When Japanese gaming and mobile giant DeNA announced earlier this week that it would buy its Western counterpart Ngmoco for up to $403 million, the social and mobile gaming industries sat up and took notice. While DeNA itself is hugely profitable, the Japanese market is far more developed than the US, and Ngmoco itself is just starting to make serious revenue.
More details on the deal have been emerging throughout the week, including breakdowns of the money ($146 million in stock, $27 million in warrants and $128 million in cash, plus a potential $100 million earnout) and interviews with Ngmoco CEO Neil Young giving background on Ngmoco’s revenues and future plans.
Below, we talk to Tomoko Namba, the CEO of DeNA Global, which is the US subsidiary of DeNA that led the acquisition.
Inside Social Games: Most people commenting on the acquisition have said that DeNA paid too much for Ngmoco. How will you recoup the investment?
Tomoko Namba: Ngmoco has, I think, four great things. One is the core ability to come up with great social games on smart phones. Second, the Plus+ network is a great network for social games.
Third, and this isn’t well known yet, is the Ngmoco game development engine that enables developers to deploy or develop social games for iOS or Android with one source-code set. Multi-platform is really the key, crucial strategy for us, because when it comes to social games, you don’t want to be restricted to just iOS or Android users. You want to be able to communicate and play with your friends.
Fourth, what’s really fundamental is the management. It was a pleasant surprise when I talked to Neil this summer. We’ve come to share the same vision for the smartphone business. You just can’t find any other company or player that already has these four things that we were looking for. People can say it’s an expensive deal, but I think it’s the perfect fit for us, and I’m really fired up. Within a year, people will look back and say this was a great deal that enabled DeNA to become the global leader.
ISG: You own 20 percent of OpenFeint, but as you mentioned Ngmoco has its own Plus+ network that you plan to turn into an Open Mobage development kit. Are you now competing with Aurora Feint?
TN: Plus+ and OpenFeint might be in competition. We’re just a passive investor in OpenFeint, and we’re making Plus+ a central part of our strategy.
ISG: How important was Ngmoco’s in-house development engine to the acquisition?
TN: It’s still under development. We’ve taken the prototype, and we really liked it. I think it was the single biggest reason that we acquired them. The engine allows you to develop a game with one code for iOS and Android. That’s essential.
ISG: What will [Ngmoco CEO] Neil Young do at DeNA?
TN: Of course I’d like Neil to run Ngmoco, but in addition I’d like him to join our top management. I need his proactive participation in global strategy development and execution. DeNA is mainly going to be leading the Eastern part of the world. Neil is going to lead the Western part, in terms of strategy and execution. Of course, we’ll make joint efforts.
ISG: Which international markets look attractive, beyond the US and Japan?
TN: Of course in the Western hemisphere, there are the US, South America and Europe. In the Eastern world, China and India. For the Western part of the world, if we deploy services in the US, it easily gets to the other areas.
The Eastern part is more fragmented. We’re in Japan but we’ll have to develop a new set of services for China, and that won’t be accepted as-is by the Indonesian market. There’s a lot of localization effort involved. We need to prioritize, and our priority right now is China for the Eastern world.
ISG: How important is Ngmoco’s publishing business? What about DeNA’s? How much room is there for external developers?
TN: DeNA’s focus is really the platform. We’re not a social game development company, we’re a virtual community. We’re developing games in-house to enrich the platform. As the platform developer, it’s more important to invite outside developers.
ISG: Will you have a version of Mobage Town for the Western market?
TN: I think we still have to get together and examine what elements to port into Plus+. My hypothesis right now is that I’d like to make Plus+ stronger by enhancing the community functions,
ISG: Is free to play the right model for mobile worldwide?
TN: I think so. There are some payment collection service limitations, depending on the market, but that’s the way to go. We’ve been trying various models and observing it in the US too. Freemium with virtual goods sales is the way to go, although there’s much potential for advertising too.
ISG: Where do you see DeNA in two years?
TN: By 2014, DeNA wants to have $4 billion in revenue, 50 percent in Japan and 50 percent in the rest of the world. This is not a formal announcement of a plan, but what I aspire to is a $40 billion market cap company, four times bigger than today. The essential elements that we talked about are what’s necessary to do that. That’s my personal aspiration.
ISG: And what should other companies expect over a shorter time period — say, three to six months?
TN: We’d like to polish the engine and the platform — maybe that will take us three months or so — and open it with a stronger platform and engine, then we’ll welcome the third parties. That’s what I have in mind, but Neil and I will get together soon to come up with a realistic plan, so it may end up taking even less time.