction sites on web and mobile. It floated on the Mothers section of the Tokyo Stock Exchange in 2005, gaining access to the main exchange in 2007.

That stated, it was relatively quick into mobile gaming, launching its mobile web Mobage Town service in 2006.

Activity grew three-fold between January and July 2007 thanks to TV advertising campaigns and high quality browser games such as Mobage Golf Online and RPG Master of Fantasia, which used the now traditional free-to-play business model, whereby players could spend money to buy in-game items.

Early mobile browser games offered an advanced experience
Early mobile browser games offered an advanced experience

Indeed, by FY2010 (the 12 months ending 31 March 2011), DeNA's mobile games business was its top performing division.

Unlike GREE's open distribution philosophy, however, revenues from Mobage were always concentrated on its first and second party developed games. So although by March 2013, there were 1,672 thirdparty games on Mobage and only 104 first and second party game, the revenue split was close to 50:50.

Yet, while both GREE and DeNA soared, becoming one and then two billion dollar businesses in terms of annual sales, the vast majority of these revenues came from Japan; from Japanese players using Japanese 'feature phones' or playing through browsers on their smartphones.

Even in mid-2016, native smartphone games make up a minority of DeNA's Japanese sales
Even in mid-2016, native smartphone games make up a minority of DeNA's Japanese sales

Even today, the majority of DeNA's game revenue (57% in FY16 Q1) comes from mobile browser games.

In more ways than the style and monetisation of its successful mobile games, the very structure of the Japanese market proved to be a terrible foundation for GREE and DeNA's attempted global expansion.

The question of how much GREE and DeNA understand this situation - spending big internationally to gain global scale before their Japanese cashflow dried up - remains unclear. 

#2: GREE and DeNA buy big and go global

By 2010, both GREE and DeNA were proper companies, listed on the main Tokyo Stock Exchange, and generating large annual revenues and profits.

But mobile games weren't just taking off in Japan; there was a similar explosion happening North America, Europe and Korea.

GREE and DeNA were well-funded and ambitious enough to step up into the global stage.

It all started with Ngmoco

As the senior corporate entity, DeNA was first out of the blocks.

Back in 2009, it had taken a 20% stake in US social gaming platform OpenFeint, but it was the fall of 2010 when DeNA came to wider prominence.

In September, it acquired US studio Gameview and invested in Astro Ape, before generating headlines with its $403 million acquisition of Ngmoco.

The deal was significant.

Founded by ex-EA exec Neil Young, not only was Ngmoco the preeminent iPhone publisher of the paid game era, it was also quick to embrace free-to-play. And as well as developing and publishing games, the well-funded startup had its own social gaming network, Plus+.

On that basis, the deal looked complimentary: the best run Japanese social mobile developer and platform was buying the best run American social mobile developer, which also had a platform.

2010, 2011 and parts of 2012 were growth times for DeNA and GREE
2010, 2011 and parts of 2012 were growth times for DeNA and GREE

Of course, there was plenty of discussion of the price, especially when it was revealed Ngmoco had made a loss of over $13 million in the previous financial year.

Yet, in retrospect, the deal wasn't as ridiculous as some at the time thought. DeNA got scale and talent, and as circumstances highlighted, there just weren't any other companies of similar expertise available in 2010.

Sure it spent big, but the deal - which included $100 million of earnout and 'only' $146 million of upfront cash - didn't cost DeNA anything like the $403 million of those headlines.

Then came GREE

Ever competitive, it didn't take GREE long to make its own big deal.

In April 2011, it spent $104 million in an all-cash deal to buy OpenFeint.

There was some irony in buying a company its rival had previously invested in. The deal was less significant as OpenFeint was a pure network; without development or publishing activities.

The startup was also less well organised, with few prospects of generating solid revenues. And the deal looked even less well structured following OpenFeint's CEO and co-founder Jason Citron's surprise departure in September; something that pre-empted wider staff unrest and exodus.

GREE's global expansion plan circa 2011
GREE's global expansion plan circa 2011

Still, GREE maintained its cashflow and ambition pulling off more big deals.

The best of them saw the 2012 all-cash acquisition of successful US mobile developer Funzio for $210 million.

With some top grossing titles such as Crime City and Modern War, the 130-strong studio was a respected F2P developer, with decent revenues and, as OpenFeint wound down, it laid the foundation for GREE's San Francisco office.

Closer to home

But it wasn't just in the US that the two companies' due diligence lawyers were active.

Both GREE and DeNA moved to acquire talent in Japan, with GREE buying Pokelabo for $170 million in cash in October 2012, and DeNA spending $92 million on a 20% stake in Rage of Bahamut developer Cygames.

Rage of Bahamut was the first hit game on the Mobage platform in the west, with 10 million players globally, and at peak generating around $30 million a quarter.


More generally, there was a flurry of activity as strategic business alliances were signed in China and South Korea.

GREE had deals inked with Tencent, The9, PayPal and Yahoo, while DeNA went for Yahoo, Alibaba, Kaixin011 Link Services, Grasshopper, Daum, Namco Bandai and NetDragon.

It also bought more development talent in Vietnam, set up studios in Latin America and Canada, and a subsidiary in Korea.

Getting better and better

As 2011 came to an exhausting end, GREE and DeNA had much to look forward to.

During the calendar 12 month period, both companies had generated sales of over $1 billion, while profit margins were 30%. And both were still growing at double digit rates.

Things could only get better.

#3: Peak GREE is followed by Peak DeNA

2012 kicked off with GREE and DeNA accelerating their growth.

Sure, they were starting the tricky process of integrating recent acquisitions, but in their Japan heartland, business was really booming.

In particular, GREE started the year in ebullient mood.

With over 700 games available including versions of franchises such as Resident Evil, Monster Hunter, FIFA and Dynasty Warriors on its platform in Japan, for the first time, it had overtaken DeNA in terms of quarterly sales.

GREE's 2012 line up included some big names
GREE's 2012 line up included some big names

Indeed, looking at its trajectory - and even assuming it would book no sales outside of Japan - GREE increased its full year sales prediction - already up 200% year-on-year - by another 20% to $2 billion.

It missed that second prediction by just 1%.

High point

Peak GREE occured during January to March 2012.

Net sales for the quarter were around $580 million (¥46 billion), with profits of $170 million (¥13 billion).

The company has never bettered either amount.

GREE's revenue peaked in early 2012
GREE's revenue peaked in early 2012

At this point, there's an almost overwhelming temptation to cite a (or any) particular event as characterising the inflexion point in the narrative.

Equally neatly for such a(n anti-) Whiggish approach, GREE provided the perfect example with its appearance at E3 2012 in June.

Spending millions of dollars on a massive, pristine white shag-carpeted demonstration area at the western industry's most important trade show certainly made a statement about its intent.

GREE's 2012 E3 onslaught included branded cupcakes
GREE's 2012 E3 onslaught included branded cupcakes

Neither before or since had so many mobile titles been demoed at the show, which has always been the rutting ground for blockbuster console games.

Certainly, GREE's appearance grabbed attendees' attention, but their reaction to the mainly Japanese browser-based games on show wasn't positive.

Yet, while E3 2012 demonstrated how GREE's global ambitions were teetering on the edge of hubris, it was irrelevant in terms of the trajectory of its underlying business.

The significant event that had a direct impact on GREE's business during was the Japanese launch of GungHo Online's Puzzle & Dragons, which - neatly for our narrative - occured in February 2012.

Overtaking manoeuvre

As for DeNA, 2012 was its time to shine.

It overtook GREE in terms of quarterly revenues during the April to June 2012 period and proceeded to book quarter-on-quarter sales records for the rest of the calendar year.

At its peak in the October to December 2012 period, DeNA posted quarterly games sales of $547 million (¥47 billion), with peak profits of $140 million (¥12 billion) occuring three months later in early 2013.

Even better, DeNA could point to two hit games in the west. Cygame's Mobage-published Rage of Bahamut was the top grossing game on the Apple App Store and Google Play Store in the US, while self-developed title Blood Brothers was another success.

As GREE's challenge fell away, it was DeNA's turn to end the year on a high.

DeNA's technology strategy in 2012 mixed browser games in Japan with native games in the west
DeNA's technology strategy in 2012 mixed browser games in Japan with native games in the west

N.B. During this time, DeNA's revenues typically consisted of 90% game sales. We're using game sales in this measure of Peak DeNA. Looking at the company and including its non-games revenues, peak DeNA occured one quarter later, in the January to March 2013 period.

It's also worth pointing out, a subtle difference between DeNA and GREE in terms of how they operated their platforms.

GREE acted as a distributor not a publisher, so in terms of app stores, developers published their games with GREE being integrated as the social network.

For DeNA's Mobage platform, however, Mobage was the publisher, enabling a better integration, albeit at the cost of a more rigorous publishing process.

This difference enabled DeNA to better control monetisation and marketing for the games on its platform, and gave the company more longterm stability compared to GREE.

#4: Indigestion

The problem with very fast-growing companies is gravity always wins. And when it came to GREE's decline, super extra gravity appeared to be at work.

There were many reasons.

Yet, perhaps, the most obvious was that as the Japanese mobile game market took off, GREE and DeNA accounted for the vast majority of its revenues.

Sure, it was canabalising some revenue from the Sony and Nintendo-dominated consoles and handheld market, but the Japanese mobile game market could only grow so fast.

Similarly, because they were running the two dominant platforms, all the cash in the market was flowing to GREE and DeNA, who then paid out the net sales to their partners.

Thanks to delayed payment terms, this made both companies look more profitable per quarter than they perhaps were, especially in the case of GREE which - because of its distribution not publishing model - was paying out a higher percentage of gross sales.

There be a dragons

Yet change was coming. As iPhone and Android devices penetrated the Japanese market, revenue started moving from platforms to app stores.

The era was shifting from one controlled by GREE and DeNA's mobile social gaming platforms to the era of individual games distributed through mobile app stores controlled by Apple and Google.

This can clearly been seen by comparing the combined quarterly revenue of GREE and DeNA with the combined quarterly revenue of GREE, DeNA and GungHo Online.

And it's important to note that 99% of GungHo's revenue came from a single game operating only in Japan - the world's first $1 billion mobile game - Puzzle & Dragons.

As GREE and DeNA declined, GungHo boomed
As GREE and DeNA declined, GungHo boomed

Released in February 2012, it wasn't until early 2013 that the game's revenues started to take off.

By that stage, the combined revenues of GREE and DeNA had started their terminal decline, yet the combined revenues of all three companies continues to rise as growth in the smartphone market was faster than the decline of the platforms.

Peak Puzzle & Dragons didn't occur until early 2014. But that's another story.

Downward spiral

As for GREE, the news was almost all bad.

Its $104 million OpenFeint acquisition quickly started to unravel, amid rumours of a cultural clash between its freewheeling US startup geeks and the more staid Japanese executives.

The OpenFeint network, previously highlighted in terms of its 7,500 games and 160 million users, never got close to breaking even and $75 million of the acquisition was written off in 2015.

The OpenFeint network itself was closed 18 months after the original deal - and with some controversy - in late 2012.

Since Peak GREE, the company has struggled, posting three quarters of losses, mainly due to goodwill write-offs
Since Peak GREE, the company has struggled, posting three quarters of losses, mainly due to goodwill write-offs

It was a similar situation with the $170 million acquisition of Japanese mobile browser game developer Pokelabo. GREE was forced to write-off $78 million of goodwill in 2015.

And more generally, 2013 saw the company retreating from many of the decisions made in happier times.

It closed its Beijing and London offices with the loss of over 200 jobs in mid-2013, making 200 Japanese staff redundant in October when it closed its Osaka office. It canned 27 games later that year at the cost of $50 million, while its Vancouver office was shut in May 2013, followed by a 30% layoff - perhaps another 100 jobs - from its key San Francisco development hub in July.

Not a massive hit, but <em>Knights & Dragons</em> was GREE's best western-developed game
Not a massive hit, but Knights & Dragons was GREE's best western-developed game

The one bright spot was the longterm performance of western-developed RPG Knights & Dragons, which at one point was grossing $5 million a month from Google Play.

But despite the similar title, it was no Puzzle & Dragons.

History repeats

DeNA's decline was time-shifted to 2013, but no less precipitous than GREE's.

Two years after the Ngmoco acquisition, their non-compete timed out and CEO Neil Young left, as did co-founder Bob Stevenson. The US developer - now rebranded DeNA West - hadn't delivered any hits, with much anticipated shooter The Drowning from internal Swedish developer Scattered Entertainment proving a notable flop.

Neither did high profile published western games such as Crytek's The Collectables and 22Cans' Godus find any audience.

Peter Molyneux's <em>Godus</em> was a troubled game that characteristed DeNA problems in the west
Peter Molyneux's Godus was a troubled game that characteristed DeNA problems in the west

It didn't help that founder Tomoko Namba had stepped down from the CEO for personal reasons in 2011. 

Indeed, by 2013 it was becoming clear that for some different - but broadly similar - factors, both companies' western expansion had been expensive - if necessary - failures.

Even back in 2011, in an article entitled The painful progression of DeNA and GREE's $500 million US expansion, we wrote:

"Despite the massive amount of cash DeNA has spent on company infrastructure, content acquisition and engineering, we're no nearer understanding how the current Japanese cashcow and rest of world smartphone platforms are to be coherently combined, technically or financially."

Nice try

This isn't to say that no revenue was generated. It's clear both GREE and DeNA's international operations created sales.

Both GREE and DeNA generated international sales, just not sufficient
Both GREE and DeNA generated international sales, just not sufficient
Cumulative international sales
Cumulative international sales

Both companies made over $150 million in a 12 month period from their business outside of Japan, but at no stage for either was Japan less than 80% of sales or 100% of profits, which is sobering given the cumulative sales graph.

Japan has always been the most important market for GREE and DeNA
Japan has always been the most important market for GREE and DeNA

The hard fact is the west was too competitive and expensive, while Korea proved to be a relatively small, highly local market, and China was (and remains) too under-developed for companies without Tencent's promotional muscle to exploit.

Hence, by 2014, it was clear GREE and DeNA had failed to expand outside of their core Japanese market; one that was now dominated by a single game - GungHo Online's Puzzle & Dragons.

So, not only had they failed to invest in the companies that would win the western smartphone era - Supercell, Machine Zone, King - they had failed to use their local knowledge to win the Japanese smartphone era.

They were embedded in a dying-if-still-profitable business model: a classic example of The Innovator's Dilemmawhereby successful companies of one era find it almost impossible to be successful when transition occurs. 

#5: What's next?

The following was written before the closure of GREE's Western operations.

While the story of GREE and DeNA fits a neat narrative arc of growth, expansion and retreat, it's only one part of the wider story of how the often insular but highly lucrative Japanese mobile games sector interacts with the wider global market.

Peak GREE and Peak DeNA have, in their turn, been followed by Peak Puzzle & Dragons (in mid-2014), while the latest #1 Japanese mobile game - Monster Strike - has now also peaked.

Significantly, each peak has been at a higher level; something that can be clearly seen if we combine the quarterly sale figures of GREE and DeNA and Puzzle & Dragons' developer GungHo Online with Monster Strike's developer Mixi.

(And, yes, that's the same Mixi which was once DeNA's rival in the early days of Japanese social networks. Sometimes the tortoise does beat the hare. )

GungHo Online and Mixi have replaced GREE and DeNA as the top Japanese mobile game companies
GungHo Online and Mixi have replaced GREE and DeNA as the top Japanese mobile game companies

This suggests that the Japanese mobile market is growing and that its winner-takes-all model is resulting in an ever bigger win for that winner.

GungHo and Mixi's attempts to expand globally have been very different to their predecessors though. This is due to the different business models of running a successful mobile game platform and a hit mobile game.

Neither GungHo or Mixi have needed to attempt the same expensive expansion in terms of acquiring companies, technical integration of platforms, or opening local offices, although for little apparent reason, GungHo did acquire mobile gaming network PlayPhone in 2014.

A bad case of history repeating, perhaps.

Going global

More generally, though, app store distribution means all developers need to do to go global is localise game content and perhaps tweak additional elements in respect to local culturalisation.

In that respect, GungHo has been the more successful of the two, with a quarter of Puzzle & Dragons' 56 million downloads occuring outside of Japan: 10 million of them in North America.

The vast majority of its revenue still comes from Japan, of course. No Japanese mobile games company has yet successful expanded its revenues internationally.

As for Monster Strike, it's been less successful outside of Japan than Puzzle & Dragons, with a recent attempt to attract North American players with a big TV and Facebook advertising campaign cancelled as Mixi decided China would be an easier market to succeed in.

After all, it does have a partnership with China's dominant games provider Tencent; as does GungHo with Puzzle & Dragons.


Certainly, it will be fascinating to see if either of these Japanese games resonate with the Chinese market, particularly as many fans have already accessed the games via the versions released on the Hong Kong, Macau and Taiwanese app stores.

It should, however, be noted that in earlier times, GREE also had a strategic alliance with Tencent, which proved ineffectual.

Going lateral

For GREE, the future is more opaque.

Now that it's downsized its international operations, GREE is still hoping to find market traction outside of Japan. The renamed GREE International Entertainment has a new American CEO and promises "brand new IP gaming experiences".

More generally, when it comes to games, GREE is investing heavily in virtual reality (as is DeNA), but in its core Japanese market, the promise of "release blitz" of smartphone games has already been delayed due to an "overly optimistic release schedule".

GREE is also trying to make the most of its declining platform business with a push on web games.

Given its decline, GREE's medium term plan to be the Global No. 1 in the native game business is highly ambitious
Given its decline, GREE's medium term plan to be the Global No. 1 in the native game business is highly ambitious

Obviously a hit game in Japan would radically improve the situation but it's hard to see the GREE is doing anything different in 2016 than it's attempted since 2012.

Maybe there's more promise in its new non-gaming business such as home-related ecommerce sites Renoco and Limia, or health and fitness initiatives Lespas and Smart Sitter.

Helping hand from Mario

DeNA is taking a similar approach to GREE. Focused on the Japanese market it understands - its international business remains loss-making - it's looking to take its platform expertise outside of games.

As well as its baseball team, it's ramping up its ecommerce activities - aka Curation Platform Business - and working on self-driving cars and artificial intelligence, both of which are in the very early stages.

DeNA is looking outside of mobile games for transformative new businesses
DeNA is looking outside of mobile games for transformative new businesses

Yet, the big opportunity for DeNA is its partnership with Nintendo, whereby Nintendo makes mobile games based on its much-loved franchises, and DeNA provides the infrastructure and operates them.

Mobile games based on Animal Crossing and Fire Emblem have been announced with two more to come.

It's not clear how successful these games could be, though, or what DeNA's cut of the business will be. It's not factored in any revenue from the partnership into its current financial year, ending 31 March 2017.

Thanks to <em>Pokemon GO</em>, DeNA shares are at a 12-month high
Thanks to Pokemon GO, DeNA shares are at a 12-month high

The incredible success of Pokemon GO has excited Japanese investors, but that game was nothing to do with DeNA and not much to do with Nintendo, although its developer - US studio Niantic - is part owned by Nintendo, The Pokemon Company and Google.

Nevertheless, that news, combined with general excitement about the Nintendo deal - has been enough to drive DeNA shares to a 12-month high.

Certainly, the near future for DeNA looks much more positive than for GREE, which in terms of its market cap is worth only a quarter of its erstwhile similarly-sized rival.

Cash in

Yet, it's also important to understand that despite their different current sales trajectories, over the years, all four companies have built up large cash reserves.

DeNA and GREE have around $800 million in cash and equivalents, while GungHo and Mixi each have over $1 billion.

Japanese mobile game companies have plenty of cash
Japanese mobile game companies have plenty of cash

Given the right product, they certainly have the resources to scale up any small success. On that basis, there's no reason any of the four couldn't rise to prominence again.

Whether any of them will have the products, or the ambition, to scale globally remains another matter, however.

#6: P.S. I got it wrong too

P.S. I got it wrong too

As the author of a potted history such as this, it's very easy to slip into omnipotent god mode, and treat hundreds of intelligent business people and game makers as being locked into some sort of groupthink that underpinned - and almost pre-determined - their companies' decline.

Clearly, that is not the case.

Both DeNA and GREE understood they were outgrowing the Japanese market. To continue their growth, they had to undertake ambitious global expansion, even in the likelihood that it had a high probability of failure.

Shareholders may disagree, of course, but according to poets, the only thing worse than failure is failure to make the attempt.

A wider malaise

In this way, the narrative shouldn't be about the underlining ambition but the specific decision making, which in many cases was - putting it politely - suboptimal.

It's also worth point out that plenty of other companies were demonstrating much worse decision-making during this period. Disney Interactive and Zynga being prime examples in the US.

Even in Japan, the lessons of GREE and DeNA haven't been well understood, as witnessed by the more recent blow up of onetime market darling Gumi Inc.

Yet to demonstrate how difficult such decisions can be, let's rewind to 2013 and the release of DeNA's The Drowning.

How everything right went wrong

The Drowning was the first game from its new Swedish studio, which was staffed by some of the most experienced western developers of F2P console games.

It was an ambitious first-person shooter, which revolutionised the PC-centric control system for touchscreen devices, and I for one thought it a guaranteed hit.

Of course, I had skin in the game. I loved it, played it constantly and at one point was one of the top 1,000 global players.


That crown became less valuable when it became clear that the wider audience reaction to the game ranged from indifference to outright hostility.

Right decisions, wrong result

In that respect, The Drowning underlined how difficult the task that DeNA and GREE were attempting was.

The Drowning was made by an expensively-assembled team well-experienced in local game culture, in a popular genre, and the product was both innovative and brilliant (at least in one critic's eyes).

Yet it was a total flop that - like GREE's E3 2012 experience - could be used as a symbol for the unwinding of DeNA's western adventure.

In retrospective, there were plenty of people who told you how they predicted the game would be a failure. Of course, some of them predict everything new will be a failure. The mobile games market is nothing if not a burial ground for ambitions.

But that simply wasn't the case at the time. DeNA did everything it could have been expected to do right, right. And it still failed.