Is Gree really spending money on user acquisition like there’s no tomorrow? (interview)

During the past six months, it wasn’t hard to find mobile game developers complaining about how Gree was driving up the cost of user acquisition. The company was reportedly using its profits from its ultralucrative mobile social gaming network in Japan to bankroll a campaign in the U.S. Here, it paid lots of money to draw new users to its free-to-play mobile games. Gree bought so much mobile advertising that it drove up the ad rates past the point where they made sense. If a game generated a lifetime value per user of $2, it made no sense to spend $5 or more acquiring each user.

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We checked out all grumbling with the man who would know. Sho Masuda (pictured right) is the vice president of user acquisition at Gree. He helped lift the curtain on Gree’s user acquisition strategy, where it spends its money, how it generates nonpaid installs of games, and what it’s learned about different marketing channels. Here’s an edited transcript of our interview.

GamesBeat: I’ve been hearing a lot this year about how Gree has been spending a lot on user acquisition. I think it’s a good time to understand it more, since it seems to have an impact on the larger iOS market. What I’d like to learn is, what is your approach? How are you starting out doing things? What are you learning?

Sho Masuda: We first launched our campaigns in the U.S. in March. It’s been more than six months. We’ve collected a tremendous amount of data, and we’ve analyzed what’s working for us and what’s not. We’re doing this as a company to coordinate the return on investment. At this moment, we feel like, after working with the network for several days, we’ve been able to forecast what the value of one install of a given game is going to be. We can bid at a price point where we can make the return on investment [ROI] positive but still be somewhere high enough that our ads get served more so we can reach a sufficient amount of users.

Something that we do that many companies don’t is that we spend a lot of effort around the nonpaid kind of acquisition as well. We try to take advantage of App Store search. We’re trying to give the desktop web a more meaningful role in our mobile user acquisition. We work with a company, for example, where players can give their phone number on the desktop web, and then a [text message] comes to their mobile so that they don’t have to connect the mobile device to their PC. None of us do that anymore. We partner with some other gaming companies to exchange clicks. We’re starting to do more emails. We do a lot of web surveys with small groups just to make sure that we have the best app icons, screenshots, and game descriptions so that when we actually chart, people see us.

Let’s say our lifetime value on one install is a dollar, and 50 percent of our installs are organic — we can get them without spending dollars. That means I can cap our expenditure at two dollars. If the organic rate goes down to 25 percent, then our cost per install [CPI] cap is going to be $1.34. You can leverage it so much if you get nonpaid installs, so we spend a lot of time on the nonpaid side. On the paid side, we justify as much as we can based on the ROI. The past six months of our campaign have given us enough data to make a judgment quickly.

GamesBeat: Has the marketplace changed a lot as well, as far as what works and what doesn’t?

Masuda: I think it has. There are more players in the space now. You’ve seen from the end of the quarter. Especially with the big brands, they’re paying more attention to mobile now. We have to compete with insurance companies or retailers, big brands. That’s changing the landscape of the market.

There’s a new company, a new idea being brought to the table every single day. Typical mobile banners had a certain format a year ago. Now they come in different sizes. There are videos. That’s coming up more and more in important media acquisitions. There’s a lot of options we can choose from. Marketing is evolving very rapidly.

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GamesBeat: You’ve made some acquisitions [like buying Pokelabo for $173 million]. Has that given you more interesting options as far as things you can choose from?

Masuda: Having more talent in the studios lets us ship more titles, and we can learn more quickly about the market space and how their users behave. That helps on the user acquisition side. A lot of the studios we’ve acquired have been in the space a long time. They provide a lot of insight about their best practices that we’ve been able to use with Gree.

A good example is the recent launch of Monster Quest, one of the first titles that Funzio — acquired in May for $210 million — and Gree have collaborated on. We were able to position this game and chart on both iPhone and iPad, so these studios have definitely helped.

GamesBeat: How is the market situation compared to Japan now? I know in Japan the return on investment on a title is so high that you can justify some very big advertising, even TV advertising.

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Masuda: That’s the biggest different that distinguishes Japan and the U.S. The value of one install is different. In Japan, it could be around $15 dollars or so, or even higher. Here, we’re talking about a dollar or two, maybe up to $5. We’re always trying to get ROI positive. If the lifetime value is $15, then you have options like mobile, web, TV, and print. If you’re talking about only $5 at the outside, you have to think about efficiency. It’s very natural for us, then, that our user acquisition is heavily centered on the mobile devices, the iPhone, and the tablet.

We do want to be one of the early ones to get out and try new things in the future, though, even TV. That’s on our road map. We’re rethinking the value of the desktop web. In the past year, the cost-per-mille [CPM] has gotten cheaper over there. If we can come up with an efficient idea to use the web in a more meaningful way for mobile acquisitions, we can dominate that space. We like to experiment. We don’t want to keep on doing what we excel at. We always want to do more.

GamesBeat: How do you behave in a way that makes you competitive against your rivals out there, like DeNA or Facebook or Apple’s Game Center?

Masuda: The platform that we’re launching is one of our solutions. We’ve gone through a lot of learning in the past few months. The studios have brought us more ideas to use in user acquisition. We share our knowledge with partners when we work closely. My team members are supporting what we call third-party studios with user acquisitions. We’re sharing knowledge about what’s worked for us.

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I can’t speak on behalf of DeNA or Zynga. Obviously, Apple doesn’t provide that kind of a solution. Having gone through that exercise by ourselves, and with us being a platform as well as a collection of studios, I think we can share our knowledge and learning in a way that some other companies can’t.

GamesBeat: The worry is that spending is going higher than revenue coming in for the industry at large. Is there any truth to that? What strategy does any given developer adopt to deal with that?

Masuda: We’re here investing in this market because we’re getting revenue out of it. The more revenue you can get, the more investment you’ll be able to do. Especially in the mobile landscape, where we know this is the future. As long as we’re investing a dollar and two dollars come out, we’ll keep investing.

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We’re one of the few companies and studios that have multiple titles on top of the gross charts. One of our biggest strengths is not our ability to ship our games, but our ability to keep up with the live ops. We provide a reason for our users to come back to the games day by day. Crime City has been out there for a year now, and it’s still doing very well on the grossing charts.

My advice to developers is that the live ops are where you have to turn your attention. The studio’s revenues see an increment whenever we run a special event. We need to make sure we’re running that on a weekly basis. That helps the marketing teams continue to invest in the space for the same title. Just to give you an idea, there’s no single day of the month when we’re not running campaigns for our existing titles, and that’s because we’re making revenue at the same time. Spending time on live ops and providing a reason for users to come back to games, that’s going to give you the dollars to invest in the market.

GamesBeat: The tradition in the industry is that app marketing gets more expensive as we get closer to December. Is that the established pattern now? When does that start, really?

Masuda: We’re hearing that it starts around the Thanksgiving holidays now, late in November. We’re seeing a trend toward the end of every quarter, too — so March, June, and September as well. That’s typically when demand increases at a faster rate than supply, which creates more competition when it comes to CPC and CPI.

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GamesBeat: Did you see TinyCo’s announcement, when they were talking about embedding some ads for TinyCo games in the context of developers’ games? They’d share any revenue that came from that user over the long term, but they didn’t pay for that up front. It’s a different approach.

Masuda: It’s very interesting as a solution. It might create another source of revenues for smaller developers. But it’s also risky for some, as well. You’re completely dependent on TinyCo’s ability for that single app to make revenues. Whereas if it’s CPI for CPI, publishers no longer have to worry about whether this game is going to do well or not. You’re going to get the money on the day you generate the install.

We do have a similar kiosk program. We just don’t do a revenue share around it. There are pros and cons for developers in that one. One of the cons is that you’re keeping your fingers crossed, hoping the game’s going to monetize, and if the game isn’t going to monetize, then you’re not going to be able to get a business return out of it.

GamesBeat: What is your current approach on user acquisition?

Masuda: Challenging ourselves to come up with more case studies. What we can do outside of mobile is something we’re very excited about. We’re also excited about Facebook Mobile, as well. We’ve been testing with some of the recent launches, and they’re driving both quality and volume. We’re interested in how Facebook is going to change the landscape of mobile.

We’re moving into a plan where our user acquisitions are ROI-based. So if you see us bidding very strong, that means we’re making money on that. When we launched in March, there was another reason in play beyond just ROI. When we came into the U.S., one of the challenges I faced was that there’s a lot of new companies being formed. Some of these companies didn’t even have websites. I wanted to reach out to them because they could be strong partners for us, but I didn’t have any means of connection.

Even though we weren’t ready, we made a splash by promoting Zombie Jombie and Alien Family very strongly in the marketplace. We don’t do that anymore, but at the time it served a purpose. Now, I’m getting contacted on a weekly basis by newly formed ad networks and companies that offer great ideas on user acquisition. Rather [than] having to bang on their doors myself, they’re banging on our door and saying, “Why don’t you sign up for our programs?”

Right now, we’re going over to ROI, but when we came into the U.S., there was that other business reason. It helped us get our names out in the space.

GamesBeat: I don’t know if this was a factor, too, in how much you have spent on user acquisition, but I guess you had to catch up to larger rivals that had gotten there first.

Masuda: Yeah, yeah. I don’t know why people don’t really talk about the nonpaid side of it, too. Like I said, if you can gain users organically, you can bid higher. I’d like the industry to think more about things, like how to take advantage of App Store search. We should keep on improving that day by day.