Tokyo Drift: a brief history of the formation of DeNA and GREE

Japan is one of the most thriving mobile gaming markets these days. Top developers can earn more on it than anywhere else. Not everyone, however, knows how this market grew, about how it all started. And it all started with feature phones.

Reference: In Russia, the concept of a feature phone has not caught on, although, in fact, most of the mobile handsets that were popular with us in the second half of the noughties can easily be attributed to them. In other words, these are mobile phones with a relatively wide multimedia functionality (they can go online, play videos and support java). The English Wikipedia calls feature phone a retronym designed to distinguish old handsets from smartphones.

Before smartphones: the era of feature phones

In 1999, NTT Docomo launched i-mode, the world’s first Internet provider for feature phones. The main purpose of the service was to provide mobile phone owners with access to e-mail and, in fact, the Internet. Soon two other top Japanese mobile operators – Kyocera (today – KDDI) and J-PHONE (today Softbank) also launched their services. 

NTT Docomo is the largest mobile operator in Japan

Thanks to the rapid growth of networks (both in terms of coverage and in terms of data quality), Japanese users quickly gained access to stable mobile Internet, and manufacturers/suppliers of digital content began to make money on them by selling wallpapers, ringtones and Java gaming applications (already in 2001, NTT Docomo was the first in the world to launch support 3G). It was the dawn of the mobile industry, strictly limited by the technical requirement – each file had to weigh less than 20 KB. 

Some companies have seriously worked on the quality of content and achieved some success in this field in the noughties. Very popular, for example, was the service ‘着うた – Chaku Uta (a song as a ringtone). In 2002, the service allowed users to download the entire song for a few dollars (as it can be done with iTunes today). Then there were suppliers of mobile comics. If you want, an analogue of the modern Amazon.

About seven years ago, this is exactly what the counter of a Japanese mobile equipment store looked like

But there was a caveat: until 2005, mobile subscribers used only the content that was officially authorized by mobile operators. 

GREE and Mobage Shogunate Days

By and large, the success of these SNS grids at the initial stage is due to the fact that they were the first to promote content outside of the offers provided by operators. 

GREE launched its platform in 2005, Mobage (DeNA’s daughter) a year later – in 2006. Neither the first nor the second had a strict focus on games at that time. This, however, did not prevent their user bases from growing rapidly.

In July 2006, Mobage received its first million users, in May of the following year it could boast 5 million subscribers. GREE got its million much later, in March 2007, which, however, did not prevent 3 million by December. The main audience of both grids were young people aged between 10 and 20 years.

As for the content, they mainly earned money from advertising and avatars (users register in similar Japanese SNS not under their real names, respectively, they use various characters as virtual egos, which can be improved for money). But, of course, it couldn’t last that long.      

In 2007 , GREE published the first full – fledged social game in . It became Tsuri-Sta (Fishing Star), distributed according to the free-to-play model. However, there were three years left before the launch of its own gaming platform.

Fishing Star is still a popular thing

Mobage started releasing game content only in April 2008. But in August 2009, it was already relaunched as a platform strictly focused on games. A year later, in September 2010, Yahoo! and DeNA launched a joint Yahoo! Mobage, which allows users to play social PC games by logging in via Y!JapanID.

Today, GREE and Mobage reach about 20 million users across Japan. This would seem to be not the biggest figure: other mobile SNS are now quite capable of catching up with them in terms of the number of subscribers, but they do not have such money, such an extensive library of projects: since 2009, when they switched from SNS to the format of social gaming platforms, they have published a large number of hits developed as internal, so with external commands.

Fishing Star is promoted by local stars

Problems of social gaming platforms

Popularity, a large number of users is, of course, good, but it also has a downside: numerous problems that need to be solved. Japanese social gaming networks have two such problems. 

Firstly, the use of such resources as dating services (including for teenagers). It would seem where the problem is, but after a number of incidents (victims met the rapist/killer in GREE/Mobage), the nets took security seriously. As a result, both Mobage and GREE filter and monitor all messages on their platforms. They also have instructions according to which they allow or forbid people to communicate based on the age of potential interlocutors. Within their framework, you can also report virtual violence or SNS threats if they occur. If such aggressive activity is confirmed, the services punish for it, in the worst case, it results in the removal of the account of the aggressive person from the platform.    

The second problem is kompugacha (aka Complete Gacha), an element of gambling, also well known as a monetization feature of many Japanese social games. It was also a problem – and here’s why: there were cases when underage users spent several thousand American dollars a month, wanting to get a rare series of items that could not be bought as part of the game. In 2012, the Japanese Consumer Protection Service ruled that this mechanic was illegal, and the main gaming companies had to redesign their products. Most hardcore players win them by playing a lot and thus progressing faster. Plus, they are attentive to the price tag, but children do not pay attention to the price tag, which is why now such mechanics are officially prohibited (we wrote more about the compugach here).

Change

Despite the solution of many problems, the release of dozens of hit browser projects – today GREE and Mobage cannot be called top players in the Japanese market. The reason is the transition of the market from feature phones to smartphones.  

In July 2008, sales of the iPhone 3G began in Japan. The release of the device was a harbinger of change – moving away from browser-based to native games. 

The result of the changes is not the most favorable for the Japanese giants of gaming SNS. Projected revenues from GREE sales in June 2014 amounted to $3.8 billion, two years ago they were $8.27 billion. DeNA’s operating profit by the end of March 2014 was $5.3 billion compared to $7.79 billion in March 2013. 

Revenues are still gigantic, especially when viewed from the outside, but they are falling. 

If you “look at the root”, then the problem is not at all in the transition from browser-based to native games (although this is also the case – the leaders of the browser market did not immediately switch to the production of native games, since at the time of fundamental changes they received huge sums from mobile browsers). 

The problem lies in the opportunity for Japanese game developers to independently bring a product to the market. Before that, SNS grids were the main distribution channel, otherwise the entire infrastructure would have to be built independently. Moreover, for some time after the appearance of digital stores for iOS and Android, many Japanese developers continued to work with GREE and Mobage, giving them, who adapted their solutions for smartphones, more than 50% of profits. The situation was abruptly reversed by GungHo, who independently published Puzzle & Dragons. Now developers are not so ready to cooperate with former market leaders. In addition, the place of GREE and Mobage is already occupied by messengers, new generation social networks. 

Whether GREE and Mobage will be able to regain their greatness is a big question.