How Japan’s Line became an unintentional gaming-platform giant (interview)

Line has become a hot mobile messaging platform in Japan, with more than 270 million people who are using its media-rich features as a replacement for text messages. Although Line features only 37 games, it has become the No. 2 publisher of Google Play titles in the world in terms of monthly revenue, according to the August index from market researcher App Annie.

The company is capitalizing on the rabid appetite that Japanese players have for purchasing in-app items in games. But it has also expanded to other territories like Spain, Brazil, and Mexico, where it is having great success. Line has launched a series of internally produced and third-party releases that appeal to casual social gamers. Players can share simple and fun offerings like Line Pokopang and Line Pop with their friends. The popularity — and revenue growth — is driving a possible initial public offering for Line next year with a possible valuation of $10 billion. The service is one of a series of new networks — like Kakao in Korea, We Chat in China, and What’s App in the U.S. — that could make Facebook worry about its prospects for global domination.

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We talked with Line’s chief executive, Akira Morikawa, at the recent Global Mobile Internet Conference last week about the phenomenon of rapid mobile-game growth on Line. He spoke with us through a translator, and here is the transcript.

GamesBeat: You started Line about two years ago. A lot of competition exists, at least in the game space, from Gree and DeNA. What are you doing differently? Why do you think you offer something more interesting to people, especially to players?

Akira Morikawa: It helps to have some background on gaming in Japan. Originally, console-based games were extremely popular, and later PC-based online games. Then, feature phone-based games came in from companies like Gree. Most of them were social games based in browsers. The first popular types of games were very small. Casual social games became popular — farming or fishing games that were especially popular with women. Eventually, though, this business moved toward more core games, trading games, and card games that maximized revenue.

Later, smartphones came on the market and created what we now know as mobile games. We grew rapidly as a pure communication platform provider. If we’d chosen to provide core games, maybe our destiny would have been similar to a company like Gree or Mobage. However, we think our focal point is communications. We’re not a game platform provider. We’re simply providing casual games, while we continue to focus on communication.

Gree and Mobage are game companies. They’re no longer platform providers. They create their own games and sell them to consumers. They were successful with games based in browsers, but they’ve been less successful with native applications. We’re native-application creators and providers, and we’ve been very successful providing new game platforms to our users.

I think it’s fair to say that Line may have 10 times more users than comparable platforms in Japan. However, since we’re not a core gaming company, despite this wide range of users, if you just look at numbers like ARPU [average revenue per user] or billing rate, our revenue isn’t that much.

GamesBeat: Here in the U.S., text messaging is still pretty strong. In Japan, have you made much more progress in eliminating that by offering better messaging services?

Morikawa: Yes, you’re right. The U.S. and Europe aren’t quite so developed in this respect. In Japan, because we’ve developed mobile internet services so much, we’ve had many services come up to replace that. That’s one reason why we created Line, and why it’s been so successful in Asia. Our services have also been well-received in Spain, South America, and Mexico.

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I think that U.S. and European-based users, which tend to be older, maybe consider these characters and services too juvenile, something children would use. There could be some truth to that. But young users, especially young women, have been very happy with it. I expect this to trigger a new movement, where regular adults might start using the service as well. However, in order for us to do so, we may need to tweak our designs a bit to appeal to Western users. Our current design is very much oriented to the Asian market.

GamesBeat: Facebook had a very tough problem, where it grew its games very rapidly, and then the titles started sending too many viral messages out to everyone. All the non-players hated it, and the company had to scale back on the virality of the games. I’m wondering how you dealt with that same problem of having both gamers and non-gamers on the same service.

Morikawa: One of the issues Facebook had was that they provided too many things on an open base. When you provide everything in that type of open environment, you can provide some good things, but they might be unwelcome as well. That’s the root cause of all the spam. To avoid that, we make a conscious effort to control that rather aggressively. We control the number of games we provide and the number of messages they send, which lets us control the amount of spam very tightly.

What we’re trying to do is provide continuous services that appeal to users in the long term — unlike Facebook, which seems like it may just be in vogue for a brief moment before people get tired of it after a while.

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GamesBeat: What are your statistics now as far as total users, the number of gamers, and the number of games?

Morikawa: Globally, we currently have 270 million users. We have 37 game titles all together. Unfortunately, we don’t make information on the number of gamers versus non-gamers available to the public. It changes pretty regularly.

GamesBeat: App Annie, which tracks worldwide market numbers, often has Line titles showing up in the top 10 for Google Play. It seems surprising to see that, because it’s a relatively smaller base in a smaller country. But you have releases in the top 10 for revenue in the whole world. What explains that? Is it simply that some people are spending lots of money?

Morikawa: You might be surprised, but our per-user revenue isn’t that high. With so many apps available throughout the world, users tend to find one app, get tired of it pretty quickly, and move to another and then another. People change the apps they use very often. For us, our games are casual games, but we try to make sure that they’re attractive enough that they stick with people for a long time.

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We’re using a system which allows users to compete against their friends. We reset high scores on a weekly basis. In the beginning, many users just enjoy the games alone, but soon they become more competitive, which leads to an expanding user base and eventually increasing revenues.

GamesBeat: How are developers monetizing their games? Someone just wrote a story for us on South Korea’s Kakao games and how they make money. The author pointed out that those companies quite often have a pay-to-play component, where the user will pay for a play session. In the U.S., a lot of people resent that, although with something like Candy Crush Saga, it’s becoming a common way to monetize now. Is pay-to-play a technique that works very well in these titles, or are there some other ways that your game makers monetize their products?

Morikawa: We’ve accumulated a lot of know-how in Japan on that point. We’ve done data mining on our social games to figure out the kind of design that works. The important thing is where people tend to drop out when they play a game. If you allow users to drop before billing starts, you’re losing users. So what’s important is to make a process that’s so intriguing that users don’t drop out, even after they start paying.

Countries which have more gamers seem to reach higher levels of games very quickly. So to avoid that, we may need to make the games slightly more challenging than they are in the rest of the world. Also, some users in specific countries like to work together, while other users in other countries love to compete. So when it comes to localization, language and design are important, but how we realize these other country-specific characteristics is also key.

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GamesBeat: Do you encounter globally appealing games that you don’t have to localize very much?

Morikawa: I’m afraid not. Most of our games, at least, are still very much Asian oriented. Many game makers are still based in Asia or targeting the Asian market. However, later this year, many U.S. and European-based companies are coming in to our market, so they might shift that trend. But trends in games change very rapidly, so where and when and how you grab on can be difficult to judge. One prime example is Angry Birds. It was the game of the year when it arrived, but now I don’t know if it’s that popular anymore.

GamesBeat: Do you have an observation about how popular messaging networks are in the U.S.? Tango and What’s App aren’t hitting as large a part of the population as messaging services in Japan. Maybe it’s because the cultures are too different or because the American infrastructure is a problem. Is anything holding back the U.S. market?

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Morikawa: Speaking about communication alone, I don’t see much variation, even between different countries. But users tend to stick with something they’re familiar with. With regards to online search, for example, when Google came to the market, even though their technology was obviously superior, it took a while for users to move to Google from other search engines. In general, I think that the younger the users are, the less restricted they are by their past experience. They’re willing to try something new.

With that, Line has been well adapted by younger generations, regardless of location. Because of that, I think it’ll continue be successful the way it is.

GamesBeat: Facebook has more than a billion users, but a lot of children seem to want to avoid it now, to get away from their parents. Snapchat has become very popular because of that. So, would you rather be Snapchat, or would you rather be Facebook?

Morikawa: [Laughs] Snapchat’s features are actually incorporated into Line. But they’re creating a very tightly knit community. Facebook and Twitter are built around sharing. That seems to be their strongest characteristic. Because of that, they’ve been widely spread and widely accepted, but as you say, some people who’d rather not share so much have an allergic reaction to them.

Line is a closed community-based platform, just like personal email. If there are certain people you don’t want to share certain details with, you can adjust the settings to do that. Our users don’t have to worry about sharing too much with too many people as the community grows.

GamesBeat: What’s your future, then, as far as how large the game business could grow and also how mainstream your service could be? What’s your plan as you reach a larger size?

Morikawa: Besides our content business and the game business, we also have some other services. We’re in the ebook business and the fortune-telling business, and in the future, we plan to expand into music as well. That will be happening this year. Further out, we’re looking at e-commerce. We’re also providing a news service, Line News, and we may look at adding a search engine. Not all of this is rolling out globally in the same places at the same times, though.

Our service is heavily used for marketing purposes by other companies. We have what are called official accounts, which are used by different brands and companies. They offer coupons and other promotions like that. We did a very successful promotion with Softbank, which is kind of like the AT&T of Asia. It was built around the words “Get Connected,” which is a pun in Japanese. It sounds a lot like “Get Curry,” too. For Line users that opted in to these official accounts — you’re not marketed to unless you opt in — Softbank offered discounts on services, plus free instant curry rice.

GamesBeat: How do you feel like you’re different from other services like WeChat and Kakao?

Morikawa: I have to say, our services are all very similar. Whenever we set a benchmark, they copy it [Laughs]. So as far as how we’re different, we have very unique communication functions — text, stickers, voice messaging, video messaging. They’re always developing and evolving. Also, we provide new platform and service models on top of that, like games and e-commerce. In this world of what we’ve come to call multi-communication applications, we think we’re the top runner.

GamesBeat: Why do you have so few games? You could have hundreds or thousands. Why do you curate them so heavily?

Morikawa: As I said before, one reason is so we can maintain quality. We’re using platforms provided by Apple and Google. They’re largely open platforms. If you want to use them, you can. But if you do that in the gaming world, you’ll end up buried. What we’d like to do is have our users say, “There’s nothing like Line when it comes to quality games.” Also, having high quality games sends a message back to game providers: If you can put your game on Line, you’re guaranteed success.

GamesBeat: One thing we’ve heard game developers worry about is paying a large percentage to each platform. They pay a percentage to Apple, a percentage to Line. They feel like not much is left over. Is this going to possibly change in the future, as far as finding a business model that makes everyone happy?

Morikawa: First, yes, I do agree with you. The rates that game makers are having to pay to platforms like Apple and Google are relatively high. Recently, some services have been built on the Web, and by doing so you can reduce the commissions you have to pay drastically. Of course, I’m sure Apple and Google will find some new way of billing users around that [Laughs]. All I can say is that we need to be prudent.

With regard to companies who provide games, revenue sharing is important, but what’s more important in my opinion is the number of users they have and the number of users who are paying out of that. As a platform creator, what’s important for us to do is create that environment first.

GamesBeat: Is your percentage of paying users higher than other platforms?

Morikawa: Purposefully, we’re not increasing it at the moment. Our experience is that the more paying users you have, the rate of continuance decreases. Our model allows us to have just an absolutely amazing number of users. Suppose you take an old-style Facebook-based game and a newer mobile game. Of course, Facebook has the larger user base. But because there are so many games available on Facebook, it’s very difficult for games to break into that market, especially as it became more and more popular.

As far as we’re concerned, our model is to bring users to our games ourselves. We’re doing this not because we’re paid to advertise them. Rather, we’re doing this through a partnership. Fundamentally, our way of thinking as a platform is different from others.

GamesBeat: Is it fair to say that your strategy is to become a global communications company? What else has to happen in order for you to feel like you’ve reached that goal?

Morikawa: What we hope to attain is, using communication as a base, we want to become a global infrastructure, a global platform. We’re continuing in the game business, and we plan to introduce e-commerce, but we’re not going to be a company that dedicates itself to those limited businesses. We want to provide many different things. But our focus is that we’re a communication-based platform company.

GamesBeat: Right now, it seems like a lot of mobile-messaging companies exist in every country. Do you feel like you need to acquire some to expand more rapidly in other countries or that others might be planning to acquire some of these services?

Morikawa: The reality is, when we get into a given market, we’re usually not the first one there. We’re the second or the third. There’s always another provider like WeChat already there. However, despite not being the pioneer into most markets, our user base has grown to the point that we’re a leader, not a follower. I believe that’s because the users, who are experienced and familiar with messaging services, quickly realize how advanced and evolved our service is. So right now, we’re not thinking about acquiring anyone. We want to continue to focus on spreading the products and values we have to a global base of users.