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For the better part of a decade, Korea’s Nexon has been making online games that users can start playing for free. If they want, they can pay real money for virtual goods such as swords or decorations. Now the game industry is shifting in that direction. Nexon, which raised $1.2 billion in a public offering in December on the Tokyo Stock Exchange, also plans to do its own shifting into mobile and social games.
Daniel Kim became chief executive of Nexon America two years ago, and the company has become the mammal among the dinosaurs in the video game business. We sat down with Kim recently to discuss the state of Nexon and the game industry. Here is an edited transcript.
GamesBeat: So you’re moving into social games with titles like KartRider?
David Kim: We always knew there was a big audience that’s been waiting. People are very excited about the game. I still get monthly e-mails about, like, “When are you bringing KartRider back?” But we decided KartRider really owes a lot of its success to the social environment that PC cafes create for you, in Asia generally, getting to play with your friends and trash-talk each other. We noticed that Facebook might create a virtual environment like that, where you can race against your friends and race against other people. So we decided to put it on Facebook and see how it goes.
Gamesbeat: That’s just the second one for you guys on Facebook, then?
DK: It’ll be our fourth title on Facebook. Maple Story Adventures, Zombie Misfits, and Wonder Cruise are in beta right now. KartRider Dash is going to go into beta, I think sometime in March.
GB: So you get to take the battle to Zynga? That’s one of your enemies. [laughter]
DK: Well, I think that our approach with KartRider and these other games is that we’re trying to take a different approach to providing a more immersive, longer-lasting experience than the typical social games that are out there. We’re still tweaking and testing and learning a lot with these first couple titles. KartRider will be a different type of experiment, I think, in that there hasn’t been a real sychronous gameplay on Facebook that’s worked really well. We’re using Unity to provide that experience, and I think that will make it an interesting thing to put out there and see how it goes.
GB: It sounds like this hurdle of providing fast action and good graphics on Facebook is something that everybody’s starting to figure out now.
DK: With Flash, it’s supposed to evolve into providing similar functionality. Faster response, deeper quality, graphical production.
GB: I wonder, when it does move into faster graphics, does Flash still scale across 90 percent of the PC audience?
DK: Yeah, I don’t know. That’s a good question. That’s the big question that we have for KartRider Dash as well. They still have to… In order to play the game they need to get the plug-in, the Unity plug-in. In order to have the full-on 3D experience you kind of have to have that as a plug-in, in order to experience the game. Because KartRider is such a well-known and well-loved IP for us, we think we can convince people to get it up and running.
GB: The plug-in, is that like a download essentially, then?
DK: No, it’s just a simple plug-in from Unity that they have to install. It’s very small.
GB: So it’s not creating a barrier…
DK: It’s not a heavy download, no. One of the reasons why we postponed launching KartRider here as a client game was, we were considering the download as a big barrier for such a casual game. It’s a pretty substantial download for a racing game, and we wanted to make sure people are familiar with an experience before they’re asked to go ahead and do this.
GB: It’s interesting how technology is still creating market barriers between different segments. The downloadable web game is still different…
DK: Yeah, I mean… First it was just the internet, right? Just having internet access was one. I think what’s more interesting now is mobile internet access, and how that’s going to be able to change a lot of things for companies like us. We’re focusing a lot more energies these days on how that’s going to change the landscape.
GB: I guess it helps that Google Chrome Native Client technology can get you better 3D right in the browser.
DK: Yeah, it’s essentially like HTML 5, but…
GB: But faster, I guess?
DK: There’s a lot of different standards coming out. So we’ll see. For us to actually get into the business there has to be enough of an audience pool. It’s just the nature of how we monetize the games, it really forces us to make sure that there’s enough of an audience base out there. So we’ll see how it goes.
GB: They argue that 200 million users of Chrome is still one of the biggest platforms out there… It seems like it’s on the cusp of something more universal, but not quite entirely there?
DK: Yeah. We’re looking at those technologies for new titles, as far as converting what exists already into those new platforms. That’s a different matter. All of our games are still growing. We’re continuing to try to expand the audience with PC-based stuff, as well as looking at broadening the audience base.
GB: It was interesting to see all the financials, finally, for the company, to see those compared against Zynga’s and how different the businesses are. Nexon is much more profitable.
DK: Yeah… The only similarity is that it’s free to play. The way we operate, how we operate is completely different. I have a ton of respect for those guys, they do what they do very well, it’s just they have… Like, a huge audience, smaller funnel, smaller monetization, faster cycles. Our funnel is massive, but we think we have a better monetization flow, a bigger pipe through, and a longer-lasting experience, something that can engage with people for longer. It’s a little bit ironic that our IPO timing matched, and our earnings timing is pretty similar, so…
GB: I think the territorial difference is interesting, too.
GB: They’re big in the U.S. and you guys are trying to break into it.
DK: Well, I think they’re big the U.S. and Europe because Facebook is big in the US and Europe, right?
GB: But yeah, it was clear that you guys are much more profitable.
DK: We’re fortunate to have a base of games that continues to grow. The nature of the way our development cycles work is, we develop a game for a couple of years, we put it out there, if it shows good signs of conversion and retention, we continue to invest. So it keeps going up. Our live operation teams are really focused on continuing to grow the existing games, so the existing base of games grows. And then on top of that we continue to add on additional titles. Not all of them are runaway successes, but we’re able to cut them off early if they don’t meet the requirements for new investments.
GB: How do you guys deal with… This seems to be a growing problem, of the cost of user acquisition going up. I guess on Facebook it’s doubled in the last year, and so has mobile. Some of the developers are kind of getting squeezed by that, because their games don’t last long enough. Their monetization is too small…
DK: I think when you look at it two different ways. One, we’re fortunate to have our own platform of users, a base of users in all the major markets, Asia, here. Our portals have millions of players who we have access to, who we have a relationship with already. We own those relationships rather than depending on Facebook or Apple or whoever else that’s mediating the relationship between us and our userbase. That really gives us an advantage over other developers or publishers in our ability to market efficiently. Just because there’s enough of a user base to launch any new game that we’re bringing out without incurring huge amounts of up-front marketing investment to bring the users on board. In North America we have over 11 million people that we have a relationship with. And they’re all our type of gamers. We get the seed audience, and if the game’s good enough it’ll naturally generate word of mouth and get other people involved.
GB: Some people are starting to worry that even good games are going to go unnoticed, that they won’t get discovered.
DK: The Facebook landscape is definitely like that, I think. Unless you’re spending multiple millions of dollars on marketing to acquire new users, or unless you’re like Zynga and you already have that audience. It’s very difficult to be profitable.
GB: What works with you guys, like with Maple Story? Is it that you have other users elsewhere, users that are also on Facebook, or…? Is it that you can just advertise more?
DK: We haven’t done any advertising on Facebook at all, for any of our Facebook titles. We’re still tweaking them… We consider them still in beta. But just based on the user base that we have of Maple Story fans, we’re able to generate millions of players initially to come and check out the games. That’s really helpful for us, because we’re at a stage where we’re fairly early in tuning the monetization, tuning the gameplay and all of that. It helps us reduce our overall cost of development. But again, I think being able to leverage the existing fanbase is a big, big advantage. If we were a completely new development company with no existing base of users to reach out to, I think it would be very difficult to…
GB: I think King.com is proving that you can sort of transfer the, say, users from the web into Facebook, but…
DK: It doesn’t work the other way around, though, right?
GB: Yeah. They have so many casual game users and they are succeeding on Facebook now, but… I don’t know exactly whether that’s a transfer or just a creation of new users with the same games.
DK: Yeah. From a business perspective, we probably don’t want to transfer, we just want to get new users in.
GB: You end up getting stuck with the lower conversion rate that exists on Facebook. Even for your games.
DK: For our games… We’re still trying to figure it out, we’re new to the neighborhood. So our games do monetize better than what’s typically understood as the industry average. But compared to our regular client-based games it’s very much lower. We think there’s a… We believe there’s an opportunity for finding an audience that is higher-value, and being able to convert them better. I think it does have largely to do with what type of game you’re putting out there. For us, doing KartRider and Maple Story is a no-brainer, because it allows us to quickly experiment and put things out there, without having to commit a lot of marketing dollars to prove out a concept or test some ideas out. But again, for completely new IP I think it’ll be a more difficult challenge. Especially for smaller companies that don’t have the resources of a Zynga or EA.
GB: There are some brand-new things that you’re trying as well…
DK: Yeah. This whole social game as a category is completely new to us. So… The mechanics are different, engagement patterns are completely different. We do have to design the game for that audience, for that behavior and play pattern. But it’s been good.
GB: It’s interesting how the internet cafes staying strong in Asia.
DK: Yeah. The synchronous gameplay experience is what we’re really focused on. It’s really interesting, because a lot of the social games… You’re playing with a chatter or a ghost of other players that you’re friends with. I think KartRider Dash is really the first experience out there that really provides synchronous, head-to-head, going against another player who’s not a bot. That’s really exciting, to see how that plays out there.
GB: How many other projects are underway still? Mobile, social, all the brand-new…?
DK: In our pipeline there’s close to 30 different projects, at various different stages. I think the majority of our pipeline is still very much focused on our base of client-based PC games, but over the last year and a half or so we’ve really focused on going beyond the PC platform. A pretty significant portion of our pipeline is on new platforms now, including social and mobile.
GB: Not too many acquisitions so far, though? Even after you raised a billion dollars…
DK: [laughs] No, not too many acquisitions so far. We expect that will come in time.
GB: Not feeling like it’s a rush at the moment?
DK: No.Over the years, Nexon has made a lot of acquisitions. Mostly in Korea, because all the worthwhile online game companies were in Korea. Now we’re starting to see other developers in the west, not just in the United States but also in Europe, that are coming up as either independent companies or offshoots of an existing bigger company, really focusing on free-to-play online game experiences. It’ll get mature. And the mobile side is just completely… I don’t know how to describe it. It’s just like… There are so many companies now. I see it as a big opportunity.
GB: And they have the controversy still about developers using third-party marketing services to get their games promoted to the top 25.
DK: Actually, I know a friend of mine who had a pretty successful mobile app development company with hundreds of titles in the App Store. He just got cut off one day because he used the wrong marketing company. Without his knowledge, this company had used bots to bring some of their titles up on the rankings. Ironically, they were already there before they hired this company. But they just basically said, “You’re done.” They were completely cut off. They were running like 24 million a year, and there’s no appeal process. It’s pretty absolute.
GB: It seems like you guys may have more opportunities than the other guys who’ve grown up in a different space.
DK: One thing that we’re pretty excited about and confident about is Nexon’s ability to provide a fun game experience. I think that’s… At the end, the monetization experience definitely brings in the dough, but if we’re not able to put out games that are really fun and compelling and rich in experience, there’s no chance for us to get a new audience or hold on to our players for a long time. Long enough for us to eventually have an opportunity to earn their business. And whether it’s on a PC platform or a different platform, our core business and core strength is really in providing compelling, long-lasting game experiences. We’re really excited about these new, emerging platforms, because typically.
We look for the number of units that are out there. That has to be significant enough. It has to be strong enough to provide good enough graphics, to provide a compelling experience. Although Maple Story and games like… Some of our most popular games aren’t the king of the hill when it comes to graphics. But they have to be good enough. There’s a threshold of quality that has to be there for us to be able to put out a game experience that works. And then the third one is really internet connectivity.
On the mobile side, over the last two years, that’s been accelerating amazingly well. So now I see 4G coming out, that’s remarkably better than 3G. And being in Korea is always… I don’t know the last time you were there, but they’ve got the latest technology rolled out two to three years ahead of everyone else. We’re already seeing changes in behavior on the mobile side as far as games are concerned that are really different from… What the internet connectivity is providing is really a different type of gameplay. Before it was all solitaire. You played games on your phone by yourself. Now you’re having more of an online experience compared to your typical mobile games.
GB: What about something like Google+? Could it be interesting just because they’re only charging five percent compared to Facebook’s 30 percent? It’s a smaller market, but more profitable.
DK: Yeah. It really depends on who’s out there, what audience base exists out there. I think that’s really… You know, Google+ is a latecomer, but I think just because it’s Google, I expect that to continue to grow.
GB: Should be an exciting 2012, I guess? It doesn’t seem like it’s anywhere near a big giant crash that people might be afraid of. It seems like lots of parts of the industry are growing still.
DK: The other thing that we’re really excited about this year is, we launched Karma Koins at the end of last year. We’re really putting a lot of effort into expanding that, offering that as a platform for all of the developers that are out there. We were the first ones to create that product category, and I think it’s… The way we put this product together has a bit of appeal to the social responsibility side of our user base. We’re noticing that increasingly our user base is really interested in social causes. This puts the control in their hands, to pick which charity they want to support. One percent of our sales go to a charity of the users’ choice, and they get to vote on which charity it goes to. So I think… Charity Water is a charity that Karma Koins is sponsoring coming out of the gate, and we’ll have a lot more different options there too. We’re excited to be able to offer the network of retailers that handle Karma Koins, over 70,000 in North America, and in Oceania as well. Any game company can sign up and take advantage of probably the most secure way to do transactions online right now, turning cash into digital currency. We’re looking to expand that beyond just games, to other online purchases. That’s a big initiative for us this year.
GB: Has the change in gambling law opened any opportunities for you guys?
DK: We really haven’t looked at that as a direction corporatewide. We have some companies that are subsidiaries of Nexon Korea that are providing the backend and server technologies for some of these gambling sites, but as a business, we don’t… Because a lot of our games are aimed at very broad audiences, we’re a little bit careful to go into any gameplay could that could be construed as counter to a family orientation. I mean, there’s games like Vindictus, of course, but that’s for age-appropriate audiences. But no, we haven’t really. That’s not an area that we’re focused on right now. How are things going for you? What’s been the most interesting happening since the start of the year?
GamesBeat 2012 is VentureBeat’s fourth annual conference on disruption in the video game market. This year we’re calling on speakers from the hottest mobile, social, PC, and console companies to debate new ways to stay on pace with changing consumer tastes and platforms. Join 500+ execs, investors, analysts, entrepreneurs, and press as we explore the gaming industry’s latest trends and newest monetization opportunities. The event takes place July 10-11 in San Francisco, and you can get your early-bird tickets here.