Secret Knowledge from the Future

When Neil Young looks at the mobile market in the U.S., he sees the past -- Japan's past. The U.S. has had an explosion in adoption of free-to-play mobile games, and it coincided, he argues, with milestones in the adoption of 3G internet-enabled handsets -- things that happened much sooner in Japan than in the U.S. So he uses it as a yardstick of what to expect in the West.

In fact, it's what led him to sell the San Francisco-based company he co-founded, Ngmoco, to Tokyo's DeNA, one of the leaders of the space in Japan. It's like getting "secret knowledge from the future," he argues.

Right now, Ngmoco and DeNA's Rage of Bahamut is the top grossing app on the U.S. Google Play and iOS charts simultaneously. It's a runaway success for the company. And, according to Young, it grosses more than it did when it first got to number one -- something of a game changer, he argues.

Here, Young talks about identifying successes, his $30 billion view of the future of the space, how he hopes to delight both players and developers, why consoles are going to be disrupted by mobile platforms and why he thinks that Mobage, the Ngmoco game service, is number one in the world -- despite what some of his competitors might say.

When we spoke last year at GDC, and you were outlining the roadmap for Mobage, it hadn't launched at that point. But you talked about it as a network, and you'd have channels, and it would bring that metaphor to players. I was wondering if that's still how you look at it, and if you really feel like now that it's launched that's accurate.

NY: No. I think one thing that's evolved for us is putting the games more at the forefront. I think when we spoke, our thought was, "Let's start with a consumer destination, and we'll use that as the launching point to introduce these games."

And what we found very quickly is actually, the most important thing is to almost silently and quietly, in the background, connect customers with games -- whether they're existing customers, or whether they're new customers.

Find mechanisms to kind of connect people together, and make sure that the first order of business is delivering successful games that are connected together by the network, and that help create a healthy ecosystem for the developers. And then, over time, introduce as many consumer features as makes sense.

Mobage is embedded in every one of these products, and you can certainly bring up the service, find friends, post messages, find other games that you might like. But we really try to focus on the games first.

In your presentation, you mentioned again the similarities between Japan in the recent past and America now. What are the similarities? You've talked in the past about things like 3G penetration. Are you finding these are panning out as time goes on?

NY: Yes. We really are. That was a hypothesis that we had when we essentially agreed to be acquired by DeNA. That was the underlying thought for us. We looked at the trajectory of the business as a free–to–play business in mobile games and we said, "You know, there has to be something bigger here."

The scale of the business that we could project, it just capped out. And when we just thought about being a free–to–play company exclusively, we looked around the world and we said, "Okay, what's going on in Europe, what's going on in China, what's going on in Korea, what's going on in Japan?" And what we found in Japan was an ecosystem that felt really similar to the ecosystem we were operating in, but was four or five years more advanced.

And when you kind of dialed back time, and you got to the root of the things that actually created that ecosystem in Japan, we were able to quite easily map it. And that's actually what motivated a lot of our conversations with DeNA initially -- it was kind of this shared vision that there was this tremendous opportunity there, and this big market that would actually end up getting redefined.

And you know, I think we often look at our industry as static, and we sort of assume that everything is kind of incremental, but that's really not the case when you're going through rapid and dynamic change.

An example of that would be, when we released Rage of Bahamut on Android, it got quite quickly to the number one grossing game. Like 16 weeks ago, it hit number one grossing. But where it is today, versus where it was there in those 16 weeks, the daily revenue is more than 2X where it was when we first became number one.

So those chart positions are fungible, you know? They are not static. And we look at, "Oh, number one grossing equals this number of dollars, therefore the whole market is this size." But actually if you do something different, or you do something better, you can change those definitions. And that's something that we've been really encouraged by -- that we're able to kind of take this "secret knowledge from the future" and actually make it work here in the West.

Extending this metaphor and looking at the numbers you mentioned earlier, you believe in potentiality for a $30 billion a year global business in mobile games. Is that your fundamental belief -- that things will be that size?

NY: Yeah, it will be of that scale. You know, 20 Or is it 50? I don't know. We shouldn't make the mistake of thinking that mobile games are exclusively trading card battle games. I think that there's so many different types of games that we can build when we take this knowledge and we employ it directly.

We're trying a range of things, some of which you eventually get to see, and others which you don't, because they were ahead of their time.

We've got a wide range of things. Ben Cousins is building, essentially, a free–to–play social shooter, which is trying to build on his experience at EA, with the experience that we've had here and in Japan. And it will be really interesting to see what happens there.

I actually went to Stockholm in December and spent some time with Ben and the team.

NY: Yeah. Really interesting group of people. Super high quality team, and I think we're going to do something really interesting.

I was trying to calculate their salaries, and figure out how much money was being spent on it, just as a mental exercise.

NY: (Laughs) I would be interested to know what you came up with. It turns out it's expensive in Sweden. I really do think that there's a tremendous opportunity, and we're just at the very beginning of it.

Do I think the trading card battle game business is going to be a $30 billion a year business? No. But I think when we put in racing, and shooting, and sports, and trading card games, and strategy games, and role playing games, do I think that we can start really changing things? And then do I think that as mobile operating systems move from phones to tablets to televisions, that the traditional console space is going to get massively disrupted? I absolutely believe that, one hundred percent.

Ngmoco and DeNA's Rage of Bahamut

You mentioned some things just now, and I don't know necessarily that you were trying to be prescriptive. Do you consider yourself going after the casual, Bejeweled Blitz market, too? Because the games that you've been showing lately, and the games that you've been really successful with recently, are more hardcore gamer games. You mentioned a shooter, potentially racing, stuff like that. How do you see yourselves?

NY: No, I think that there's an opportunity to build those type of products. I think we would want to extend them, and think differently about them.

There's a game in Japan which is a really interesting game called Puzzle & Dragons, and it's one of the most successful games in the App Store in Japan. And what they've done is, they've taken Bejeweled Blitz and mashed it up with a sort of RPG battle game. It's kind of like the Final Fantasy battles, but with all of your moves being determined by a match-3 type mechanic, and I think there's something really interesting there.

I love Bejeweled Blitz, personally. I think it's really awesome. I don't really spend very much money in it. I like to spend money, you know? Spending money is not a bad, evil thing. I spend money on things that I like. But I don't spend a lot of money in Bejeweled Blitz, and I wish that I could, somehow.

I wish that there were mechanisms for me to do that. It's very short attention span. I don't feel there's much continuity. There's no continuity from round to round to round to round, and I wish that there was. And I think that if there was, there might be different ways for it to monetize.

So I think what we'd do is, we'd look at those categories, and we'll say, "Oh, okay, they're obviously very appealing, fun-to-play games. Is there a way that we can make them work from a business standpoint?"

And when we make them work from a business standpoint, is it legitimate? Because there's two types of ways that you can run a business. You can basically run what I think of as legitimate businesses, and then illegitimate businesses. And I think the legitimate businesses are the ones that when you spend money, you feel good, versus you're spending money because you feel like you have to. Because it's a difference there in the way you feel about the experience. One is it kind of makes you feel dirty. The other is like buying something that you really like. It's a different feeling. So I'd love to find a way to make it feel legitimate.

You mentioned that you consider yourselves the number one mobile social network, but there's some debate about it.

NY: Yeah.

Can you go into it?

NY: Well, I think the debate would just be, there are other companies out there that would say the same thing. And the question is just really, what are you measuring on? Are you measuring on global gross revenues? Are you measuring on market cap? Are you measuring on profit? Are you measuring on installs? Are you measuring on registered users?

I kind of put that up there [during the presentation] because we believe that. We believe that we are that. But we try to avoid the debate, for the most part, honestly. Because it's just at the end of the day, what really matters is we're trying to build a really, really big business, and try to help build a really big industry, and I'm sure that there's room for a few companies in that mix.

You say you avoid the debate. But what do you measure it by?

NY: So what I care about is, I care about registered users. I care about active users. I care about the percentage of those users that are actually paying money. I care very much about how we're doing in the top grossing charts. You know, I'm not really interested in doing a press release if we get into the top 10 downloads, because I know that that's not really a measure or mark of success. And those are the things I care about.

I feel good about where we are, and we haven't crossed any finish lines. We're not, "Yay, we're the winners!" And we've got a long, long way in front of us, but I do feel good about the progress that we're making.

When you say you want to be the best platform for developers and players, are those two goals one and the same? Are they intrinsically tied?

NY: No I think they're really different. They are connected, but I think they're very different. So DeNA, and actually Ngmoco before DeNA, has a set of values that are core to everything we try to do, and the number one value is delight. And it sounds very soft, right? "Oh, we want to delight our customers."

I don't know. That's Nintendo's goal, and I'm pretty okay with that.

NY: So what "delight" actually means when you break it down, for us, to delight your customers means to exceed their expectations, and to exceed their expectations you have to, one, understand who your customer is, and two, you have to understand what their expectations are. And if you think about the expectations of a developer, and how you exceed those expectations, and the expectations of an end user, a player, and how you exceed those expectations, they are two very different activities.

And so, for end users, for the most part it's really about giving them really great games. Games that they love, and that they really want. And a way to find other games easily, or play with other people easily, and the things not to get in their way too much, and to not annoy them too much -- to enable them to do things that they want to do easily, and effectively, and quickly, in a way where the platform actually respects them.

And for developers, they want a platform that makes their life easier in terms of actually delivering the software, or developing the software, or getting it in the hands of customers. And from a business standpoint, what they really need is, they need audience and they need monetization. And if you can give them access to audience at more scale for less cost, that's a thumbs up, and if those customers that they have access to monetize more effectively then another audience, then that's a thumbs up. So we would like for developers to have two thumbs up on our platform all the time. We could continue to work and improve on trying to do that.

When you talked, if I understood correctly, you will help with marketing on games made by external developers.

NY: Yeah.

How do you look at that?

NY: What we really look at is, we look at is lifetime value. It's actually very easy to establish and understand the lifetime value of a customer in a game, and then, the lifetime value of a customer in our platform, and the basic math of any free-to-play business is, you want to acquire customers for less than the lifetime value.

So for those games that have metrics that are in that realm, or close to that realm, we first help by, one, getting them to that realm -- if they're on the bubble, helping them get to next level. And once they're in that realm, then we work them to see well what marketing dollars, or what traffic can we deploy to help them really turn their business into something really big.

And so that's really how we look at it. Thee thought process is, very simply, "Let's partner with developers, build games that have a really high lifetime value, and then be willing to deploy lots of money marketing, if necessary."

Do you think about someone who has a really cool game? Is it really, like you say, a value proposition, or do you want to also just think about cool game ideas? There's always that sort of thing with free-to-play, where you wonder where on the spectrum these things fall.

NY: Well, we want both, right? So we want cool games, and we really believe that the industry's moving to, has moved to, will move to predominately a free-to-play business. And so we have to help developers make their transition where appropriate.

We don't always want just the highest monetizing games on the platform. We just want really good games, as gamers. But we're not really delighting anyone -- we're not delighting both our constituents -- if we just have great games that don't actually help the business interests of the developer.