GREE Inc.
INTRODUCTION
Gree is mainly a social game developer company that has dominated Japan’s social gaming market. Initially, Gree had developed games on social networks for PC-based play, but by 2008 it had turned its full attention to social games for mobile phones. Gree had been very successful in monetizing mobile social games. In 2012, its average revenue per user was estimated to be more than four times higher as compared to Zynga’s, the dominant developer of games in the US.
Gree’s success in Japan had been built on two main pillars: the popularity of its in-house games with users and the popularity of its development platform that it offered to third-party game developers. Gree began its international expansion in late 2010, intending to leverage the same two assets in order to achieve success in global markets.
MAIN PROBLEMS AND THEIR SYMPTOMS
The company is currently facing three main problems (refer to Exhibit 1);
First one is, the competitive landscape in mobile social gaming is far more complex and challenging in international markets than in Japan. Gree had to contend not just with a slew of game developers focused on global mobile platforms but also with the mobile platform providers themselves. The management had to decide whether the company’s international strategy should rely primarily on developing great in-house games or on maximizing adoption of Gree’s platform by external developers. The platform could provide additional revenues and a safeguard against the onslaught of many other game developers that were ramping up their investments in mobile social games. On the other hand, being in the platform game was equal to competing with international platform players like Apple, Google and Amazon. This places Gree on a potentially dangerous position, since both its games and its platform relied on Apple’s iOS, Google’s Android and their App stores.
Secondly, it had to convince its investors that Zynga’s rapidly declining market value did not apply to Gree.
Thirdly, it had to alleviate investors’ concerns that its revenues in Japan would not be severely affected by a new regulation prohibiting the excessive use of “Kompu gacha”, a type of in-game mechanism that induced users to spend more time and money on virtual goods. On May 18, 2012 concerned about the risk of undue addiction to social games leading to overspending on virtual goods, Japan’s Consumer Affairs Agency deemed the practice a violation of the Law for Preventing Unjustifiable Extra or Unexpected Benefits and Misleading Representation. As a consequence of this regulation the stock price of Gree dropped by 23 percent. The drop in revenues was almost 13 percent. In this context, Gree’s leaders had to convince their investors that the new law would not significantly impair the company’s ability to monetize social games in the long run.
Another problem that Gree is facing is that it’s offering required significant localization. By July 2012, Gree had already established nine subsidiaries around the world, each building its own local game development team in order to best address local consumer preferences. Most of Japan’s successful companies were in the area of products, which were mostly designed and developed in Japan but these were absent in the arena of services and software. In this arena, the major part of consumer value came from the ability to adapt products to local consumer preferences.
PROBLEM STATEMENT
Thus the main problem statement for the given case can be;
Whether the company’s international strategy should rely primarily on developing great in-house games or on maximizing adoption of Gree’s platform by external developers.
GREE INC.’S KEY CAPABILITIES AND RESOURCES
Gree has following main capabilities and resources, which may help it in gaining domestic and international market share (refer to Exhibit 2).
Platform for External Game Developer:
In February 2010, Gree decided to open up a platform for external game developers. Gree’s platform enabled third party developers to leverage Gree’s user data and software development tools in order to provide Gree’s games over 18 million registered users.
Before opening up their platforms, Gree had only four in-house games. Given limited game-development resources and registered users in excess of 10 million the platform strategy gave Gree large additional growth and revenue potential.
Gree’s platform offered two key benefits to external developers. The first was lower development costs achieved by using the application programming interfaces (APIs) and software development kit (SDK) provided by Gree. The second benefit was the enhanced ability to attract, retain, and monetize users. In 2012, Gree’s platform had reached more than 230 million registered users of mobile social games globally, making it the world’s leading mobile social gaming community.
Advertising:
Gree has an effective advertising strategy. In May 2008, Gree began to advertise on national TV. Over the following year, it spent JPY 300 million on TV commercials. The combination of social games based on in-depth customer research and aggressive advertising became a recipe for growth.
Gree also established an internal model that it used to calculate the expected profitability of advertising through various media channels. Gree recruited marketing and advertising experts from ad agencies and developed sophisticated marketing methodologies to reduce costs and improve effectiveness. The development of such a system was possible because Gree’s social games were provided via internet connected mobile handsets. Interested users after TV commercial immediately downloaded the advertised games within seconds.
Gree could also analyze aggregate data from user profiles such as region, gender, time of access and associate each user acquisition with the relevant advertising program. The data allowed Gree to develop a precise model of return on marketing investment and it modified the TV commercials’ content, timing and frequency accordingly. Gree competed for prime time TV advertising slots with large advertisers like Toyota, Kao, P&G and Coca Cola Japan.
Experience:
Another resource of the company is the experience it had in analyzing user behavior and improving game design accordingly. Due to its early financial constraints, the company had been under pressure from the beginning to systemize the process of developing and operating successful games. In contrast to console games; mobile games can be continuously improved. Gree’s engineering team generated ideas for in-game events that increased user engagement and developed ways to advertise new games along with events within the game. Game directors and management team continuously analyzed key performance indicators that revealed what had to be improved in order to increase user traffic and revenue.
Management and Operations Team:
Gree has a dedicated team specialized in mathematical modeling and data mining, consisting of experts with PhD degrees from prestigious research universities. They analyze several hundred gigabytes of data and developed tools to understand the implications of the data. Most of the Gree’s staff including the sales people can use their analytics tools and obtain the data they need. They develop various hypotheses regarding new functions and services with we cab empirically test along with its validation by means of data.
Gree’s different game teams competed against each other to improve key performance indicators. They shared ideas and helped validate the methodology...................
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