Neil Young has watched mobile gaming evolve on both sides of the Pacific Ocean, particularly since he sold his San Francisco startup Ngmoco a couple of years ago to Japan’s DeNA for $403 million. Now he is leading DeNA-Ngmoco’s expansion as it tries to become a worldwide entertainment giant born from mobile gaming. Last year, DeNA earned $1.4 billion in revenue, and it is now counting on Ngmoco and its NG Core platform to help make its mobile social gaming network, Mobage, into a global phenomenon.
Will DeNA’s success in Japan, where mobile gaming has exploded, repeat itself in the U.S. as smartphone and tablet games come to the fore? And will DeNA-Ngmoco be able to outmaneuver rivals such as Zynga, Electronic Arts, and Gree?
Young spoke at our GamesBeat 2012 conference in a fireside chat with Dan “Shoe” Hsu, editor-in-chief of GamesBeat. Their topic was about crossing over from one territory to another and the lessons that result. Here’s an edited transcript of their conversation.
Neil Young: It’s certainly true that you can detect a well-crafted game [and] that you can appreciate a well-crafted game. But it doesn’t mean that, scientifically, it’s going to appeal to a broad group of people or have the type of systems in place to make it a successful business.
GamesBeat: This seems to be a common theme that we’re hearing from a lot of people: that it’s not just about having the passion for creating games. You need to know your marketing and distribution.
Young: Yeah. It’s art and science, in terms of what you know. There’s a very simple equation at the end of the day. You’re trying to build a game that has a lifetime value that’s much higher than the cost of acquisition. If you can get that equation the right way around, you can afford to spend lots of money acquiring customers through mobile advertising or whatever mechanisms that you have available to you because every dollar that you’re putting into the software is returning something that is profitable. And then you start running into the challenges of just the scale of the market — how the dynamics of the market exist right now for the sort of app-buying spectrum.
GamesBeat: You have said that there’s a lot to learn from Japan and that user behaviors are pretty similar across the ocean. Would you recommend for a developer to, from the beginning, plan its game to go worldwide?
Young: No, I wouldn’t do that. You’ve seen the traditional console space — the number of Western games that work in Japan are very, very small relative to the number of Japanese games that are produced each year. And the percentage of those that make it in the West is very, very small. I think you should start with what you know, and you should make sure that you’re loading the deck in your favor by building something for an audience that you understand.
You should absolutely apply your passion to it and your energy to it, but you should also layer in the science. Observe what else is happening in the market and try to absorb as much of that as possible. So I wouldn’t try to build a worldwide game. I’d try to create a hit in a territory. And then what I’d try to do is — I would say, “What are the underlying things that make this work for gamers?” And then I would find a partner that really understands their market, and I would say, “OK, what do we need to do to take these underlying systems and repurpose them for the audience in a given territory?” It could be as simple as changing the art, or it could be as complex as just looking at the game design and completely rebuilding it.
GamesBeat: We hear from a lot of companies that have switched course. They say it’s difficult to work with a Japanese parent company or a Japanese counterpart just due to the cultural differences. Things they think will work here, people on the Western side might not agree, and vice versa. How did you overcome some of those barriers?
Young: I think DeNA is a really unique company. It is not like any other Japanese company that I’ve interacted with before. It’s very entrepreneurial. It was founded by a woman [Tomoko Namba]. It has at its core this idea that the entrepreneurial spirit is very important, and that’s enabled it to kind of evolve and shift and change its business to meet the needs of the times. It’s not filled with chain-smoking 60-year-old Japanese dudes around a table. It’s exceptionally energetic. It has an amazing work ethic. Both in equal blends visionary and execution-focused. And so I think DeNA’s unique culture has enabled us to thrive. That’s the first thing.
The second thing is that it does turn out that there are cultural differences and [that] there are language differences. The thing that you have to learn to do is understand the intent of the people on the other side of the table. Often, we don’t spend enough time as individuals really truly understanding the intent of our colleagues. What we do is we react to the words that they say. That can become exacerbated if you’re in a situation where you’re dealing through translators. You have to operate with a degree of trust and patience. Time and time again, my colleagues in Japan have proved to me that they’re really great people who share the same vision that we share about the global opportunity in front of us. Once you fully believe in that, the words are just, you know — it’s just the words. The intent and the vision is the same.
GamesBeat: Back then, social gaming wasn’t as big as it is now. Mobile gaming wasn’t as big. Have your experiences working with a big publisher like that helped or hindered your work in the mobile space?
Young: I look back on my time at EA really fondly. I love Electronic Arts. It really is — despite the bad rap it sometimes gets — a great company with great people. I learned a lot. I owe a lot to EA for teaching me how to think about businesses that actually try to be games businesses instead of things that are built to sell.
Previously, earlier in my career when I worked at Virgin, the company felt like it was trying to reposition itself. It was trying to sell itself. Whereas when I joined Electronic Arts, I realized that you could build a big company focused on the games space that was where a good blend of art and science could come together on top of sound business principles and build something really good. I think I took away from Electronic Arts a sense that if you’re going to try and build a game business, try to build a game business. Don’t try to build a company for sale. Try to build something that fundamentally is profitable and successful and good.
I also took away from Electronic Arts that you have to have to scale. Whether it’s because the asset demands of your products or the time demands increase or because your organization increases, you’re going to have to scale. And when you scale, the process is very important. You can overbuild your process and underbuild your process, and you have to be right in the middle.
GamesBeat: What didn’t you like?
What I didn’t like about Electronic Arts at the time that I left [was] really two things. One, the economics of the console game business looked to me to be impossible to sustain. The number of hits was getting fewer, the development costs were rising, [and] the team sizes were crazy. It just felt like you can’t sustain that. We were seeing lots of companies start falling by the wayside — fewer and fewer companies competing for fewer and fewer slots — and that would turn most businesses from growth companies to sort of sustaining companies. That didn’t seem very exciting. So I didn’t like that.
And the other thing I didn’t like was, man, it is really hard to move fast in a company like that. When I left EA to start Ngmoco, I really felt like we’re so fast. I’ve actually felt that every single day since I left EA. It’s like, man, time is my enemy, I’ve got to go so quickly, I have to figure out this business model for Ngmoco as quickly as possible. Oh, shit. Premium games aren’t going to work! I’ve got to get to free-to-play! Oh, free-to-play — that’s going to take me forever to build a multi-hundred-million-dollar company. Well, I’ve got to change again. And I still feel that today at DeNA.
One of the things that I love about DeNA is just that pace of evolution and learning. Constantly looking at things and trying to change. You realize that holding a game to release it is a mistake. Get it out there and start iterating it and figure out how to hold down the number of users so you’ve got enough real people telling you what your game is actually like. Throw away your pride that your first reviews come out at 2.5 or 3 stars and just iterate. Iterate the fuck out of your products. Build systems that allow you to do that so you can be faster and better and more effective than everybody else. It’s the only way that you’re going to win. That sense of urgency, when I left EA, didn’t exist. And maybe it exists there now.
Young: I had a pretty good gig at EA. It was really wonderful. The company really supported me.
When you’re the CEO, you get to make a lot of choices. But we didn’t have anything like the cash. That’s another constraint. Every action you take, you hear this kind of ka-ching, ka-ching in the back of your head as your bank balance is going down.
When you start shipping a product and it peaks — when Rolando came out and it was at the top of the charts over Christmas, it was killing it, you’re watching your bank account do this [go up], and then you go, “Oh no! Paid App Store!” That cycle creates a lot of distractions and depression.
GamesBeat: You have talked about how in the mobile space there’s a lot to learn from Japan’s success. After these years of studying user behavior, what worked there could work here very easily. It doesn’t seem like that’s necessarily the case with the more hardcore, traditional console market where we see a lot of Japanese-developed games. Maybe they don’t have quite the same kind of appeal here even with all the localization. Have you figured out why that might be? Why Westerners seem to be tiring of Japanese games? It’s not like it was in the ’90s, where Japan was a powerhouse in the console market. Tastes have changed, but why is that true in the console market and not necessarily mobile?
Young: I think that is a function of the decline of the Japanese console business and the traction in that market. If you look at the results of a Konami or a Capcom, you’ll see so much more of their emphasis and focus now is on the social games business as they’ve tried to stem their losses in the traditional core games space and focus on social and mobile in Japan.
Just a quick approximation of the industry side. Take DeNA’s revenue and Gree’s revenue and a few other people — it’s between 4.5 billion to 5 billion U.S. dollars a year. If you add it up, all of these social and mobile game companies here in the Western world, you struggle to get over 400 or 500 million dollars in revenue.
If you compare and contrast that with traditional console, Japan represents about 15 percent of global console sales business, and 85 percent of it is the rest of the world. So as Japanese developers, I think, found it difficult to make their games successful in the West, they refocused themselves on the market that they did know and that they did understand, which was actually quite a big business and quite right for them to move into.
I think that will change over time. I firmly believe that the market for social and mobile games on iOS — whether that’s on a phone or a tablet or a television, or Android on phones or tablets or television — I think it’s a 30-billion- or 40-billion-dollar-a-year business. We’re at the very beginning of that shift. At DeNA, we’ve been investing in trying to position ourselves to leverage what we know and [to] be a leader in the market globally. I think in that process, we’ll be able to help any developer — whether they’re a Western developer or a Japanese developer [or] a developer in China or Korea — reach a global market and be successful. That’s our goal.
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