The Top Mobile Games Are Grossing More Than 4X What They Were A Year Ago, GREE’s Dharni Says

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After a couple early stumbles in building out a mobile gaming platform in the West, GREE did a bit of a pivot with its San Francisco office over the last year. Initially set up after the $104 million acquisition of mobile gaming network OpenFeint, the office is now entirely geared toward building first-party games.

It’s a turnabout for the $3.5 billion Japanese gaming company, which built its business in astonishingly short eight years through being a major feature phone gaming platform. (Yes, eight years is short in Japan where the culture can be averse to risky, new entrepreneurial ventures.) They aimed to replicate that success as a dual game developer and platform in the West with a few big-ticket acquisitions. But now it appears that the U.S. arm is just doing games for now.

“We’re pretty singularly focused on content,” said Anil Dharni, GREE’s senior vice president of studio operations, in an interview from the company’s Mission Bay offices. “The platform — whenever it’s ready for the U.S. market — will get integrated later. The produce spirit and guidance had to happen from Japan.” Dharni was one of the co-founders of Funzio, which GREE bought last year for $210 million.

That change was a bit of a difficult one, with layoffs for several U.S.-based platform focused employees. More senior GREE managers who came over with the OpenFeint acquisition like Eros Resmini recently left to pursue other opportunities. It came around a tough earnings quarter for GREE, which saw net profit actually decline year-over-year on the back of a tougher regulatory environment around game mechanics in Japan.

Dharni said that all of Funzio’s four founders are still working at GREE. (That’s unlike what happened with OpenFeint, which saw its original CEO Jason Citron leave not long after the acquisition closed to work on other projects.)

“Even if you look at the attrition rate from the ex-Funzio guys, overall it’s gone really well,” Dharni said. “All four founders are here and they have pretty significant chunks of responsibility in terms of product.” Some Funzio employees were affected by the recent layoffs however.

Like many other game developers on the iOS and Android platforms, GREE is trying to prove that it’s not so vulnerable to the hits-driven nature of the business by having a network of users that’s so large that it can cheaply distribute games of its own or of other developers. Yet Apple is notoriously controlling of iOS. Even Facebook has had to effectively cede the growth of its gaming ecosystem’s revenues to Apple as players migrate from desktop computers to smartphones and tablets.

This will be a huge challenge for GREE’s platform efforts back in Japan. Can they offer something above and beyond what iOS already gives developers in terms of marketing and monetization that would be worth giving up extra revenue share?

Dharni said, “We feel like platforms in general on mobile can be more or less a commodity and we are looking to see how we can make ours very unique.”

That said, the developer-only route isn’t a bad one as iOS has become more lucrative over the past year.

“It’s 4X and beyond in terms of revenue [compared to a year ago],” Dharni said. A major contributor is the emergence of the iPad as a gaming device, something that other developers like Supercell have said is a huge part of their financial success.

Dharni said that GREE’s Japanese leadership, which have spent years fine-tuning the freemium gaming model back in Japan, helped the U.S. team better understand how to run games as a service.

“While we had been running live games, we weren’t running them at the depth at GREE was,” he said. “What that means is creating new fun and engaging content on a daily or weekly basis. You want your players coming back every week to check what’s new. We conceptually understood this, but didn’t see the extent to which it improves our metrics.”

Android is still lagging iOS on per user monetization, but Dharni said, “We feel that Android is going to grow faster this year.”

Facebook, the platform where Funzio started, may also re-emerge this year as an important way for developers to distribute their work on mobile platforms.

“Overall, it’s still too early to say but some of the test results that are coming in are pretty good actually,” Dharni said. “The ROI is definitely there. It will definitely become one of the top channels for user acquisition long-term.”