Q&A with ngmoco founder Neil Young

Earlier this week, I was lucky enough to spend a few minutes discussing the exploding mobile gaming market with Neil Young, an Electronic Arts veteran who co-founded ngmoco. A mobile social gaming company with one of the more successful exits of 2010, ngmoco was acquired by DeNA in October 2010 for $400 million. Now, hand in hand, the two companies are poised to launch a global mobile gaming network that could be the future of entertainment.

 

Let's start at the beginning. Tell us about the genesis of ngmoco and your original vision for what the company would become. 
 
I left Electronic Arts and started ngmoco in the summer of 2008 because I fundamentally believed that devices like the iPhone and the mobile operating systems that powered them would eventually be in the pockets of billions of people. They had this unique blend of usability and capability that changed how people used them and how much time people spent with them.
 
Before, mobile games had never been interesting to me. The types of products and the way you built those products were both particularly uninspiring, and the companies who built the products were more like factories and less like creative organizations.
 
That really changed for me when I got my first iPhone and recognized that my usage patterns were changing. When Steve Jobs announced the App Store and SDK, I called up my founding partner, Bob Stevenson, and said, ‘We should do this.’ Our aspirations, at the outset, were not just to build a mobile gaming company, but to ultimately build a future entertainment company that would last longer than we did.
 
ngmoco was purchased for $400 million in October 2010 by DeNA, a decidedly mobile gaming-focused company in Japan. Do they share your aspirations of growing beyond games?
 
They have other businesses, but the core of the business is a mobile games and entertainment site called Mobage-town. It’s probably best described as both the social network and the products, made by both DeNA and hundreds of other third-party developers. People in Japan use that service not just to play games, but to also stay in touch with each other and access other forms of entertainment. It’s a pretty comprehensive service.
 
Sounds a lot like Facebook. Do you or DeNA feel threatened by their seemingly unstoppable growth?

We respect Facebook. Think about it this way: if Facebook is news and information, we’re games and entertainment. If Facebook is the Web, we’re starting with mobile. And in Japan, Facebook just doesn’t have the same traction it has elsewhere.
 
Also, one fundamental difference between what we do with Mobage is that we have a virtual social aspect. While you can invite people you know into your network, the vast majority of new friends are those you’ve made within the service, which affords a modicum of anonymity. Probably one of the things you feel while playing games on Facebook is, ‘Do I really want people to know I’m harvesting my crops or building up my city right now?’ This solves that problem and makes sense in an entertainment setting.
 

Last year, the Japanese mobile gaming market was worth $1 billion just for DeNA alone, but the same market here in the states is only just surpassing that value for all publishers combined. Can you speak to what we can learn from the Japanese market?
 
If you look at the conditions on the ground in the West right now, they are very similar to the conditions that were on the ground in Japan in the early 2000s. You have very affordable, if not flat-rate, data plans. You have bandwidth and connectivity at 3G or better. And you have devices that have crossed a threshold of usability and capability.
 
It surprises people to know that the vast majority of phones in Japan are not as powerful as most smartphones. In early 2000s, the feature phones they had in Japan were radically better than anything we had here in the West. They crossed this threshold that, combined with those other conditions, created an explosion in usage that has fueled the industry. In Japan today, you have a population of about 120 million people, 100 million of which have cell phones and 20 million of which are Mobage users. And those users are spending a lot of money on virtual goods because of frictionless payment services, the last piece of the puzzle for the market.
 
Now, here in the West, we have very similar conditions. With iTunes, you have a frictionless way to pay. With iPhone and Android phones, you have powerful usability and capability. You have single-price or low-price unlimited data plans. And you’ve got a good level of connectivity.
 
Before the acquisition by DeNA, we looked at the market and knew it would explode, way beyond what people imagine. This isn’t just about the iPhone and the App Store, it’s an undeniable tide that will rise higher and faster than anyone can forecast. We literally began modeling our company on trying to become the Western DeNA and build a service for games and entertainment that surfaced on smartphones versus Japanese feature phones. In the end, that’s how we came to be acquired by DeNA.
 
What's bigger for the mobile gaming company today? Advertising or virtual goods?
 
Today, virtual goods is significantly larger than advertising in Japan. That has a lot to do with what you can display on a feature phone versus a smartphone. What we’re finding is that the ngmoco side of the business sees a much higher mix of advertising, meaning there is tremendous growth potential in rich media or advertising in the Japanese market as it tips from feature phones to smartphones.
 
Earlier this month, ngmoco announced that it would be shutting down several free iPhone games, including Epic Pet Wars, Epic Chef Wars, Epic Crime Wars and Titan Wars. Though there wasn't too much outcry, the fact remains that customers did spend money on virtual goods in these games and were not reimbursed. Is this going to be a big future problem for companies that make tons of revenue from the sale of virtual goods?
 
We like to keep the games going for as long as possible. Virtual goods are a part of the cycle of entertainment and enjoyment for the game, so it’s important to respect what customers have spent money on. But, at the end of the day, they are spending money on elements and items that are contributing to an entertainment experience. At some point, those experiences are no longer viable from an economic or strategic basis. We wish we could keep those games running forever, but sometimes it’s not possible.
 
So do you believe that a customer doesn't actually own a virtual good?
 
As we explore the industry, there are a lot of questions we need to answer: What is a virtual good? Is it a piece of property? Is it an element that contributes to an entertainment experience? Probably a lot of work, innovation, thinking and iteration has to happen before we figure it out.
 
The whole industry is completely brand new and it’s evolving at an incredible pace. The next set of social games will not be small increments on the last set of social games; there will be radical changes and improvements in how they are played. As we evolve as game makers alongside evolving users, platforms, devices, networks, it’s all up for grabs. And that’s what’s most exciting: we’re at the beginning of a tremendous revolution. We have the opportunity to build companies like that original vision of ngmoco, a future entertainment company.
 
Lastly, tell us about this global mobile network you're launching this year.
 
On Samsung Android devices, Mobage will be powering GameHub, which is Samsung’s portal for gaming. That will launch with Galaxy S2 devices.
 
In Q2, we’ll be releasing Mobage as a separate application for both Android and iOS, which will be our first step in building that future entertainment network I mentioned. There is an opportunity to deliver something that impacts the current generation as much as MTV impacted the last, to build something that has the reach of a broadcast network but has the monetization potential of a social network. Hopefully, it will become one of (if not the) definitive destinations for games and entertainment on mobile operating systems. As those mobile operating systems move from phones to tablets to televisions, you can start imagining a network that is just incredibly impactful.
 
We sold the company to DeNA not because we had to or because we wanted the money, but because we felt that Mobage-town in Japan was an early blueprint of that network we wanted to build.