Japan's Biggest Social Player Turns Its Eyes On the U.S.

[Gamasutra speaks to Naoki Aoyagi, CEO of GREE International -- the California-based branch of Japan's largest mobile social games network -- about the company's plans for the West and its view of the market.]

In April, Japan's GREE -- the country's top mobile social game network -- acquired OpenFeint, one of the leading mobile games networks in the U.S. The company is now using this network, and its talent, as a launchpad for its Western operations.

But a simple acquisition is just the beginning. Since January, GREE's CFO Naoki Aoyagi has been living and working in the U.S. Serving as CEO of GREE International, he's had his eye on global expansion for the company, and has been aggressively recruiting development and management talent as the company expands its global operations.

In this extensive interview, Aoyagi talks to Gamasutra about why the company is looking West, its strategies and goals for expanding into other markets, and why it hopes to both recruit more talented developers, build beneficial relationships with both small and large third party development studios, and how it's different from its major competitor, DeNA (which expanded to the U.S. with its own acquisition -- Ngmoco.)

You've been in the U.S. for about six months now?

NA: Yeah, since January, I live here and just spend a lot of time -- 100 percent of [my] time -- in the U.S.

Why did you, of all the management team of GREE, decide to take on the role of the CEO of the U.S. office?

NA: Because [it's] the one thing I really wanted to do. Also we think that global expansion is the next focus of GREE overall, so we started to build the global operation from the U.S. Then we almost set up the office in China, Beijing. Then maybe next in Europe and Southeast Asia this year.

It's been announced that you're planning to expand into London as well.

NA: That's right, that's right. Now we have the office, actually, in London -- it's just still small. It's just for a few people right now. We are trying to expand that office. Also in China, we're going to set up a gaming studio as well. Then we have the office in Singapore.

Are you overseeing the international expansion in all territories?

NA: Right now, yes. But actually we're going to, I think, have someone who will focus on each region, because I think now I should focus more on the U.S. side. Yeah, still, GREE International, we kind of overview operations. But you know, China is a little bit [of a] unique market, so we I think have to have someone dedicated to the China market.

And you also have a partnership with Tencent in that market, right?

NA: That's right. A very sound relationship. We introduce our developers with each other; also we do some co-investment in social gaming areas. Because if Tencent invests, the success in China is guaranteed. The same thing, we can say in Japan; we have done a lot of social gaming areas investment in the last year and this year. So yeah, that kind of thing, we are doing together with Tencent. It's very good.

At this point, you've reached the top in market share for social networking in Japan, is my understanding.

NA: Right. Now we have more than 25 million users... We're growing. It can be, I think, 30 to 40 million users, because in the last three years, I think our user base has more than tripled.

When it comes to your Japanese operations, do you have internal development for the games that you put on the GREE network or are those developed by external developers, primarily?

NA: We have both first party, second party games, and also third party games. We have now eight games done by ourselves. That being 12 months ago, the end of the last June, we launched the open platform to third parties, and now I think it's well-balanced.

The number one game by a third party, which is done by Konami, it's huge. It has more than, I think I can say, 10 million U.S. dollars a month, they have, with one title on the GREE platform. So I think in terms of revenues, it's very sound, and the third parties enjoy their growth in the GREE platform.

Now is that on smartphones or feature phones -- or both -- in Japan?

NA: Both. Both smartphones and feature phones. Right now, the majority is feature phones, but we see very good traction in smartphone games, so it's going to be all smartphone over the next three years. And now we see the big wave of the iPhone and Android -- especially Android, in Japan.

Obviously, with the acquisition of OpenFeint, you acquired a networking service that's active in the Western markets. So your goal is to have that kind of network?

NA: Yeah, the primary goal is to build the social gaming network in the world. Say that our midterm target is 500 million to 1 billion users in the world. [It's] because we see huge potential. It can be bigger than that of, say, console gaming, like Nintendo, PlayStation. Because especially in the Asian market, now everybody has a smartphone or PC.

And then of course in Japan, Korea, U.S., Europe, we have a lot of gaming users. And the social games have a broader reach than traditional console gaming -- so yeah, we see such huge potential in smartphone games.

And it's not just iOS, you're interested in being strong on Android as well?

NA: It has to be cross-platform. Not only the iPhone and Android, maybe the Windows [Phone] as well.

Your major competitor would be DeNA, and Ngmoco.

NA: I think in Japan, that's right. In the U.S., we don't see any competition here. Because, for example, in terms of number of users we have 90 million users right now, but other platforms it's I think less than one-third. So I think we should focus more on our product and services, and also the relationship with developers. And now we are trying to expand our distribution power on OpenFeint. So now we are trying to do some upgrades in services. That's our focus.

Has the direction changed for OpenFeint since GREE acquired the company? Has expertise from your success in the Japanese market shaped the future of it?

NA: The answer is yes and no. Because, we decided to keep the OpenFeint brand, because the developers and the number of users -- they know the OpenFeint brand, but not GREE yet, so as a platform we're going to keep the OpenFeint brand. Because, as a platform, we don't want to lose the momentum -- and I think now the relationship with developers and users is very good, also.

So yeah, that's the one thing. But also, the management team, they stay even after the acquisition. Of course we give them the incentive. So yeah, that part, it's going to remain.

But as for the functionalities, we agreed to upgrade OpenFeint. For example we launched, in June, a new service called GameFeed [with] which we're going to kind of provide some distribution channel across the OpenFeint games. Also we plan to enhance communication among users, so we're going to do a lot of updates on the social community functionality side. That's the overall plan.

And you talked about you're keeping the OpenFeint branding. Are you going to be using the GREE branding on anything beyond a corporate level in the U.S.? Like anything consumer-facing?

NA: Both the consumer-facing and corporate brand, we're going to use the GREE brand as well. In the U.S. we have two parts. One is the OpenFeint platform, and the other thing is gaming studio part. GREE International is working on making games. So now we are, I think, in this summer, we're going to launch social games, mobile social games on the OpenFeint platform.

So it strikes me to know that we have both platforms and also killer content. I think you know GREE is going to contribute to OpenFeint by introducing some killer content, then expand the user base more. Then third party developers, they're going to get some benefits from that. We tried to kind of achieve such a combination -- integrated model -- but at the same time, we're going to operate OpenFeint as a kind of independent entity, so that's kind of, I think, a difference from other players.

I think that's different from the companies like Facebook and Apple, because they're doing all platform things. Then the other gaming companies, they don't have a platform. They're making games, but they don't have the mutual user base. So we can leverage. We have both content and platform.

So that's the important part of the strategy, in your view? To have both a platform and original developed content to deliver onto that platform?

NA: That's right. I think that's too different from the other platforms. And that's actually the same as what Nintendo has been doing, Sony Computer Entertainment, [what] they, I think, have been doing, in console.

Because content is really important, so at the same time, you know if it's only with first party games, it's very difficult to reach the right number of users -- so it's good to have both platform and content.

Though Nintendo has struggled in a certain sense, because its own content is so good that it makes it hard for third party developers to compete with that content.

NA: Yeah, that's right. So we don't want to heavily rely on first party games, and we have to help developers, because to reach the mass market, we need to have the developers help. So we don't want to be very arrogant. Also we have to keep the balance between the first party and third parties. That's my understanding, and GREE has been doing that, operating in Japan.

In Japan, as I said, we have some very good killer content. Some by third parties, but also we have first party games; we have a very good number of users, I would say more than 25 million users.

And we do a lot of promotion in Japan. We are actually one of the largest TV ad clients in Japan. As we have our own first party content, we can do that. That will enable us to do massive TV promotion. Actually, last quarter, we spent 40 million U.S. dollars -- actually more than three billion Japanese yen [$38 million] in promotion and marketing, and the majority of them are used for TV commercials.

Do you think you'll have a similar strategy of heavy marketing for the U.S. market?

NA: I think the answer is kind of yes and no. Yes, we are doing a lot of promotion, but the content and the way of the marketing has to be a little bit different from that of Japan. Because, for example, in Japan -- Japan is a very small country. The TV commercial is very efficient. But we haven't proven that model in the U.S., so we're going to make a lot of tries. Try things [and] find out the best way to promote our platform.

Obviously you have a great deal of experience so far, and a lot of success in Japan, but moving from one country to another presents a lot of challenges, and you start to see differences in the market.

NA: Yeah, you're right, so that's another reason why we acquired OpenFeint. Also, now we are hiring the U.S. local people very aggressively, because I totally agree with you. Each market is very unique, so that's one of the reasons why we keep the OpenFeint brand, also the OpenFeint team. It's, I think, a different approach from other Japanese companies. Yeah, building a team here in the U.S. is, I think, a key factor of GREE's success.

Now you said you've been recruiting aggressively. Is that management? Is that development talent to make games?

NA: Both. Both management talent and development talent. I think the majority of our members are engineers and designer artists, so yeah, now our focus is on the development talent. But also to expand the operations, and I understand we need to have a variety of people from marketing, operations, finance, strategy.

Also one of the important things is to build a metrics-driven company, which, for example, Zynga and other major Facebook developers do. So we have to build a very strong technology base, also metrics-driven management -- also a sound team with a variety of experiences.

So we're going to hire people from the web industry, like companies like Google, Yahoo. Also from the traditional gaming companies like say EA, Activision, and other gaming companies, because now we're going to see the convergence between traditional gaming, and the web type of social network, so we have to have talent from both the web service industry and also the traditional gaming industry.

For the games you're developing in the U.S. office and also now in Japan, are those games going to be targeted for global launches now that you've got an international network?

NA: That's right. In the U.S. now, we're not making games for the international market, mainly focusing on the U.S. market first -- then if it works we're going to bring some games to other markets, like the Asian market, including the Japan market. And of course there are very good games done by Japan studios, so we are going to bring some games from Japan to the U.S. and international market.

As you begin to approach this strategy, are you going to be planning games from the outset to be international launches, or are you going to evaluate games that have already been completed for a certain territory and then see if they're suitable for global launches?

NA: I think some content works globally. Some content is very local, so it's a combination. For example, even in traditional gaming, I use an example, some content like sports games they are popular in the worldwide, but some contents are very local -- like Japanese RPGs, or the FPS in the U.S. and Europe. The sports game in, say, each country.

So we have to have a very customized strategy; at the same time there we have to think about the global [market] because if we have the broader reach, it's an advantage. We can spend a lot of money in development, and also in promotion, if it's global.

So I think we're going to do a lot of combination -- we're going to have some games which have a global reach, also that have the broader reach, to appeal and reach a number of users. Then we're going to have very local high-ARPU games. Then if we cross-promote those games, we're going maximize the number of user base and also the revenue from those games. So that kind of combination strategy is very important; that's my understanding.

Are you primarily hoping to target casual users? Because there seems to be a certain belief now, more on Facebook, that it's getting to be the time where hardcore gamers can be more targeted.

NA: I think [we'll] focus on both casual and hardcore users because yeah, of course we focus on mobile, but the hardcore and casual, it's good to have both -- because if we have number of casual users, it makes the better community. And also the hardcore, high-ARPU users, they feel more comfortable because we have a lot of users. Even the users who don't pay a lot, it helps you build a sound community.

So it's good to have both high-ARPU, or hardcore users, and also the casual users. That's our experience in Japan. Because if, for example, you or your friends are displayed on the the web screen a lot of times, people start to feel there's a lot of users, and also the communication. [They] start to feel it's a real social game. Then they start to spend some money, a lot of money, on games. That's my understanding. So even say teenagers, teenage guys, it's good to have both.

Do you believe in partnerships with traditional developers, who have been not as quick to enter the social market? Do you see a value in partnering with existing developers?

NA: I think in smartphones, a relationship with traditional gaming companies, the relationship with them is very important -- because they are very good at, for example, 3D-rich content. So if we can educate them on social games, they're going to make very good social games.

For example, in the last 12 months, after we launched the GREE platform, the first movers were small startups and gaming studios. But after the three months, the traditional gaming players like Sega, Konami, Square Enix, Bandai Namco, they came into the market and then they get the share, and also the top ranking.

As I said, the number one game is done by Konami, which is a traditional gaming publisher in Japan. So I think, yeah, it's very important to have both traditional console type of gaming publishers and developers, and also the small studio startups.

When it comes to bringing traditional publishers on board with GREE, what do they bring?

NA: Actually, one is IP. They have their own strong IP, so that is one of their strengths. Also, now they're trying to understand the social network, and social games, so they have a number of engineers, very experienced engineers, and some talent. So once they understand social game mechanics, they're going to provide good games. The experience that's existing, the studios and also the IPs, those are the key things, and also they have some money compared to the small startups, so they can spend a lot of money on promotion. So there are many, many strengths and advantages they have.

But at the same time, small studios, they are very young and nimble, so it's good to have both the small startups and traditional gaming, both parts. So for the small startups, we have been doing some support, including investment. Then they are working very closely [with us.] But with only the small startups, it's very difficult to expand the user base more. So with traditional gaming publishers, we do a lot of cross-promotion. Also, IP-based games publishing.

Do you see more acquisitions in the future?

NA: Yes, of course, worldwide. Not only in Japan, or not only in the U.S., maybe Europe or some Asian countries.

What kind of acquisitions appeal to you at this point in GREE's lifespan?

NA: I cannot answer that question very specifically. But, overall, mobile and social gaming areas. But not only social gaming studios, but also the studios that are very good at making console games. Both of those kinds of gaming studios are one of the primary targets.

And also, like in January, we acquired the advertising network company called Atlantis, which is in Japan. I think it helps to support our developers network, because we can do acquisitions in those kinds of areas, right? Such as ads, and payment, or promotion; also the technology side.

So you have a lot of ideas, and you're looking at a lot of different things right now, is my impression.

NA: That's right, that's right, that's right. So we have dedicated teams in the U.S. and Tokyo, they are 100 percent focusing on acquisition investments. Our final goal is to build the ecosystem, so we have to do a lot of investments around the platform and ecosystem.

And then to accelerate that initiative we working with DCM. DCM is a U.S., Menlo Park-based venture capital. Now we set up, with DCM, a new fund called A-Fund. A stands for Android. So A-Fund, they're going to do a lot of investment in social smartphone areas, especially in the Android. Basically Android, but sometimes Android/cross platform.

Is that because you see Android as the real place for growth?

NA: Yes. But you know, also, the iPhone, I think we're going to see very fast growth in each region. But Android, yeah, it's going to be a big wave.

You talked about making investments in your platform to add things like metrics and stuff like that. How much of that stuff is going to be available to the third party developers who sign up with OpenFeint?

NA: It's not provided to third parties yet, but we plan to do that for third parties. Because providing those kinds of analytics and a very good dashboard is a key to read the market. So we think that that's really important.

Now, in Japan, we do provide a lot of detailed numbers on a daily basis. It's more than AppData, or something like that. It's very detailed. Then, based on that experience, we understand the importance of providing very specific detailed data to a PC, online. Yeah, that's my understanding, so we're going to do that. And then we brought some experienced engineers and product managers from Japan to OpenFeint. They are now working in the OpenFeint office to support those kinds of things, so we're going leverage our past experiences. That's a very important part -- our sales updates.

How much are you planning to merge your global tech platform? GREE in Japan, versus OpenFeint in the U.S.?

NA: Yeah actually, basically, the key functionality are almost the same, so to give the benefit for developers, we're going to have common APIs or similarities in features, but there's some features, some points have to be different. So for that part, instead of using one common API, we're going to expand our developer relationship, and then we're going to support developers to customize and localize their game to each market.

Ngmoco and DeNA are going to be very aggressive in terms of offering localization and internationalization assistance to teams across the globe to help bring their games to Mobage.

NA: Yeah, I think the objective is that they're maximizing distribution and monetization for developers. So a one stop solution is not the objective [for GREE]. So I think to expand, to build and support the developer relations team, is very important for each market -- for China, Japan, also the U.S. and Europe, so we plan to expand that developer relations team in the world. But I the think approach is a little bit different from Ngmoco Mobage.

In the U.S., you see experienced developers and management moving over into the social space. A lot of high-profile people have moved to the social space, but in Japan you don't see very much about that.

NA: Actually, that's happening. Now, we hire the very famous talent from the traditional gaming companies. For example, from Square Enix, we hired a very famous producer and he is leading some of our social games.

So, as I said, they are bringing both talent from traditional gaming, and also the web space, like Google is very important. So right now we are working to gather and we have a very hybrid team. So that kind of approach is very efficient when it comes to smartphones.

Can you give me the name of the producer from Square Enix?

NA: He is Mr. Tsuchida, Toshiro Tsuchida. He created Front Mission, Arc the Lad.

Most recently he worked on Final Fantasy XIII.

NA: Then he recently joined GREE and he's working on a social game.

Wow, okay. That's a big deal.

NA: Thanks! I was actually proud of that, yeah. It's very good! Last year, the people at the traditional gaming publishers, they are kind of skeptical, but I think they'll change their mind. And then at the Tokyo Game Show this year in September, we're going to have a big section, a big stage at the Tokyo Game Show.

Now we are trying to build a very good sound relationship with traditional gaming industry and they welcome us to join that. They really understand the importance of social gaming.

What is the value of hiring experienced people like Tsuchida who have a long background in traditional gaming?

NA: Because I think for the basic game balance, game stories, they are all, I think, applicable for social games. But we just bring some social networks, and kind of combine those two. Also, after launch, we have to do a lot of updates and events, or something like that, so that part they don't have -- but GREE has, so we're going to bring those kinds of things from both sides. From GREE's side, and the traditional gaming side.

Are you a member of [Japanese game industry organization] CESA?

NA: Yes, from last year. And actually some key major traditional gaming publishers introduced us to CESA. Actually Square Enix and Koei Tecmo, they supported us to join CESA.