The Japanese mobile social gaming space has experienced quite a rollercoaster ride over the past week or so. It was one week ago today that GREE (TYO:3632) acquired game developer Funzio for the astounding sum of $210 million dollars. Its rival DeNA (TYO:2432 ) was ostensibly also feeling pretty comfortable in its fancy new digs with a top grossing Android title under its belt in Rage of Bahamut [1].
And then the proverbial poop hit the fan this week when a weekend report about a practice called ‘Kompu Gacha’ (which is used in GREE and Mobage games as well as those of other companies) indicated that Japan’s Consumer Affairs Agency saw it as a violation of law [2]. Kompu Gacha encourages players to buy a series of items, promising the possibility of later winning a very rare prize.
On Monday in the wake of this report, the stock of GREE, DeNA and many other companies (including Konami, CyberAgent, and Bandai Namco) took a collective nose dive to the tune of $3.8 billion in market cap. Serkan Toto, as usual, is providing great commentary on this space, noting yesterday that GREE and DeNA stabilized yesterday, only to dip again today, GREE taking the worst of it, dropping 9.64 percent.
In the middle of all this, both GREE and DeNA have released their their financials for the third quarter over the past two days, showing that the two gaming giants are – if nothing else – making crazy amounts of money. DeNA’s quarterly net sales totaled $529 million (up 32 percent on the same time in the previous year) while GREE’s net sales were $580 million (up 182 percent from a year before) [3].
So what about Kompu Gacha? Both companies are reportedly going to back away from the practice. DeNA’s president noted in an earnings briefing that the company is to gradually phase out Kompu Gacha from Mobage Games. When we got in contact with DeNA directly this evening, a representative essentially pointed out that its business is far from a one-trick pony:
Social games are not finished products but services. So even if we are to phase out complete gacha, we can implement many other types of in-game events and game mechanics, and we have the know-how.
Late this evening, DeNA also released a note on its website saying that the consortium including itself and GREE, as well as NHN, CyberAgent, Dwango, and Mixi have all agreed to phase out Kompu Gacha by the end of the month in titles they develop and operate.
Personally, I can’t help but wonder if the Kompu Gacha mechanism is such a lucrative practice, will we see it turn up in many games outside of Japan? And will other countries struggle to regulate it as well?
For us here on the sidelines, it’s certainly more than a little confusing to watch this drama play out. Both GREE and DeNA are in the process of expanding their businesses abroad, and it will be interesting to see if they can translate their respective successes, or if either over-extends their capabilities.
[Image: matome.naver.jp/odai]
- See my short review of Rage here. ↩
- Note that as far as I know, the CAA hasn’t actually decided anything on Kompu Gacha yet. Though a Nikkei report on Monday cited the CAA as saying that an investigation was taking place. ↩
- See GREE’s quarterly report here. Note that the $580 billion figure was calculated with the exchange rate at the time of writing from 46.189 billion yen. DeNA’s full third quarter report is here. ↩
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