Disclosure: The organizers of Slush paid my way to Helsinki. Our coverage remains objective. This is part one of a two-part interview. Part two runs Tuesday.
HELSINKI — Ilkka Paananen and most of his 130 employees at Supercell, the maker of the incredibly successful Clash of Clans mobile strategy game, are rich enough to retire. They just sold 51 percent of their Helsinki-based company to Japan’s SoftBank and GungHo Entertainment (the makers of the popular and lucrative Puzzles & Dragons puzzle-role-playing game) for $1.53 billion. That makes Supercell worth about $3 billion, or more than Zynga, the social gaming giant with 2,200 employees.
But Supercell’s CEO says the company did that deal not as its end game but to secure stability for good and to set about its quest of “making history” in the entertainment business. He believes his job is to get the best people to make the best games and provide the best environment for them to work in. They work in “cells,” or teams of a half-dozen or so. They toil on games, kill off the bad ideas, and test the ones that are promising. By doing so, Paananen hopes Supercell will make a lasting impact on the game business in the same way that companies such as Disney and Nintendo have done — and in an environment in which more than 1.2 billion people play games.
Paananen met with a group of media attending the Slush conference in Helsinki. The company’s headquarters is on one of the upper floors of an abandoned Nokia research center, one of the ghosts of Finland’s tech economy. Now much of Finland’s game industry and its government investment programs have been inspired by Supercell’s success.
Here’s an edited transcript of our group interview with Paananen. The pictures in this story were taken at Supercell’s headquarters.
Question: Tell us how you work.
Ilkka Paananen: What keeps it all together is our unique culture. We’ve organized into these small, independent teams that we call cells. That’s where the name “Supercell” comes from. We believe that decision-making power about games should be as close to the player as possible. Therefore, the individual developer should be able to make decisions about their own work and whatever affects their players. If you do that, you can optimize for speed, and you create a sense of ownership among the people who work on the games.
We’re also very big believers in the concept of “small.” Small teams move quicker. There’s less management and bureaucracy and process. That results in happier developers and better games. Again, at Supercell, it’s really the team that owns the game.
As you know, in the games industry, companies usually go through a greenlight process. We don’t have one, because we don’t need one. At Supercell there are two entities that have control. One is the team itself. During development, the only entity that can kill a production is the team itself. Even I can’t do that. Then, once a team ships their game to a test market, power shift from the team to the players. At that point, they become very metrics- or data-centric. They have metrics a game has to reach in order to proceed to a global launch.
To put it simply, at Supercell, two entities have control. During development, it’s the team. After development, during the beta, it’s the players. It really is that simple. Everything unfolds from there. We’ve tried to create an environment of zero bureaucracy. Just super talented people. The role of management or leadership—First of all, we have very few of those people. But our main goal is just to create the environment and then stay out of the way so that people can focus on their work.
We’re also fully transparent as an organization. Every morning, an e-mail gets sent out to the entire organization – from trainees to the CEO – that has all the key performance indicators for each game. The same information is always available to everyone at the same time. We believe that if you provide people with the right information, you don’t need to tell them what to do. They can figure it out themselves.
Further, we really do celebrate failure. It’s not that we pretend that failing is fun. When we need to kill a game production–Imagine a group of five or six people who’ve worked day and night on a game for many months. Maybe the game just doesn’t fly. Maybe there’s a poor focus group result. Maybe the game goes to beta and users don’t like it for whatever reason. Of course it’s not fun when we have to kill a game at times like that. But what we think is worth celebrating is the learning that comes out of that failure. When we have to kill a game, we always organize a party around it. The team gets up on stage and talks about what went well, what didn’t go well, what they learned. Then we hand them a bottle of champagne to celebrate what they’ve learned.
The fact is that, as a company, we’ve failed way more often than we’ve succeeded. Last year we killed at least five games. We launched only two. I fully expect that to be the case going forward. We’ll bring games out to beta and many of those games won’t fly. That’s the nature of the business. But we believe that if you don’t take those risks, you won’t get hit games either. If you want to do something innovative, you have to take risks. A natural outcome of taking risks is of course failure. This is what keeps the company together.
Question: What’s your mission?
Paananen: Our mission is to become the first truly global games company. For us, a truly global games company is one that has a hit game in the big western markets – in North America and Europe – and also in each of the big eastern markets – Japan, Korea, and China – at the same time. Our goal is to create games that somehow unite gamers all over the world. While we have a long way to go, there are some encouraging results I’d like to talk about today.
On iOS we have two games. Clash of Clans has been the number one game on the iPad top-grossing charts in 139 countries. Hay Day has been the same in 102 countries. With Clash, we got really excited about the Japanese market early this year. People thought that we were absolutely crazy. They said that Japan was just a big graveyard for western game companies. But we thought we’d give it a try. We’ve been quite happy with the results. At its peak, Clash made it to three on the iPhone top-grossing charts, and it’s still in the top five or top six. It recently launched on Android and also made it to the top 10 – same with Hay Day.
People ask us, what’s the secret? I believe that it’s because we think quite differently about these games. A lot of companies bring their games out on a fire-and-forget type of model. Put the game out, it goes up, and after a few months it comes back down. Our games have stayed on top for more than a year now. Hay Day was launched globally in June of last year and it’s been in the top five ever since. Clash was launched in August last year and it’s still the number two game in the U.S. after Candy Crush. They have that staying power.
Why is that? The number one reason is that when we founded the company, from very early on our goal was to create games that people would play for years, not just for weeks or months. Lots of the creative people at Supercell have a background as developers or as consumers of MMO games. We play a lot of games like World of Warcraft or League of Legends. Those types of games have a very long shelf life. Our dream is to achieve something similar, but for the mass market and mobile platforms. Again, it’s early days, but we’re quite happy about the results.
It all comes from this mentality of thinking of a game as a service, rather than just a product. One of our explicit missions is that every single week, we want to make these games better for users. They always have to become better.
Question: Are you still in the lead?
Paananen: I haven’t seen the updates. I think in September we were number one, at least, but I can update you on those. But I’d assume so, because we’ve made some progress since then in Japan. But this is iOS only.
The other thing we’re quite excited about is the recent Android launch of Clash of Clans. Two things are encouraging for us. One is the reaction from players. We had more than a quarter million reviews, and the average was 4.7 out of five stars. It was a really good reception from the users. We were able to make it to the top 10 in two weeks, both in the U.S. and in Japan. Last I checked we were the number three game in the U.S. and I think number six in Japan on the Android top-grossing chart. Hay Day will follow a little bit later.
I’ll talk about the recent deal we did with Softbank and Gung Ho. Basically, how the deal was structured was that we established what’s known as a special purpose company here in Finland. That company is jointly owned by Softbank, which has 80 percent, and Gung Ho, which has 20 percent. That company owns 51 percent of Supercell’s shares. Both myself and Mikko Kodisoja, one of the founders of Supercell, sit on the board of directors of this company. So it’s not a traditional — I wouldn’t characterize this an acquisition. It’s more of a kind of partner support, a strategic investment. As you know, they’ve paid roughly $1.5 billion for those shares, valuing the company at about $3 billion.
Question: Why did you do the deal?
Paananen: It boils down to four reasons. Most important, we feel that it’s still very early days for this company. We love what we’re doing and we want to continue to run Supercell as an independent company. This deal, more than anything, guarantees the independence of the company. A very large part of the deal is that the founders of the company still have voting control and decision-making power over the business. We can almost say that after this deal we’re more independent than we were before, because the founders have substantial control over how we want to do things. We’ll continue to operate completely independently. All matters related to strategy, products, road maps, platforms, marketing, and all that are completely in the founders’ control. That was explicitly agreed upon with them.
This brings me to the second point. Before this deal, and before meeting the founders of Softbank — When people in the investment world talk about “long term,” they usually mean a period of five or 10 years. Then you talk to the founder of Softbank, Masayoshi Son. For him, the long-term is a 30-year plan and a 300-year vision. He’s completely different from any other business executive I’ve met, especially here in the west. These guys are all about the long term. If you compare their model to a typical venture capitalist, these guys could hold the stock of Supercell forever if they want to, and that’s exactly what they’re looking for.
Third, I talked about the dream of becoming the first truly global games company. Softbank obviously accelerates our path of progress toward that point. They have a strong presence in Japan, and also strong relationships in China and Korea. They recently bought Sprint in the U.S. and are becoming more active globally. It’s not a short-term thing. In the mid- to long-term, we believe there are benefits to be had from having them as a shareholder.
Fourth, what we share as a philosophy with Mr. Son is that we both think that life, and business life, isn’t a zero-sum game. We’re both about this ideology that we’re all in this together, and so it’s fair that all the economic value created by the company is shared by everybody who’s involved, including all the employees. That’s been proven by Supercell all along. This deal was another example. For us, it’s important that everybody with a share of the company is able to participate on exactly the same terms. Whether you’re a partner or one of the founders or an employee, the terms are the same. Going forward, we’ll pay dividends and so on. Every single employee has stock options, and they’ll be included in dividend payments. That’s a strong part of the culture of Supercell, and it’s great to see that Softbank shares many of the same ideas.
Question: What is the long-term view?
Paananen: We fundamentally believe that we are in a new era in gaming. It has to do with a few things. One is that gaming as a mass market phenomenon is heading to mobile and tablets. There’s going to be a place for the next-generation consoles, and again it’s not a zero-sum game – just because mobile is doing well, that doesn’t mean consoles should be doing badly. But we believe that this device is the superior device for the mass-market consumption of entertainment. We believe that the free-to-play model, when it comes to the mass-market consumer, is the winning model. We believe that these games are becoming services. It’s not just something you launch and then move on to the next thing. You launch and then the real work begins. We believe we can create game services that will last for years, if not decades. And we believe that we can create games that have a truly global appeal.
Those are the fundamental drivers that we believe are changing this industry. On the back of those changes, we believe it’s possible to create a new kind of game company. Our goal is to create a company that is loved by its employees and also by players in the decades to come. What we’d like to create here is something that, say, 20, 40, 50 years go by, and then you can look back and think about Supercell. At that point, Supercell would really mean something. Think about Nintendo. It would be hard to find somebody who wouldn’t love the characters and the brands and the games that they’ve created. I would love to feel the same way about Supercell in 30, 40 years.
We would love to be part of the history of games, to create a company that changes how we think about gaming. But that obviously takes time. You can’t do that in a year or five years or probably even 10 years. That’s the single biggest reason that we wanted to do this deal. We wanted to make sure that we have a partner that shares our vision, but more than anything, has the patience to wait. If you want to try to do something like this, the most important asset you’ll need is time.
Question: I wonder how you feel about all these contradictions here. You raise money, but you don’t need it. You have teams that are structured to be really small and fast, but you make games really slowly. You can share the wealth with all your employees, but then maybe they’re more likely to leave and start their own companies. There are all these very strange things that come from having so much success.
Paananen: It’s part of how we think a little bit differently from many other companies. We get that question a lot. People ask me and the others, “Why do you guys get up in the morning? You don’t really need to work for money anymore.” My answer has always been, and still is, that I’ve never worked for money. None of us have ever worked for money. That’s the strange thing. Since we became successful, all people want to talk about how much revenue we made yesterday. That’s become a topic in itself – what’s the daily revenue at Supercell? It’s awkward for us, because we’ve never made these games to make money. We’re passionate about games overall. We just want to make fun, great games.
So my answer to that would be, since we’ve never made games for money, I don’t see things changing in that way. Along the same lines, we want to make Supercell the best possible environment to make games. This is our number one goal as a company. That’s the idea that the company was founded upon. Why would anybody want to go and set up their own companies? If at some point we’re not the best possible environment to make games, of course they should leave and set up their own companies. But as I say, that’s a very big part of how we think. We want to be the best environment for the best people.
Question: Do you think that Finland is the best place to look for workers?
Paananen: I do. It’s important to us — We explicitly agree about that with Softbank, and with our shareholders as well, that the company will continue to be headquartered in Finland. This is our home. Having said that, we have people who have come from 30 different countries. Roughly half of our employees are Finns and the other half come from somewhere else. It’s a very diverse group.
Having this kind of multicultural environment makes working a lot more fun. But it also has a clear business benefit. If you’re trying to be a truly global games company, it helps that you have your own mini-globe in the office. No matter what market we’re talking about, we have someone who comes from that country who can walk to my desk and have a chat about something.
Question: You primarily launch games on iOS and then on Android. Do you think that model is going to change as Android’s market share grows, or are you still going to be focused on Apple first?
Paananen: For the foreseeable future, that’s going to be the model we follow. The one thing that all of us have learned the hard way in this industry is to never say never, but right now that feels like the right approach.
Question: Is that because the ecosystem is better, or is it because you earn more money from iOS users than Android users?
Paananen: I think it’s a combination of all of those things. We have less fragmentation on the iOS platform. And yes, it’s not a secret, but in terms of revenue the market is slightly bigger on that side. But as I said, that’s been the approach so far. It’s something we’ll continue to think about as far as what’s the right order.
Question: It looks like Angry Birds has hit a peak and has sort of gone down on the top-grossing lists. How do you deal with that possibility in the future?
Paananen: It comes down to the philosophy of how we design good games. As I say, our goal is to design games that people will play for years. We’ve had our games on top for, in the case of Hay Day, almost 18 months. We don’t see any signs of slowdown. But again, it’s the games industry. It’s extremely hard to predict. We’re humble enough to realize that it could happen to us. But the only thing that we can do—We don’t worry about it too much. The only thing we try to focus on is making sure that these games become better and better for our players, every single week, by releasing updates and new content and listening to the users. We’re going to do that as best we can. That’s all we can do.
But I do think that games like ours are part of this new culture of gaming. Games have almost become part of your everyday life. Lots of our players say that in Hay Day, they check their farm before they eat breakfast, and then it’s the last thing they do before they go to sleep. These games have become part of their everyday routine. Our average player plays nine times a day, in both games. That’s an average. Active players play tens of times a day. These games are almost like Facebook, a service you check in on many times per day. They become part of your life. As long as we can keep these games a relevant part of our players’ lives, they’ll have a long lifespan.
The other thing that makes people come back to these games is the social nature of the games. We’ve noticed this best in Clash of Clans. The number one reason people come back to the game isn’t the game itself. It’s the other people they’ve met through the game. It’s a strange thing, but the other players draw you back into the game.
Because of these two things – how people consume these games and how we’ve designed them, and more than anything, how they’re so social – those are the reasons we continue to believe they’ll have a lifespan of years and years.
Question: Why did you make a multinational and multicultural work force a priority?
Paananen: For two reasons. One, it’s so much more fun to work in an environment like that, with people from different kinds of backgrounds. Two, it makes a lot of business sense. When you’re trying to develop games for a global market, it’s incredibly helpful to have people from different cultures who can give feedback on the games. When you localize the games you can talk about everything. It makes a lot of sense.
Question: How much do you earn from each player of, say, Clash of Clans, on average?
Paananen: We don’t actually disclose that type of revenue KPI. For us, as I say, and every other free-to-play game, the vast majority of players play for free. There’s a small group who decide to pay for games. That’s a beautiful model, because if it’s done right, it’s a win-win for everyone. The people who don’t want to pay don’t have to, yet they can access and play very high-quality games for free. And then of course the people who want to pay can choose how much they pay. If it’s done right we believe the free-to-play model is the winning model, both from a developer’s perspective and from the consumer’s perspective.
What’s so important when you design for that model—I’m sure you’ve heard about the concept of play-to-win. That’s the one thing that you want to avoid. The key thing about free-to-play games is that they have to be fair. It must be possible to play the game without ever paying. That’s one thing we’re very proud of. In both of our games, there are quite a few users who haven’t paid a dime, and yet they’ve been quite successful.
Question: In Asia, it seems like this “pay to take a turn” model is quite popular. Do you have to make entirely different games for different markets?
Paananen: That’s what some people have suggested. We would be foolish to start changing our games for a local market. No matter how much we change them, they’ll never be as good as the local games. So we think of it the other way. We didn’t change anything beyond localizing the game. This is our game, what defines our game, the soul of our game. If you start to change the soul of a game, it won’t be good in anybody’s opinion. So we’ve kept the games intact and just localized them. That’s definitely going to be approach we’ll follow, in line with our vision of becoming a truly global games company.