The significance of Japanese mobile gaming firm DeNA’s $400m deal

For anyone who needs reminding of the growing significance of smartphones and the importance of Asia, look no further than the hugely significant $400 million plus deal that will see Japanese social gaming firm DeNA buy US mobile game developer ngmoco.

With Japan’s mobile content market tipped grow 12% to $17.3 billion this year the deal follows a succession of partnerships and acquisition which have seen the likes of Crowdstar and mobile-gaming giant Zynga enter the market.

The DeNA deal is evidence of a change in markets and emphasises the growing significance of mobile gaming, and the iPhone in particular, as he Wall Street Journal (subscription) explains in this write up of the deal. Key excerpts are below.

Japanese social-videogame developer DeNA Co. said Tuesday it plans to buy ngmoco Inc., a U.S. developer of gaming applications for smartphones, for as much as $403 million.

DeNA is Japan’s largest provider of simple videogames played on mobile phones. Ngmoco, a start-up based in San Francisco, develops games for Apple Inc.’s iPhone and iPod touch. DeNA also plans to start making games for handsets using Google Inc.’s Android operating system this year.

The deal underscores the meteoric rise of the social-gaming industry. Companies offering simple and free videogames played on websites such as Facebook or on mobile phones are hogging leisure time, posing a threat to traditional videogames created by developers for dedicated game machines.

And on the rise of smartphones, particularly the iPhone, and their importance and influence over the gaming market.

The deal is also a sign of how quickly Apple has emerged as a powerhouse in the games market, where the iPhone and iPod touch in the course of three years have become credible challengers to the dominance of Sony Corp. and Nintendo Co. in handheld gaming. Ngmoco was co-founded by a veteran from traditional videogames publisher Electronic Arts Inc., Neil Young, and was one of the first start-ups to focus entirely on iPhone games.

Traditional videogame makers have experienced lackluster sales this year, with U.S. sales off 8% from a year earlier to $8.37 billion through the end of August, according to market-research firm NPD Group Inc.

Meanwhile, social-gaming revenue is expected to rise at an average rate of 45% a year to over $3 billion in 2012 from $1 billion in 2009, according to estimates from investment-banking adviser GP Bullhound.

The size of the deal is significant too, it is not the time a mobile games developer has been purchased this year, but the size and that an Asian company is purchasing a US firm in such a landmark deal raises eyebrows.

The move suggests DeNA is keen to expand its target market beyond Japan after initialing launching a “a social network for the iPhone based around games and avatars that targets a global audience back in May earlier this year, as reported by TechCrunch.

But before the world’s gets carried away, a word of caution from the excellent Japanese tech blog Asiajin, where Paul Papadimitriou first explains that the deal is more than just iPhone gaming before asking whether the ambition global plan can be a success:

The company plans to integrate Ngmoco’s social platform which plays nicely with both iOS and Android phones. Read that again. Or read this from the founders:

“ngmoco will lead DeNA’s efforts in the Western world, including launching a new western smartphone version of the incredibly successful Social Games Network, Mobage (we say “Mo-ba-gae”) that we’re building together with DeNA.”

DeNA is smart. It’s talking about OpenMobage, a platform. iPhone, Android, keitai. That’s key. If the company is able to create such a thing on mobile -think how Zynga used Facebook’s platform for its growth-, then it has a shot at being very successful.

And remember, the company’s revenue estimates for this year are about USD 1bn. That’s as much as Facebook. Good firing power, heh?

“Becoming the premier [global] social gaming company appears extremely feasible”

I want to believe Tomoko Namba, DeNA’s CEO. Really. But the list of Japanese tech companies that have successfully ventured abroad is dramatically short. Last time such noticeable investment happened was more than 5 years ago when Japanese mobile content giant Index Holdings bought Seattle-based Mobliss and 123 Multimedia. Or, closer to the numbers we’re talking today, when For-side bought iTouch, a mobile content provider.

Right. No one remembers.

Hence, only one name comes to mind. Rakuten.

Its acquisition of Buy.com for USD 250m -with a relatively weaker yen- is too recent to pass any judgement. But it’s one story that will allow us all to judge how Japan will do abroad this time.

What will it be?

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