Interview: Behind The $400m Ngmoco-DeNA Deal

Ngmoco chief executive Neil Young is good at staying ahead of trends. The former Electronic Arts executive co-founded the mobile studio in July 2008, the same month the App Store launched and just ahead of the iPhone gold rush. The studio saw early commercial and critical success with iOS games like Rolando, but it soon became clear to Young that in order to become a "company of consequence," more had to be done. Long story short, Ngmoco adopted the free-to-play business model, created games that were more social, witnessed a steep rise in revenue and, this morning, revealed it had been acquired by rapidly-growing Japanese social game company DeNA for $400 million. "In summer last year we made the shift to free-to-play games, and that really made a huge difference to our business as we transitioned from monetizing downloads to monetizing usage," Young told Gamasutra in a phone interview. "When you monetize usage, you realize it's really about building sustainable relationships with customers, which is not entirely dissimilar from operating and running a service." Key to that service-based model is Ngmoco's Plus+ Network, a social networking, game discovery, and multiplayer gaming service. Combined with the free-to-play model and a knack for delivering fun games, Ngmoco saw dramatic changes in its business. "It inflected our revenues radically," he said. "We reached that conclusion [to go service-based] because for us, for the scale of company that we're trying to build, we didn't feel like like it was possible to build a company of consequence focused on building 99-cent applications. So our shift was to disconnect ourselves from monetizing downloads and connect ourselves to monetizing usage." He explained, "When you monetize usage, you not only give yourself more mechanisms to be able to generate revenue, but you also change the profile of that revenue. You're not only making money when the game is in the charts. You're making money when people are playing the game." Games need longer shelf lives and superb player retention in order to support that model. "That learning has been vital for us to put us in the position that we are in today," Young said. Disrupting Packaged Goods Young worked on major packaged games while at EA, overseeing development of titles in the Medal of Honor, Command & Conquer and Lord of the Rings series. His departure in 2008 from the retail-based market -- and his entrepreneurism in the digital space -- could lead one to believe that he foresaw the current declines in packaged video game sales. Asked if he believed that emerging social and mobile game models have officially disrupted the packaged goods industry, he said, "Yeah, I would say so. Look, at the end of the day, entertainment is a trade for time, and social games and social mobile games are occupying a lot of time." Young said that, in aggregate, Ngmoco's users are playing its games, including We Rule, Word Fu and Touch Pets, over 50 million minutes per day total. "That's a pretty big number, considering that today [our games] are only living on iOS devices. Those 50 million minutes are coming from somewhere -- they're either coming from television, they're either coming from living room games or they're coming from other handheld games," he said. Matching DeNA Young said he's known DeNA CEO Tomoko Namba for about a year-and-a-half, but acquisition talks only began in earnest earlier this year, as Ngmoco sat down to observe the social network and mobile trends in Japan. "We started adapting our strategy to essentially strive to become the Western DeNA," said Young. But then Young says he saw no reason not to consult with DeNA itself. Talks of a business partnership made the two companies realize that their visions and objectives are "tightly aligned," and an acquisition was in order, Young said. "We already knew the DeNA people were not your typical Japanese company. They're very entrepreneurial, they're a lot like us. They're great people." "They have gone through the growth curve that we are going through, and have experience in successfully navigating through that, so whenever you have the opportunity to accelerate your own learning in partnership with someone else, that usually leads to a good outcome," said Young. In April, DeNA partnered with Yahoo! on the Mobage social games platform, which allows for easier delivery of overseas social games into the Japanese market across both PC and mobile platforms. Yahoo! Mobage provides services such as translation, hosting and monetization resources to developers, and this year, DeNA was inviting American PC and mobile game developers to use a universal Mobage platform API to distribute their games to the Japanese market. DeNA's continued acquisition of Western companies gives the company a better foothold in overseas markets. The same goes for Ngmoco, and that overseas cross-pollination is a key part of the relationship, Young said. "The Japanese social mobile games market is pretty vibrant. DeNA is on track to generate $1 billion in revenue, they have a $4 billion market cap," he said. "[The partnership is] not just to bring our titles to the Mobage Town network, but also be able to provide a framework and a platform for other Western developers to be able to access that market with their applications." Young said that his company would be taking the open Mobage API and combining it with Ngmoco's technology, which will allow the developers to create "native-quality applications inside a game service" that have the dynamics of a web application. Together, the tools would provide a unified developer SDK. "So if you're a Japanese developer and you want to access traffic in the West, you can target that platform. If you're a Western developer and you want to get carried on the Mobage platform, you can target that platform... and touch tens of millions of customers." Ngmoco is now turning its sights increasingly to the Google Android market, which has yet to see the massive uptake of Apple's iOS in the game sector. But Google, mobile carriers, and game developers are working on building that business. Young said simply that Android will gain ground on iOS as soon as more "great games" come to the platform. "Now it's time for developers to deliver superior products on the platform, and deliver them in a way that customers can actually find them," he said. "We think that our strategy, and in particular our strategy and partnership with DeNA, will offer developers a really unique way to be able to reach those customers."