GREE Japan
Social gaming Japan

Conquering new markets for Japanese gaming giant is difficult even with home success.

Major Japanese mobile social gaming company GREE was forced to revise its annual financial projections downward, following the release of its worse than expected second-quarter earnings report. Increasing costs and slowing overseas sales were given as the main reasons behind the poor performance.

Sales indeed decreased by 5% year-on-year, bringing in only JPY 39.4 billion (USD 420 million), while operating profit plummeted by 37% during the same period.

Coming at a period of GREE’s aggressive European and American expansion, as well as increasing restrictions on online gambling at home, the unremarkable performance may just be a temporary bump in the road for the company according to many analysts.

GREE has invested heavily in acquiring small game developers in the U.S. and has been working hard to establish a strong market presence and local appeal. The company’s strategy has been mapped out with the clear expectations of mobile and casual gaming taking off on a large scale.

Unfortunately for GREE these expectations have not yet materialized to the extent that would be necessary for a solid financial performance – which is not to say that it won’t happen. But it is clear that automatic and immediate success in foreign markets is far from guaranteed by success in Japan.

For it is undeniable that mobile and social game companies have had an excellent track record in Japan, giving them every reason to be hopeful about their chances in other markets. But we have seen that in the US even home-grown businesses like Zynga have had to take a step back to re-evaluate their positions and come up with smart strategies to survive.

While working to open new markets, GREE was also hit by domestic regulations impacting its business model. While most social games sell virtual items for real money, the Japanese version (called “kompu gacha”) is more like a prize vending machine, whereby paying small amounts of money yields random items.

Kompu gacha offered players valuable grand prizes for collecting sets of random items, but the odds – and costs – of gaining these prizes raised quite a few eyebrows, until the authorities eventually forbid the practice, claiming it was way too reminiscent of mobile casino gambling.

While re-structuring its in-game monetization model at home, GREE is also pushing ahead with new titles and marketing in the West, relying on both Android and iPhone mobile gaming platforms to attract a large customer base eager to play. The strategy may well work out.