The Japanese art of monetization; An aging games studio called Gungho, which had a hit with Puzzles and Dragons for iOS and Android, and is creeping up on GREE in terms of revenue and market cap, and is actually above Zynga, at $2.3 billion based on only 8 million monthly active users. Gungho did not use social for distribution, the game succeeded just the on power of the app stores and TV ads.

The Japanese art of monetization

BY TOM LIMONGELLO 

ON MARCH 7, 2013

You can learn a lot about your company from usage behavior in Japan. Just like the Japanese language has a system for incorporating foreign words, when Japan latches onto particular Internet services like it did with Yahoo and Twitter, they become so important and widspread that they take on a trajectory all of their own.

In the case of Twitter, for instance, Japan found mass adoption faster than the US did. In fact, it still holds the highest Tweets per second record for New Year’s day. Within a short time of setting up shop at Joi Ito’s Digital Garage, Twitter made Japan its testing ground for new features and monetization strategies.

Japan is not nearly the largest market in Asia, but with 128 million people, 40 million of which live in Tokyo’s metro area, where strong 3G & LTE networks, tons of carrier WiFi & WiMax access and high incomes are pervasive, you can’t find a better place to test the logic of an internet business. Japan, unlike China, does not block the most successful companies from abroad. Rather, Japan’s internet border is porous. As long as the service’s simplicity prevails over the language barrier, usually the best service wins.

In Osaka, when you say hello you’re asking “Have you profited?” What needs to be stressed here is that in Japan, the internet  – whether desktop or mobile — is a business. Recently, when Facebook declared it had 19 million monthly active users in Japan, it was considered a victory over the legacy Japanese social network Mixi. But Mixi’s valuation peaked with it’s $3 billion IPO in 2006, and neither Facebook nor Mixi have been “winning” in Japan because they were only creating usage and not revenues. Zynga Japan, which came from a US/Chinese company acquisition, recently closed its offices, and neither company has been a pioneer of advertising, in Japan.

The difference in Japan is that there was no period where mobile was unmonetized. They had internet businesses on feature phones, dominated by gaming. It’s true that Japan’s feature phone market slowed its adoption of smartphones, which is why when I used the word “mobile” this past week Japanese colleagues winced, and why the mobile advertising market is still behind the US in terms of sophistication.

The mobile business in Japan started in the 90s with NTT Docomo’s feature phone platform, and two internet powerhouses DeNA (pronounced D-N-A, and who acquired the iFund company ngmoco andGREE together reigned over the feature-phone social gaming segment. Both companies are larger than Zynga yet unfettered by Facebook’s social graph because they had their own social networks. Now, as iOS and Android proliferate, DeNA and GREE no longer are the gatekeepers. However, splitting social and gaming was key in bringing a new balance in internet business.

In the last year, an amazing thing happened. An aging games studio called Gungho, which had a hit with Puzzles and Dragons for iOS and Android, and is creeping up on GREE in terms of revenue and market cap, and is actually above Zynga, at $2.3 billion based on only 8 million monthly active users. Gungho did not use social for distribution, the game succeeded just the on power of the app stores and TV ads.