China

Social Gaming Market Entry Study

Analysis and comparison of Japans GREE and DeNA strategies July 2011
By Alexei Poliakov (analyHca1st.com)

China Market Strategy: GREE vs. DeNA

China Oce Strategy Overview Product
Social networks
Opened oce in Beijing in 2011 in order to be strategically close to its partner Tencent Enters China through partnerships. Leverages partners exisHng distribuHon channels. Focus on spreading its OpenFeint plaUorm among developers rather than building a user base directly. Taps into local developer talent to source hit game Htles for its Japan operaHons. PosiHons itself as a mediator between China and Japan markets to maximize distribuHon and moneHzaHon for both Chinese and Japanese developers. - Localized version of OpenFeint, a mobile social gaming plaUorm (a.k.a. Gree PlaUorm for Smartphone) Localized games from Japan Strategic alliance with Chinas biggest social network Tencent (~600m users) to enable the ow of games between China and Japan and expose Gree PlaUorm for Smartphone in China.

Distribu9on Partners
Developers
Partnership with online game developer and operator The9, who launched OpenFeint- powered The9 Game Zone service and who has R&D sta of 300 for in-house development. With The9 launched the $100m Fund9 to fund games that move from iOS to Android. Will co-invest with Tencent in local developers to encourage the adopHon of OpenFeint in China In He-up with local partner NetDragon, who is listed on HK Stock Exchange and operates mobile app store 91.com. NetDragon will use DeNAs Ngcore engine to develop games. In late 2010, put approximately $12m in two funds co-operated by Japans Cyber Agent Ventures and JAIC to invest in small third- party developers from China

Mobile Operators
Will leverage The9s exisHng relaHonships with leading operators. The9 is reported to be developing a mobile gaming plaUorm along with three operators.

Handset Makers
Reportedly in talks with some vendors but no announcements so far.

GREE

In Shanghai from 2006

DeNA

Direct entry in 2006 and M&A entry (acquisiHon of leading at that Hme SNS TianXia) in 2009 didnt pay o. In 2011, changes strategy by nding local partner to build local user community and spread Ngcore social gaming engine among developers. Makes investments in local game developer companies.

- - -

Ngcore social gaming engine Social network built on top of 91.com (mobage.com.cn) Localized games from Japan and games developed in China

Operates mobile SNS TianXia with 12m registered users. Builds a social community on top of 91.com (91Game PlaUorm), a mobile app store operated by NetDragon

Relies on NTT DoCoMos introducHons to mobile operators.

Announced a He-up with Samsung to pre- install Mobage app on vendors smartphones worldwide, including China.

SWOT Analysis: GREE vs. DeNA

GREE
Strengths
Strategic alliance with Tencent LucraHve high-ARPU user base in Japan (alracHve to Chinese game developers) War chest to fund expansion plans Localized version of OpenFeint is ready (The9 has a ve year license deal)

DeNA
Strengths
Long presence in China (learned from its own mistakes with TianXia) TianXias exisHng 12m user base Considerable degree of control over the distribuHon High-ARPU user base in Japan (alracHve to Chinese game developers) War chest to fund expansion plans Tie-up with Samsung

Weaknesses

Partnership with Tencent is not exclusive and can be copied by rivals No direct control over the distribuHon channels Small knowledge about and experHse in China Non-existent sales force Focus on smartphones leaves out of picture the large feature phone and PC segments Reliance on intermediaries to deliver the product risk of exposure to potenHal shins in power to the channel Rival mobile social game plaUorms Slow execuHon of its strategic alliance with Tencent

Weaknesses

Lack of iniHal partners the caliber of Tencent Low brand awareness of mobage.com.cn among Chinese users Focus on smartphones leaves out of picture the large feature phone and PC segments

OpportuniHes

AdopHon of OpenFeint by Tencent (lock-in) Rapidly growing smartphone market Booming digital goods market

Threats

OpportuniHes

Going directly to end- users by building own social networking service Booming smartphone and digital goods markets

Threats

Rival mobile social game plaUorms SubstanHal investments to build business from scratch can be lost due to bad execuHon

RecommendaHons / Possible Scenarios

GREE DeNA
Gepng developers on board with OpenFeint is key to success for Gree in China. In addiHon to leveraging Tencent and The9 partnerships to full potenHal, Gree should spread the adopHon of OpenFeint across the rest of value chain. For example, co-market Gree for Smartphone PlaUorm on mobile operator and Android smartphone makers developer portals (oering localized SDK and tutorials for download, organizing developer events and workshops). Hiring local sales and markeHng sta is another opHon to consider. Gree should streamline API, billing and localizaHon issues in order to start benepng from He-up with Tencent (the process should be seamless for developers and automated as much as possible). For example, integraHng MyGengo API for rapid localizaHon of games. Gree should outsource some in-house game development to China (Capcoms case should serve as an example) DeNA should merge or direct remaining trac from TianXia social network to its new venture mobage.com.cn DeNA needs more distribuHon/ promoHon He-ups in China to catch up with Gree-Tencent alliance Japan with its high-ARPU users is very alracHve market for Chinese developers; DeNA as well as Gree should oer streamlined billing, adverHsing, analyHcs and localizaHon soluHons to enable painless distribuHon and moneHzaHon of Chinese games in Japan without the need for developers to establish a presence in the country (Chinas Rekoo is a good example of success in Japan but they had to branch out to Japan to take care of all the issues). DeNA should oer Chinese game developers distribuHon on PC-oriented Yahoo! Mobage service in Japan in addiHon to mobile-only Mobage as a dierenHator from Gree (many Chinese developers target Facebook and, thus familiar with social PC game development) DeNA should boost its investments in local small third-party developers to win more supporters for Ngcore engine.