How DeNA Beats Facebook and Zynga

DeNA logo
Do you think Zynga is the hot player in town? Think again.
At yesterday’s DeNA press conference, Founder and CEO Tomoko Nanba gave some great insight behind the seemingly unstoppable success of her company.

An incredible ARPU

With 20m users in Japan, Mobage Town, the social gaming network could be considered a small player compared to the 500m+ users Facebook boasts worldwide or Zynga’s 210m active users (according to AppData). But when it comes down to the average revenue per user (ARPU), the picture is very different.
A whole lot different.
Mobage Town just dwarfs both its international competitors by an incredible margin. Its ARPU is 15 times the one of Zynga. Yes, fifteen times. And -wait for it- 30 times the one of Facebook.

Source: ITMedia

Real billions

You can now tame down you excitement regarding Zynga being valued more than Electronic Arts (the estimation game puts it a USD 5.5bn).
DeNA’s current market cap is over USD 4.2bn. Not in a estimation game, but now.
2009 saw DeNA’s make USD 500m in revenue, with a profit of 228m (that’s a staggering 44%).
In Q1 2010, the company announced almost USD 280m in revenue with around 140m in profit (an even more staggering 50%).
Make the quick calculation: DeNA is on track of the magic 1bn number and more for the end of the year.
With “only” 20m users.

Social Graph v. Virtual Graph

Now, I used the word competitor earlier for Facebook, but Nanba doesn’t think it is really one. She mentioned how Mobage Town and Mixi are peacefully co-existing in Japan. The latter is based on the social graph, a la Facebook, while her company is skewing towards what she calls the virtual graph.
I guess we could differentiate the two out of the nature of relationships that are created through the online experience: mostly mimicking the physical graph one on hand, while creating a totally new one on the other.
Nanda is betting that that virtual graph is the future of the mobile gaming market internationally as well, hence the decision to go and buy ngmoco last month.
At USD 403m, I’d say she made her point.
Her idea is that DeNA will bring its know-how and the virtual-based communities western social gaming is in dire need of to grow.
To get an idea of that possible know-how, let’s go back into numbers and look at the revenue segmentation. 78% is coming from what she calls social media. I preferred the older name: portal marketing. It better qualified what it encompasses: item billing, moba-coins acquisition & in-game advertising. Add 12% of avatar-related sales and you basically have 90% of the company built upon virtual goods.
Can Zynga say the same? I bet not yet.

2014 in sight

Nanba is slowly completing the full puzzle.
She has the keitai world covered. She’s racing to enter the smartphone world abroad (she called the iOS/Android application the greatest current business opportunity in her speech). She’s bringing the Mobage Town on smartphones in Japan soon. She has a foot in the US. A foot in China. An investment arm for new disruptive ventures. And she finally has the japanese PC world covered.
Yes, for a company that failed on the PC front for long, the bonus in the story is the relative success of its Yahoo! Japan joint ventureYahoo! Mobage Town. Officially opened not even a month ago, membership has rocketed past the 8 million mark.
The financial goal of all this?
400 billion yen in consolidated sales for 2014. That’s more than 4 times the USD 1bn I made you calculate above.
Honestly, Nanba’s prediction is entirely realistic to me.

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Paul Papadimitriou

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