Video gaming

Google is a vital source of revenue for some Japanese game makers — here’s why

Japan’s mobile game market doesn’t see a huge split between the amount of revenue made from Google’s Play Store and Apple’s App Store

PUBLISHED : Thursday, 28 December, 2017, 11:25am
UPDATED : Thursday, 28 December, 2017, 11:27am

By Jillian D’Onfro

When Casey, a security officer in his early 30s from San Jose, California, first started playing the Japanese mobile game Puzzles & Dragons, he was obsessed.

“I would play constantly, everyday,” he says. “Even on my breaks at work, I would play non-stop.”

During his first month, he estimates that he spent about US$600 in the game, mainly to obtain special characters (many Japanese games use a “Gacha” mechanism where users can spin to win prizes). He says he has friends who he knows have spent thousands of dollars on Puzzles & Dragons.

Although Casey lives in California, not Japan, his playing habits resembled those of a typical Japanese gamer: super high engagement and a willingness to shell out real money.

Japan is the top market for mobile game revenue and its spoils have surpassed mobile gaming revenue in the United States for the third year in a row, according to data from App Annie, despite the fact that the U.S. has three times as many smartphone users. Japan ranks highest in terms of average number of sessions in games per app user, and Japanese mobile app users use gaming apps twice as frequently as users in the US.

A balanced split between iOS and Android

Of the 12 public companies that have disclosed that they are generating 25 per cent or more of their revenue through Google parent company Alphabet , the seven most reliant are all Japanese app developers, according to data from FactSet. These companies make money through the Google Play Store.

Gungho, the company that created Puzzles & Dragons, makes 35.7 per cent of its revenue from Google Play and 54.1 per cent from Apple ‘s App Store, according to FactSet.

The company most reliant on Google Play, Ignis, sourced 48 per cent of its revenue through Play and 38.1 per cent of its revenue through the App Store.

That highlights what’s particularly interesting about Japan: The Japanese mobile game market leans more heavily toward Google’s Android platform than other markets.

Consider Zynga, the American app company with the highest disclosed percentage of its revenue coming from Alphabet: The breakdown is 29 per cent Google Play Store, 46 per cent Apple App Store. That’s in line with the conventional wisdom that iPhone users are generally wealthier than Android users and tend to spend significantly more on apps overall.

But Japan’s mobile gaming market bucks that trend. That’s because in many other parts of the world, Android phone owners will use a forked version of the Android operating system that has a different app store. But the Google Play Store has a wide download base in Japan, according to Lexi Sydow, market insights manager at App Annie.

Currently, both Google and Apple take a 30 per cent cut of in-app purchases, and Google will start taking a 15 per cent cut of subscriptions in 2018, mirroring Apple’s 2016 switch.

But as much that upcoming charge reduction is a boon for developers, it highlights a risk: As quickly as Apple or Google can positively affect developers, they can just as easily change pricing or impose new rules.

Think of the downturn Zynga suffered when Facebook made some tweaks in 2012.

Sourcing so much of their revenue from two app stores means that these gaming companies are uniquely vulnerable. Because, although these Japanese gaming companies are heavily reliant on Google, the relationship certainly doesn’t swing both ways.

Alphabet doesn’t specifically break out what percentage of its revenue comes from the Play Store — it lumps those revenues together with money from its swelling Cloud business and hardware sales. In Q3 of 2017, Alphabet’s so-called “Other Google revenues” hit US$3.4 billion. That’s only 12 per cent of its total revenue. If you tried to slice up how much of that comes from the Play Store, and in particular from Japan, the number wouldn’t be consequential.

Read the original article at CNBC