In April, the company’s market cap surged to $9 billion on the Osaka Stock Exchange, and it currently sits at more than $15 billion on news that Puzzle & Dragons generated approximately $113 million in April, or $3.76 million per day, according to Macquarie analyst David Gibson, who covers GungHo and tweets often in English.

The recent, precipitous rise in the company’s stock price was driven by the release of English-language and Android versions of Puzzle & Dragons as well as its announcement of 13 new titles in development.

GungHo released its most recent quarterly results on May 9th, and its performance was staggering:

Puzzle & Dragons, which has grown rapidly since the start of the year, is now generating more than 90% of GungHo’s total revenue, and the game has propelled GungHo’s market cap well beyond the scope of most other large, listed gaming companies operating in the mobile sphere. At $15 billion, GungHo is worth more than GREE, DeNA, and Zynga combined.

The chart below compares the indexed stock performance of GREE, DeNA, Zynga, EA, Glu, and GungHo from February 12th through May 10th. During this period, GungHo’s stock experienced a more than 5x increase, while the other firms experienced either inconsistently moderate increases or decreases:

This robust growth led to SoftBank’s recent tender offer for additional shares in GungHo from Asian Groove, a company led by Taizo Son, the younger brother of SoftBank’s president, Masayoshi Son. As a result of the transaction, SoftBank is now a majority owner of GungHo, having increased its ownership of the company from 33.6% to 58.5%.

The play is part of a broader strategy by SoftBank to become Japan’s largest vertically-integrated internet company, dovetailing with its current $20.1 billion bid to purchase Sprint, which has been beset by obstacles including a rival bid from Dish Networks. SoftBank recently told relevant parties that their participation in financing initiatives on behalf of Dish could preclude future cooperation with the Japanese telecommunications giant.

Like King, GungHo has achieved stunning recent success in mobile after more than a decade in business with a focus on online gaming. The company was started in 1998 as ONSale Inc., a joint venture between SoftBank and US-based onSale Inc. ONSale’s original business focus was the development of online auction systems; it changed its name to GungHo Online Entertainment in August 2002, shifting its objective to servicing massively multiplayer online RPGs in Japan. Its first such undertaking took the form of publishing Ragnorak Online in Japan (in a combined initiative to both host the game and localize it for Japanese audiences).

The company grew its publishing businesses throughout the 2000s, eventually moving into games development in 2004 and listing on the Osaka Stock Exchange in 2005. In 2008, GungHo acquired a majority stake in Gravity Co., Ltd, the South Korean developer behind the original Ragnorak Online title.

GungHo released Puzzle & Dragons in 2012, and the game experienced a huge spike in downloads in October when GungHo began airing television commercials for it in Japan. Puzzle & Dragons is now the top grossing game worldwide, driven primarily by its success in GungHo’s home market of Japan, where it has been downloaded by 10% of the population. The company has announced that it will not release any new smartphone games until Q3 2013 (Japan’s fiscal year begins on April 1st).

The post GungHo, the $15 billion dollar gaming behemoth appeared first on ufert.se | Eric Seufert.

The performance of Zynga’s stock in the almost two years since its IPO has chilled public markets ambitions for gaming companies. But two Western gaming developers, both of which have capably navigated a transition from Facebook (and other web-based platforms) to mobile, currently contend for the distinction of most likely to undertake the first post-Zynga IPO: King (formerly King.com) and Kabam. King is the developer behind Candy Crush Saga, which has commanded the #1 position on the US iPhone App Store’s Top Grossing games chart since April 2nd (and intermittently before that), and Kabam developed The Hobbit: Kingdoms of Middle Earth (currently #7 on the US iPhone app store’s Top Grossing games chart) and the Kingdoms of Camelot franchise.

Whether either company floats shares in 2013 or 2014 is unknowable, but public markets may be receptive to the notion: Digi-Capital’s Tim Merill has stated that a gaming company IPO is possible in late 2013 or early 2014 given the two-year cyclical nature that gaming IPOs have exhibited since 2005. And both companies have diversified their revenue streams sufficiently to disentangle their fates with those of any specific platform: in March, almost half of King’s players were on mobile, and Kabam projected about half of its 2013 revenues to be generated on mobile. As late as 2011, both of these companies derived 100% of their revenues from web-based platforms (namely, Facebook).

Both companies have significantly fewer employees than Zynga’s 3000 at the time of its IPO: Kabam headcount grew past 600 upon its acquisition of Exploding Barrel Games in January, with King’s headcount reported to be 400 at around the same time and 450 now. On the monetization front — for which, admittedly, good data is not readily available — King seems to lead Kabam, with a projected 2013 run rate of $524 million compared to Kabam’s projected “more than $200 million“. And while Kabam has not made daily active user metrics public, King recently (and symbolically) called attention to the fact that its user base, numbering 66 million, has eclipsed Zynga’s.

King’s shift from the web to mobile was facilitated by the vast catalogue of games — 150 as of January, 2013 — it has accumulated over its decade of existence. The company’s game launch strategy seems to involve a soft release on the web for the purposes of evaluating fundamental mechanics and collecting metrics, with high-performing games slated for mobile release. Given its deep portfolio of titles, King should easily be able to maintain its release cadence of a “couple of games per quarter” for the foreseeable future.

Kabam, on the other hand, has amassed its mobile user base of core gamers through an operational focus on eminently profitable performance marketing. Kabam claimed at the end of 2012 that its 3-year return on each dollar invested in marketing was $7, which represented almost a 100% increase from a year earlier. This strategic approach is evident in the very large differential between the Kabam’s rankings on the total downloads and top grossing charts; its flagship title, Kingdoms of Camelot: Battle for the North never climbed higher than #28 on the US iPhone top downloaded games chart (and spent the majority of its lifetime between ranks 100 and 200), but for the past year the game has consistently held a position in the US iPhone top 10 grossing games chart (although it currently sits at #12).

Candy Crush Saga from King, on the other hand, has spent the majority of its existence simultaneously in both the US iPhone Top 10 Downloaded chart and the US iPhone Top 10 Grossing chart, suggesting that King is either cross-promoting its web audience or purchasing users aggressively — or both. Whatever the case, the core nature of Kabam’s games likely produces higher ARPDAU / LTV metrics, which insulates the company from precipitous shocks in user acquisition prices.

Kabam expanded the scope of its operations significantly in the first quarter of 2013, officially launching a third-party publishing unit in March and unveiling a $50mm fund in April to help Asian developers access Western markets. Kabam’s publishing activities leverage not only the company’s abundant coffers but also its marketing expertise and game and analytics platforms.

While both King and Kabam are well-positioned for an IPO in the coming 9-18 months, King’s management has made more and stronger public overtures and generally expressed interest more ostentatiously. King’s CEO, Riccard Zacconi, has stated previously that the sequence of events leading to an eventual IPO will be catalyzed contingent on effective “execution” in 2013. Certainly the success of Candy Crush Saga — which, with a rough comparison to Supercell’s combined gross daily revenue of $2.4mm from Hay Day and Clash of Clans, is likely generating between $1.5 – 2mm in gross revenue per day — would surely be classified as effective execution.

But the ultimate demonstration to public markets of readiness for an IPO, for both companies, may be performance in Asia — and it is here that Kabam, given its publishing unit, its experience with core games, and its studio in China, may be better positioned to excel.

The post King vs. Kabam on the road to IPO appeared first on ufert.se | Eric Seufert.

Apple’s Q1 2013 results were undisputably poor; its net profit fell by 18%, representing the first time in more than a decade the company has posted a quarterly earnings decline. Samsung, meanwhile, grew its shipments by 56% year-over-year, to 69.4 million. Apple’s shipments grew by a mere 7%, to 37.4 million, which is its slowest ever year-over-year growth to date.

The first quarter of 2013 also bore witness to an historical tipping point, although one that was wholly predictable: more smartphones than feature phones shipped for the first time. A similarly fundamental tipping point took place in February, when Flurry announced that China had unseated the US as the home to the most smart phones on the planet. And while Android overtook iOS in terms of absolute number of devices in 2012, Android’s global shipments marketshare experienced continued growth in Q1 2013 while Apple’s shrank by 5.7%. The below charts illustrate the changing dynamics of the mobile marketplace, both in terms of operating system and handset marketshare (all data is presented in percentages and was fetched from IDC’s recent Worldwide Quarterly Mobile Phone Tracker report):

Global Smartphone Shipment Marketshare by Manufacturer

Global Smartphone Shipment Marketshare Delta, Q1 2012 vs. Q1 2013

Global Mobile Phone Operating System Marketshare, Q1 2013

Global Mobile Phone Operating System Marketshare Delta, Q1 2012 vs. Q1 2013

Despite its momentum, Android remains relegated to a second-launch platform for most mobile developers: while revenue on Android is increasing, iOS, for the time being, delivers more money. Advertising network Trademob recently published an infographic highlighting some key differences between the app ecosystems of the two platforms: the most obvious are the number of app stores per platform (iOS: 1, Android: 40+, not accounting for private and “grey market” app stores) and tablet app download marketshare (Apple: 75%, Android: 17%).

It goes without saying that the Android ecosystem is fragmented, which is the source of the platform’s biggest hurdles in terms of app development:

• Device fragmentation, especially at the lower end of the price scale, presents app coverage challenges. Ensuring compatibility with a large range of Android devices increases both development, QA, and customer service costs.
• App Store fragmentation increases marketing and operational costs.
• Many devices in Asia, especially in China, are counterfeit and do not facilitate carrier billing, rendering monetization nearly impossible.

But the above graphs underline growing consolidation in the Android mobile phone market; while the “Other” manufacturer category shrank by 1.3%, year-over-year, Samsung gained 3.9% global smartphone shipments marketshare. And Samsung seems to be the primary beneficiary of the continued surge in tablet adoption, with a broad catalogue of both tablets and so-called “phablets“.

The question remains: when will Android-first be a viable mobile launch strategy? My guess is that it will probably relate to Samsung, rather than overall Android, marketshare capture, taking place in the middle price tier in emerging markets.

The post When will Android-first be a viable launch strategy on mobile? appeared first on ufert.se | Eric Seufert.

One of the more difficult adjustments to make when transitioning from academia to industry is the change in vernacular required in communicating the machinations of models. In academia, the formatting and notations used generally indicate concepts that are taken for granted by the author and sometimes included only because, at a theoretical level, not including them could subject the author to ridicule.

But in industry, models must be more concretely defined before being introduced. Models in industry must also be practical and account for limitations of the analytics infrastructure and product. In addition, models should also be vetted, using real data, and made transparent and interactive with a software platform that all stakeholders (usually executives and the product teams) are familiar with. This precludes the use of statistical packages like R, Stata, and SPSS and requires output to take a form more instructive than command-line standard error measurements.

This transition pain is evident in the academic treatment of Lifetime Customer Value (LCV). The quantitative measurement of LCV has been explored at length primarily by two academics,  Bruce Hardie and Peter Fader, who have seemingly made the process at least an ancillary portion of their research efforts, continuing the quantitative focus on LCV first established by Schmittlein, Morrison, and Colombo in the 1980s. An excellent primer on LCV is available in a paper contributed to by Hardie called Modeling Customer Lifetime Value. For more background on the Pareto/Non-Binomial Distribution method for estimating customer purchases pioneered by Schmittlein, Morrison, and Colombo, this series of blog posts provides a good overview.

Central to the academic definition of LCV is the notion of the time value of money as it relates to present value. The time value of money stipulates that a dollar received today is worth more than a dollar received tomorrow (or at some point in the future) because of the effects of compounding interest. If I receive a dollar today and invest it in an interest-bearing account, that deposit will be worth notionally more than one dollar tomorrow. Thus cash streams are subject to opportunity cost concerns: delaying the receipt of cash imposes an opportunity cost that must be accounted for by some mechanic.

In corporate finance, this mechanic is the Present Value calculation which reduces the value of a stream of payments in the future to a total value today given the opportunity cost (discount rate) of not receiving that money. The assumption that money always incurs an opportunity cost is grounded in the notion of a risk-free rate, or a rate of return on investment that is essentially risk free. In corporate finance, the risk-free rate is often defined as the interest rate on a 3-month US treasury bill, which is, for practical purposes, considered “risk free” given the low likelihood of default by the US government. At a high level, the risk-free rate exists as a permanent “Plan B”: an organization always has the option of taking their money and putting it in risk-free treasury bills as opposed to investing it in some other activity. This means that any project must exhibit a rate of return of more than the risk-free rate to be preferable to simply sitting on risk-free treasury bills.

In large, diverse organizations, such as software conglomerates, the discount rate is a real concern: projects are prioritized and financed based on their estimated Internal Rate of Return. But large, diverse conglomerates generally employ capital markets professionals — sometimes even in in-house groups – to manage their liquid assets. For many conglomerates, investing money into treasury bills (or other financial instruments) is a valid business activity; the preservation of the firm’s cash against inflationary decay, currency shocks, or any other of the myriad concerns facing businesses with appreciable amounts of liquid assets is extremely important.

For firms of this size, raising money from the capital markets is a fairly straightforward process, and the cost of raising that money is easy to quantify (through a model known as the Weighted Average cost of Capital). Thus, for large conglomerates and firms with sizable, diverse product portfolios, raising money and sitting on risk-free treasury bills are fairly commonplace activities that can be priced using historical precedent and transparent, liquid marketplaces. For such firms, a discount rate for a Lifetime Customer Value metric could be easily derived and put into practice, and the value of that discount rate could exert significant influence on resource allocation and project prioritization decisions.

For small, independent mobile gaming studios, this is not the case. For one, independent mobile gaming studios generally can only raise money by selling highly illiquid equity (and sometimes debt). Pricing such instruments is inexact at best and based totally on the demands of the buyer at worst; the price paid for such instruments does not represent a realistic cost of capital in future scenarios. Secondly, independent mobile gaming studios generally operate under a mandate, either from investors or the management team, to focus exclusively on the production of mobile games. Such a mandate precludes any participation in the capital markets using the firm’s liquid assets; the risk-free rate is not relevant to the decisions surrounding resource allocation, as the money dedicated to the development of mobile games can’t be allocated to any other purpose.

But perhaps the most poignant reason for not discounting the LCV metric in mobile gaming is that it introduces an unnecessary complication in the decision-making process that itself could cost the firm money in the form of inaction. Attaching the parameters and vernacular of academia to the LCV model when introduced in a practical setting doesn’t accomplish anything and more than likely obfuscates the framework used to value users. For all but the largest game development companies, dropping the present value mechanic from the LCV model when translating it from academic parlance into a practical, implementable solution provides more benefit than maintaining and explaining it.

The post Should Lifetime Customer Value (LCV) be Discounted? appeared first on ufert.se | Eric Seufert.

(The model referenced throughout this post can be downloaded here)

Supercell’s recent $100mm secondary financing round raises some interesting questions about how mobile game developers capitalize on a hit game. A title in the Top 10 grossing chart for the US can, as evidenced by a number of recent high-profile examples, generate upwards of $500,000 per day, but this capacity for revenue generation does not directly scale with enterprise value for the firm because these revenue streams are not themselves business units. Rather, in many cases, hit games are evaluated as short-term windfalls that 1) cannot be expected to persist permanently into the future and 2) are assumed to be non-repeatable (ie. a huge hit game is seen as an aberration, not the result of a product strategy that can be re-implemented in another game to the same degree of success).

In order to build sustainable streams of revenue out of massive hit games, some studios have begun engaging in publishing activities. The reasoning is clear:

1. In most cases, Customer Equity (the aggregate total of all current and future Lifetime Customer Values) is the sole component of enterprise value for a mobile gaming studio. Brand Equity represents no monetary value; a mobile gaming studio (unless they have diversified into other revenue streams, as has Rovio) gains nothing in the present from a hit game in the past if those users have churned out of the ecosystem.
2. Mobile game development is a long and resource-intensive process. And the success of a mobile game in development is difficult to assess, especially given the rapidly escalating competitive landscape of the mobile gaming marketplace and the brisk pace at which mobile technologies evolve. The present value of future cash streams attributed to a future release decreases drastically as the timeline for projection exceeds one year.
3. Increased marketing costs have priced many small studios out of the user acquisition market. Publishing is the only viable launch option for studios without large cash reserves, absent incredibly virality.

The publishing model therefore sits at the confluence of the needs of studios sitting on large hits but with long-term product pipelines (ie. their next release date is more than nine months away, when the user base of the current hit is expected to have decayed substantially) and small studios sitting on games with great potential but without the marketing budget to seed their game with a large user base at launch.

The terms of a publishing agreement generally involve a revenue sharing component and a user acquisition component. The developing studio agrees to split revenues with the publisher (generally at a rate of 50% of net revenues) in exchange for a pre-determined acquisition budget to be spent by the publisher on the game (sometimes the revenue split will compensate for the acquisition spending, eg. 80% of the revenue goes to the publisher until acquisition spending has been recouped).

An agreement structured this way is no-risk for the developer because the game is guaranteed to receive users without any upfront costs (except for development costs, which are sunk). The structure of the agreement involves some risk on the part of the publisher, although the publisher would have thoroughly vetted the game in terms of its potential to generate revenue. In all, it is a good solution for a publisher starved for a destination for its current users (lest they churn out, requiring re-acquisition in the future) and for a developer starved for a marketing budget with which to launch a title.

The question that arises from these agreements is: on what criteria should a developer make the decision to go with a publishing agreement or not? What factors determine the prudence of the decision? And can this decision be modeled?

I have attempted to model the decision; the Excel spreadsheet can be downloaded here. I used as primary determinants of the decision six assumptions:

• CPI (cost per install) is exogenous and set by the market; it can’t be influenced by the developer.
• ARPDAU is a function of the game’s ability to monetize and is obviously a key component in calculating total revenue.
• K-factor is the extent to which the game generates viral installs – more background information can be found here and here.
• Monthly organic installs is an estimate of installs from non-viral, non-paid sources.
• Monthly acquisition budget is the amount of money a developer is willing to spend on paid acquisition each month. This, combined with CPI, determines the number of paid installs acquired by the developer each month.
• Net revenue reinvestment is the percentage of net revenue the developer is prepared to reinvest in the next month’s acquisition campaign (assuming that revenues are paid out at the end of the month and acquisition budgets are set at the beginning of each month). In other words, this percentage of revenue net of expenses, platform fees, and (when applicable) publishing split will be added to the monthly acquisition budget in the next month.

Adjusting the values of the assumptions illustrates clearly that revenue is driven almost entirely by virality, the acquisition budget, and the rate of re-investment; when k-factor is high, revenue growth increases at a compounding rate given constant ARPDAU, negating the need for any initial acquisition budget but justifying continued re-investment of net revenue through future paid acquisition. When virality is low, only a very high re-investment percentage allows the user base to grow (assuming organic installs don’t surge as a result of some external event, such as platform featuring).

The starting assumptions about the game used in the model reflect a mediocre commercial performer; an ARPDAU of $.10 is respectable but not exceptional, and a K-factor of 15% is strong but not overly viral. On the other hand, the terms of the publishing deal illustrated in the model are not favorable but not altogether unrealistic.

It should be noted that the only expenses considered in this model are those related to acquisition, not capital expenditures, salaries, travel and entertainment, etc. This is not a full financial model but rather an operational model describing a specific decision point.

The following six scenarios are examined:

$0 initial monthly acquisition budget with 25% net revenue reinvestment, no publishing deal

• 52-week total net revenue: $182,969
• Monthly revenue curve:

$0 initial monthly acquisition budget with 25% net revenue reinvestment, publishing deal (monthly spend=$20,000, revenue split after acquisition recoup=50%, revenue split before acquisition recoup=80%)
• 52-week total net revenue: $288,168
• Monthly revenue curve:

$5,000 initial monthly acquisition budget with 25% net revenue reinvestment, no publishing deal
• 52-week total net revenue: $251,915
• Monthly revenue curve:

$5,000 initial monthly acquisition budget with 25% net revenue reinvestment, publishing deal (monthly spend=$20,000, revenue split after acquisition recoup=50%, revenue split before acquisition recoup=80%)
• 52-week total net revenue: $318,642
• Monthly revenue curve:

$15,000 initial monthly acquisition budget with 25% net revenue reinvestment, no publishing deal
• 52-week total net revenue: $389,805
• Monthly revenue curve:

$15,000 initial monthly acquisition budget with 25% net revenue reinvestment, publishing deal (monthly spend=$20,000, revenue split after acquisition recoup=50%, revenue split before acquisition recoup=80%)
• 52-week total net revenue: $379,592
• Monthly revenue curve:

Examining different scenarios with the model under different game and publishing agreement assumptions reveals a few realities of the economics of game publishing:

• Small developers with mediocre games benefit most from a standard publishing agreement.
• Viral games need smaller marketing budgets with which to seed a user base. The acquisition budget contributed by publishers quickly diminishes relative to the developer’s capacity for acquisition through reinvestment with a viral game.
• Games that don’t monetize to a high degree will suffer from a high pre-acquisition recoup revenue split.
• Reinvestment into acquisition creates a compounding effect on positive revenue growth that reduces the relative contribution of publisher acquisition spend unless that spend scales over time.

Publishing in some cases is a Pareto optimal choice for both publisher and developer, but those cases conform to specific parameters. The degree to which a developer will benefit from a publishing agreement relates directly to that developer’s ability to generate viral installs and its tolerance for setting revenue aside for marketing expenditure.

The post The economics of mobile game publishing appeared first on ufert.se | Eric Seufert.

I’ve stated a number of times that, within the context of the freemium model, retention is the most important metric a product manager must track; in the Minimum Viable Metrics methodology, retention is the top-most of the top-line metrics. Retention is not only a proxy measurement for customer delight, but it’s also the input for calculating customer lifetime, which is a fundamental component of lifetime customer value, without which paid acquisition campaigns cannot be defensibly run.

Another popular metric used to quantify the same phenomenon – a user abandoning the product – is churn. Churn is most commonly employed in cohort analysis; it captures the percentage of new users in a cohort that left the product (known as churning) after some given amount of time — a more rigorous exploration of the metric is given at the Shopify blog. Churn is tracked as a function of the period of time over which it is calculated; for instance, one-week churn is the percentage of users that historically have abandoned the product on a rolling, 7-day basis.

Churn can be used to calculate a simulacrum of customer lifetime by dividing the churn rate into 1. For instance, a weekly churn rate of 5%, referring to the average percentage of users that have historically left the product each week, produces a 20-week total lifetime for the cohort when divided into 1 (1 / .05 = 1 / 1 / 20 = 20). This means that, after 20 weeks, an entire cohort should be expected to have left the product, although which users churned at what point over that 20 weeks is left unknown.

Churn can be a useful metric under the auspices of recurring subscription revenues since every customer’s revenue contribution is uniform over the billing cycle. But in freemium, churn is useless: it describes average behavior, and average behavior isn’t capable of informing decisions in freemium product development. The “average user” doesn’t exist in freemium.

Churn approaches user abandonment from a broad-brush perspective that can’t be applied to the underlying mechanics of freemium, in which revenue, rather than being consistent, is anomalous, as are the behaviors of the users contributing that revenue. In a subscription model, such as enterprise SaaS software, the degree of fit between the product’s use case a user’s needs is irrelevant as users generally vet a paid subscription product before using it. Outside of a free promotional first period of use, churn in a subscription product probably does revert to a mean value that can be captured in a metric.

But in freemium, because a given product’s price point is $0, its user base can’t be expected to decay at a consistent pace. And while both a churn graph and a retention graph display negative power law curvature, the churn graph’s fixed rate of decay can’t accommodate the variability of freemium user behavior, which shifts to much less pronounced abandonment after the first few days of use (because a greater proportion of new users in freemium do not experience a fit between their needs and the product’s use case).

Observe, for example, the difference between how 25% Day 7 retention is treated in the Churn and Retention Profile models:

(the retention graph is fitted to the 50% – 25% – 13% retention profile. More info here)

The Churn model doesn’t adapt to survivorship, or a changing user profile over time, because it presumes all users in the initial user base to behave through average underlying assumptions.

Not to mention the fact that cohort analysis defies the most fundamental principal of freemium, which is that predictions are only useful at the individual behavioral level. A cohort in freemium is a collection of data points across a broad spectrum of profiles, assumed to cluster near the Y-axis and exhibit a very long tail. Taking any cohort as a monolith in freemium won’t result in conservative predictions around a universal, actionable mean but rather wildly inaccurate, spurious predictions based on a descriptor – time of product adoption – that, at best communicates, very little about the behaviors of its users (and at worst is a highly-misleading indicator of future behavior).

The post Why the retention profile is more useful than the churn metric in freemium appeared first on ufert.se | Eric Seufert.

The last country covered in the three-part overview of mobile gaming in Asia is Japan, which is fitting given the recent buzz around GungHo Entertainment, the Tokyo-based developer behind Puzzle & Dragons: last week it was reported that Japanese telecommunications firm SoftBank purchased a 58.5% stake in GungHo for $265 million. GungHo’s nearly half a billion dollar valuation was largely the result of the massive revenues generated by its hit game Puzzle & Dragons, which is estimated to have delivered up to $86 million for the developer in January alone.

Independent of Puzzle & Dragons, the Japanese mobile gaming market has traditionally been one of the most active in the world, and 2012 saw a dizzying barrage of activity in Western markets from Japanese gaming powerhouses such as GREE and DeNA. GREE in 2012 was forced to confront its previous strategic overzealousness in the US, laying off a large number of staff last December and closing OpenFeint, the company it purchased for more than $100 million in 2011. DeNA fared better in 2012, with 3rd-quarter revenues up 52% from a year earlier as a result of several hit games, such as Rage of Bahamut and Marvel: War of Heroes, performing well outside of Japan, along with consumption of its virtual currency, Moba-coins.

But unlike with the Chinese and South Korean mobile gaming markets, I was met with a dearth of English-language information about the Japanese market in my search, especially M&A activity and projections for 2013. And where I did find English-language information, the source was invariably one man: Dr. Serkan Toto, the universally-recognized pre-eminent expert on mobile gaming in Japan. Dr. Toto’s blog contains a wealth of analysis about the Japanese gaming market and is a must-read for anyone interested in the region.

Rather than offer a meager and surely unsatisfactory summary of this fascinating if not cryptic market, then, I decided to query the foremost analyst on the region. What follows is an interview I conducted with Dr. Serkan Toto about mobile gaming in Japan.

Speaking first to SoftBank’s recent purchase of 58.5% of GungHo, the developer behind Puzzle & Dragons, for US $265 million — do you consider this a trend that will likely persist into the future?

Serkan Toto: I believe that we will see occasional acquisitions of similar scale, but the usual exit for private mobile gaming companies in Japan will continue to be going IPO. The market caps of listed mobile gaming companies currently range from just US$15-20 million up to hundreds of millions of US dollars, meaning stock markets in Japan can “absorb” gaming companies of different sizes at any given time.

In March, Nomura purchased Sony’s stake in DeNA for US $437 million. Do you think Nomura plans to hold onto this ownership stake for the medium to long term?

ST: That is very hard to say, but my feeling is that Nomura is in DeNA for the long term.

You recently published some very interesting demographic and behavioral data points relating to Japanese gamers. Japanese players seem to match the profiles of players in Europe and North America in terms of occupation (houswives, office workers), the only significant difference being age, with only 18% of Japanese players being younger than 20. To what do you attribute the higher monetization of Japanese players, then?

ST: It is exactly that: one major factor for the higher monetization rate is that players in Japan are older and simply have more disposable income that can be spent on games. Both DeNA and GREE did a great job in the last few years in shifting their user base from teens to 30-40 year olds.

Content providers are reacting, too, i.e. by using IP (anime, manga, etc.) from the 1970s and 1980s. Crooz (a publicly traded company), for example, openly says that their portfolio mainly consists of mobile games targeting men in their 30s and older – because these users have limited time but more money to spend on virtual items.

You state that DeNA and GREE’s platform businesses outside of the US failed and that they’ll be moving into content creation and publishing roles in Japan. Do you think this speaks to a broader market mismatch of platform-within-a-platform in the US?

ST: I think that the platform-within-a-platform paradigm is flawed, as it makes it difficult to align the interests of developers and platform providers.

In the case of these two companies, you also have the problem – as a developer – that they double as platform and game providers. In other words, they will compete with you. They see what works and what doesn’t early – on a higher level and maybe earlier than you. They set the rules, i.e. with regards to promoting games inside their platforms or imposing technical guidelines. If you’re small, they can even “own” you: most agreements (in Japan) are exclusive, meaning games can’t be ported to other platforms.

People often cite the success of KakaoTalk in Korea or LINE in Japan as an exception and suggest WhatsApp could do the same in the US. But first, Korea doesn’t have a GREE or Mobage, destinations dedicated solely to gaming with millions of users. And second, the number of titles is extremely limited so far. LINE, for example, offers 20 games to its 110+ million users at the moment – so even the weak titles get tons and tons of downloads “automatically”.

This doesn’t solve the discovery problem, except for the selected few companies that KakaoTalk or LINE currently accept as partners. And once more games reach these platforms, getting discovered will become a problem: this is exactly what happened to third-party developers on GREE and Mobage in Japan a few years ago (both platforms began at zero, too, and now have 1,500+ games each).

Do you think the success of OTT messaging services in Japan and Asia as a whole can be replicated in the US?

ST: Yes, I think that these services will continue to grow everywhere, including the US. I can’t really imagine a lot of 20-year old males in the US exchanging those cute stickers and icons in LINE or KakaoTalk, but just look at the success of WhatsApp in the US and Europe: the core value is the same in all of these services.

Puzzle & Dragons performed extremely well in Japan but only recently broke into the Top 50 grossing chart for games in the US (at the time of this writing, it is at #42). Rage of Bahamut, however, held a comfortable position in the Top 20 grossing chart for games in the US until last week, when it dropped below 20 (it is currently at #24). What does it take for a Japanese game to experience success in the US market? What changes need to be made?

ST: The key factor is design in my eyes. Puzzle & Dragons is executed extremely well, uses a range of clever monetization angles, and is simply a much better game than Rage Of Bahamut. But Puzzle & Dragons is too cute and looks “too Japanese” in my view to reach a broad audience in the US.

I hope I will be proven wrong, but look at the Japanese games that are doing well in the US. Legend Of The Cryptids, Dark Summoner, Lord Of The Dragons, Rage Of Bahamut, Marvel War Of Heroes, Reign Of Dragons, etc. have one thing in common: they don’t look “typically Japanese” at all. With Marvel, DeNA (or Cygames, to be more exact) goes all in and uses “super-American” IP.

These titles are specifically designed by their Japanese makers to be global-first games, a big difference to P&D.

Also, in the case of Rage Of Bahamut, I think it’s not a big secret that DeNA dumped a lot of money into promoting that particular game. I would doubt the marketing budget for Puzzle & Dragons came even remotely close, at least up to now.

Before the majority acquisition by SoftBank, GungHo was trading at 50x 2012 earnings, and its stock price increased by 23 times in the 12 months prior to the acquisition. The company is not new, though: it was founded in 1998. How hit-driven is the M&A market in Japan?

ST: It is as hit-driven as the entire mobile gaming market here: one game can mean success or failure for entire companies, especially smaller ones. Absolutely nobody anticipated that GungHo, which was a newcomer in mobile, could land such a hit.

Both DeNA and GREE also had early killer titles that were key driving millions of Japanese people to their platforms (which later opened to third-party developers): Mafia Wars clone Kaito Royal in the case of Mobage, and social fishing sim Fishing Star on GREE.

So this development is not really new and can happen anytime again.

Morgan Stanley’s projections for total Japanese social gaming market size for 2012, made early in that year, turned out largely correct: USD $3.65 billion estimated compared to USD $4.16 billion actual. Is the Japanese market at a mature enough stage where projections can capably be made one year forward?

ST: Yes, I think so. Japan is a special case, as a vibrant mobile gaming market has existed since the early 2000s and as social gaming already began on feature phones, in the pre-iPhone era. In other words, predictions can be made based on more historic data points and experience.

And not to forget, Japan is a relatively easy to define (in terms of supply and demand) and closed social gaming market.

Monthly ARPPU in Japan is very large — nearly $50. Do you think the highest grossing Western market games — Candy Crush Saga, Clash of Clans, Modern War — could achieve this kind of monthly ARPPU if they were localized capably? As of right now, Candy Crush Saga is #64 on the Top Grossing charts for games in Japan; Clash of Clans is #103 and Modern War is unranked.

ST: If you look at the situation (current and “historic”) in the console sector, it’s more than clear that – generally speaking – Japanese users tend to play games made by local companies.

Having said that, there is no “discrimination” at play here, so I think mobile games from outside Japan can theoretically achieve this kind of ARPPU as well.

Of the three, I would not bet any money on Modern War. Games with this art style and game play don’t resonate with Japanese players, at least not the mainstream. I can’t think of any such game on the PC, mobile or console that was a big success in Japan.

Candy Crush was recently featured by Apple Japan (after it was translated), but I think the title wouldn’t be considered really “cute” or particularly exciting here. There are tons of puzzle games on GREE, Mobage, iOS, and Android that have a similar look and feel: those using popular IP, for example, have an extra edge.

Clash Of Clans could have made it much, much bigger in Japan, but there is no way without making it available in Japanese.

If you look at the top grossing charts in Japan, you can see that almost all games in the top 50 on iOS and Android come from Japan (or Korea) – with very, very few exceptions.

The Japanese mobile ecosystem breaks down to about 55% Android, 39% iOS, and the rest split between BlackBerry, Windows Phone and others. Do you think Japan is an Android-first market?

ST: The numbers suggest so, but recent reports, for example from App Annie, indicate that iOS can’t be ignored in Japan. I would say that the iPhone is still positioned as the mobile lifestyle product in Japan and that iOS users still pay more for content than Android users.

Also don’t forget that NTT Docomo, Japan’s biggest mobile carrier with 60 million subscribers, doesn’t offer the iPhone – a big pro for Android currently but also testament for Apple’s power over here. Once this changes, the whole market for games will change as well.

What advice would you give to a mobile gaming developer contemplating an entry into the Japanese market?

ST: Whatever you do, you should consider Japan as a completely different market. Do not make the mistake of applying learnings in your home and other markets, i.e. metrics, to Japan: that is a recipe for disaster.

I think that asking yourself if the art style and general “feel” of a game fits is the initial big bullet point here, apart from factors like translation (a must in the case of Japan, even for simpler games), possibly localization (not necessary in all cases), proper marketing (an absolute must in Japan, as anywhere else), customer support (to be offered in Japanese only), and others.

I have spoken with Western mobile game makers that have dumped hundreds of thousands of US dollars in marketing to bring their successful titles to Japan – without any ROI to speak of. Zynga acquired a successful local company and spent millions of dollars while trying to gain a foothold in Japan – and gave up after 2.5 years.

Please keep in mind that today, there is not even a single foreign mobile/social gaming company that’s really successful in this country. So I would strongly advise to not try to sell to Japan unprepared, even though I understand the the big numbers you hear about sound very sexy to developers.

Many thanks to Dr. Serkan Toto for taking the time to participate in this interview.

The post An overview of mobile gaming in Asia, Part 3: Japan, with Dr. Serkan Toto appeared first on ufert.se | Eric Seufert.

Last month, Flurry Analytics projected a larger total smartphone and tablet install base in China than in the US (246 million versus 230 million). This usurpation of the top position is significant because 150 million of those nearly 250 million devices – or 60% – were added in 2012. China’s breathtaking pace of mobile device acquisition portends massive potential in the country’s mobile gaming sector in 2013, which has already been noted by the industry press: the Wall Street Journal reported that mobile gaming revenue growth would reach 55% in 2013 and remain above 50% through 2015. In the meantime, it noted that smart phone penetration in China would break the 50% threshold in 2013 – meaning the smart phone install base will grow by approximately 425 million over the course of this year.

These are astonishing numbers, and certainly any mobile gaming developer would be remiss in not at least considering China geographically in its launch strategy. This post attempts to provide an overview of the Chinese gaming market from the perspective of Western developers interested in potentially gaining a presence there. In contrast to the overview of the South Korean market, which presented mostly a fact-based competitive landscape, this post will (hopefully) provide analysis about the challenges and opportunities for mobile game developers considering a launch in China.

Extreme Fragmentation

The Chinese mobile marketplace is extremely fragmented. Of the approximately 200 million iOS and Android devices present in China in the 3^rd quarter of 2012, an overwhelming 70% were Android , with total iOS market share having fallen over the course of the year to below 10%. And while sales of the iPad mini were more robust in China than elsewhere, and Apple is market leader in tablet sales in China, Android’s overall market leadership looks to become further galvanized in 2013. CocoaChina, the developer behind the Fishing Joy series reportedly making more than $6 million per month through over 120 million aggregate downloads across the franchise, has indicated that Android could represent 80% of mobile gaming revenues in China in 2013.

But while Android as a platform is dominant in China, it is fragmented to an even greater degree than in the West as a result of the mass proliferation of cheap, counterfeit Android devices and a massive number of independent app stores (over 500). These app stores may consolidate over the course of the next year as carrier billing — whereby in-app purchases are charged to the user via their telecom utility – becomes more prominent, but the high number of app stores still presents a problem for gaming companies hoping to enter the market, who must build relationships with each one in a business environment that can appear opaque.

And as carrier billing opens an avenue to monetization to foreign developers, it renders tablets less viable than in other markets: counterfeit Android tablets in China generally don’t come equipped with a SIM port, meaning carrier billing is impossible through them.  This market dynamic in China creates a set of development parameters — Android first, smart phone first – at odds with what has emerged over the past year in other geographies: iOS first, tablet first.

The content landscape is also fragmented in China, with no clear preferred game genre lording over the rest. According to Umeng (slide 17), Action is the most played gaming category (in terms of recent additions to the app stores Umeng tracks) at 22%, equal with the “Other” category, followed by Casual at 17% and Puzzle at 15%. Strategy games – which currently lead the Top Grossing charts in Western markets – represent only 9% of new games added, which could spell trouble for the entry of mid-core games into the Chinese market.

No Clear King of Content

Like the device landscape, the stable of large, established mobile gaming operators in China is likewise pluralized, with the largest, Tencent, controlling only 22% of the market according to research firm Analysys. This stratification presents an attractive opportunity for partnerships, as evidenced through China Mobile, which controls approximately 17% of the Chinese mobile gaming market, having partnered with over 600 mobile gaming developers the world over. The third largest gaming operator, China Telecom, controls about 8% of the market.

Interestingly, Tencent may be attempting to pull ahead in terms of market share by emulating a market dynamic seen in South Korea and implementing a gaming platform into its OTT chat app, WeChat. WeChat, with its 300 million users, has the potential to serve as a convenient entry point into the Chinese mobile gaming market for foreign developers seeking exposure in the fragmented Android market space.

But WeChat’s growth has not been without protestations, as China’s largest telecommunications utilities have publicly considered charging Tencent for WeChat’s access to their networks as the free messaging app eats into SMS revenue.

Hyper Growth

Whatever the market dynamics of the Chinese gaming ecosystem, the broader story is hyper growth: in activated devices, in exposure to games, and in revenue. Digi-Capital, in its 2012 review of global gaming M&A, predicted that China could take up to 32% of worldwide online and mobile gaming revenues by 2015, and the iResearch Consulting Group estimates China’s total mobile gaming turnover to reach $2.2 billion by 2015. This surge in revenue is accounted for not only by domestic market growth but also by expansion of Chinese companies into foreign markets through localization and acquisitions.

Tencent has set the tone for such foreign acquisitions, having acquired a 40% stake in Epic Games for $330 million and a 49% stake in Singapore’s Level Up for $27 million in 2012 and Riot Games, the developer of League of Legends, for $400 million in 2011.

Caveat Emptor

Entry into the Chinese market does appear fraught with risk for foreign companies. Henry Fong, who writes frequently on the subject, posted a list of take-aways from a panel about launching games in China held last month at SXSW. Each point seemed to suggest that launching without a local partner — to assist in not only adeptly linguistically and culturally localizing the title but also with navigating China’s labyrinthine bureaucracy – is an essential component of success.

The list of companies attempting to enter the Chinese market and failing miserably is long, with Facebook, MySpace, and Groupon being among the most prominent companies to attempt the feat unsuccessfully. The Chinese market, while appealing, is intimidating, and its divergent and disconnected nature intensifies the risk foreign developers take – as well as the costs they must bear – in entering it. But at the highest level, the launch strategy is clear:

• Focus on Android, accommodating for low-end smartphones;
• Action and puzzle games are the most popular, and while MMOs monetize best, revenue may be shifting toward casual titles;
• Dedicate substantial business development resources to establishing relationships with the largest of the myriad App Store operators;
• Work closely with a local partner that can provide inroads not only with linguistic localization services but can also help recondition games to appeal to cultural sensibilities.

The post An overview of mobile gaming in Asia, Part 2: China appeared first on ufert.se | Eric Seufert.

Until mid-2011, mobile gaming in South Korea was a niche activity, despite the country’s reputation as a gaming powerhouse. The reason was regulation: the South Korean government insisted on reviewing all games made available in localized app stores, meaning gamers interested in recent titles were forced to register foreign app store accounts. But since this reversal in governmental oversight in 2011, mobile gaming has surged in South Korea: mobile gaming revenues are expected to grow by about 41% (year-over-year) in 2013 while settling into year-over-year growth of between 12 and 18% in a “maturity stage” from 2015 to 2017.

This month, Mumbai-based Reliance Big Entertainment purchased a 51% stake in Bhusan, South Korea-based Bluesom Inc., the developer of Real Steel and F1 2011. Reliance, which owns 50% stakes in both Codemasters and DreamWorks Pictures, made the acquisition as a play to increase its presence in the South Korean and Japanese mobile gaming markets. A little less than a year ago, GREE acquired South Korea-based Paprika Labs. At the time, Paprika Labs’ flagship game, Hero City, boasted 1.5 million monthly active users on Facebook and was the fastest-growing game on the social network. And in December 2012, Disney acquired South Korea’s Studio Ex – before it had launched any games — as a strategic expansion into the Asian mobile gaming market.

These strategic acquisitions highlight both the growing importance of the South Korean mobile gaming market and the concentration of game development talent in the country. This post serves as a survey of the mobile gaming landscape in South Korea: the largest and most prominent developers and the networks which form the backbone of the market.

Kakao Games

Kakao Games, which launched in South Korea in July 2012 and worldwide in November 2012, is a mobile gaming network operated by Kakao, which also operates KakaoTalk, the most popular OTT (other-the-top) messaging app in South Korea. KakaoTalk has seen 65 million worldwide downloads and is thought to have 95% penetration into the South Korean smartphone market.

Kakao Games operates similarly to other gaming platforms: users are able to download and launch games from within the messaging app, interacting socially with their contacts by challenging friends or playing cooperatively. The games themselves are downloaded through the user’s device app store (such as the iOS App Store or Android’s Google Play), with Kakao Game handling in-game payments (through its own currency, called Chocos) and divvying up the revenue on a 70/30 revenue split between the developer and itself after paying the platform fee. This means that, for an iOS game, Apple would receive its 30% platform fee, and Kakao would take 30% of the remaining revenue.

Kakao Games launched in South Korea to impressive results: over its three month launch period, the platform earned $51.6 million through 82 million downloads by 23 million unique users. $35.3 million of that revenue was earned in October, the month before KakaoTalk launched Kakao Games worldwide.

Of the Top 10 grossing iPhone apps in the South Korean App Store, five have been released for Kakao Games; on Google Play, it is an impressive nine out of ten. Three games launched on the Kakao Games network achieved 10 million downloads in less than two months: Anipang, CandyPang, and Dragon Flight. Outside of South Korea, Kakao Games has an impressive 9 million users in Japan. Kakao has plans to release an additional 100 games for the platform in 2013.

Chinese gaming powerhouse TenCent reportedly owns 13.84% of Kakao, while South Korean online games company WeMade owns 3.8% of the company. Kakao also received angel investment from the CEOs of Ncsoft, NXC, and Neowiz.

Gamevil

Gamevil, a South Korean developer and publisher of mobile games, reported a bumper year for 2012: it recorded revenue of nearly $65 million, up 64% from 2011, with its net income up almost 40%. Gamevil’s development pipeline for 2013 contains 50 titles, with projected total revenues of nearly $100 million. The company derives 70% of its revenues from Android and 39% of total revenues from outside of South Korea.

Of the 43 games released by Gamevil in 2012, 11 were developed in-house and 32 were developed by third-party studios. Gamevil had a 23% “hit ratio” for the year — 10 of the 43 games it published made it to the Top 10 grossing chart on Google Play.

Neowiz

Neowiz is one of the largest online gaming companies in South Korea and the operator of the Pmang portal. Its mobile catalog remained small in 2012 — although it did publish the official mobile game of the 2012 Olympics — but it announced a strategic entry into the Chinese mobile gaming market in mid-July 2012. Neowiz initiated a second round of layoffs last month, owing to the end of its service agreement with EA over FIFA Online and decreasing revenues from its game Crossfire.

NCSoft

NSCoft is the Seoul-based MMO developer behind Lineage, City of Heroes, and the Guild Wars series. NCSoft acquired HotDog Studios, a South Korean mobile games developer, in July of 2011, but, as of November 2012, the company’s non-console, non-desktop revenues remained a minor proportion of the total at 6%. NCSoft has indicated that it will expand further into mobile in 2013 with a mobile version of Lineage, co-developed with GREE.

Hangame

Hangame is an online and mobile gaming portal operated by NHN Corp, which owns a number of internet services in South Korea such as Naver, the country’s most popular search engine, and me2day, an application similar to Twitter. Hangame has been making a concerted push into mobile for the past two years, developing its own titles and publishing others in South Korea and abroad. The company is expanding aggressively, having opened up 200 job requisitions, mostly related to mobile games development, last month.

NHN Corp, the parent company of Hangame, also owns LINE, the messenger app popular in Japan that recently announced it has reached 100 million users globally.

WeMade Entertainment

WeMade is the creator of the popular Legend of Mir MMORPG series, which garnered over 200 million players over its lifetime. The company is apparently planning to launch 40 mobile games in 2013, after having driven $11 million in mobile gaming revenue in 2012. The company’s current mobile catalog is comprised of eight titles, two of which are Top 10 grossing in Google Play in South Korea (both having been released for Kakao Games).

WeMade’s expansion plans for 2013 include China and Japan. WeMade’s US subsidiary, WeMade Entertainment USA, develops and publishes games for the North American and European markets. WeMade recently announced a partnership with WhatsApp, indicating that the messenger app may be building out a games platform of its own.

Andromeda Games

In January 2013, Andromeda Games — developer of the Tap Tap series of games published on Kakao Games, received a $1.3 million investment from IMM Investment and Korea Investment Partners to further expand their catalog of mobile games.

The post An overview of mobile gaming in Asia, Part 1: South Korea appeared first on ufert.se | Eric Seufert.

When I left undergrad, I experimented in a few finance positions for a year before joining a technology start-up in 2007. The technology ecosystem at that time looked very different from its current incarnation: clear skillset delineations separated the functional groups within a company. Engineers coded. Business analysts played with spreadsheets. Marketers sent out emails and kicked the results to business analysts. Product people drew mock-ups on whiteboards.

Technology start-ups today are vastly more fluid. Providing value is very difficult – in any position – without being able to code because “Big Data” has increased the availability of data and thus the complexity of deriving insight (because the volume of available data is so large). What separates engineers from “everyone else” in 2013 isn’t the ability to code – it’s the desire to build systems. In my world (quantitative marketing), “coding” means getting things done right now; “engineering” means getting things done for the foreseeable future.

The engineering mentality can frustrate a mere “coder” who wants to see a quick turnaround on a problem. When I write a script in Python – to cleanse data, to test a rough draft of an algorithm, to combine data sets – my intended use case is immediate and I estimate the total development time in hours (or minutes!). When an engineer opens her IDE of choice to develop a system, her estimated development time might reach months (or years!) and the intended use case could persist for even longer. An engineer builds things designed to evolve with necessity; a coder builds things to gratify an immediate need.

The symbiotic relationship between coders (who can exist in any functional or product group) and engineers is copacetic when each properly identifies their appropriate domain. And I think it’s quite easy for a coder to identify tasks that aren’t meant to be undertaken with coding: problems that require extensive planning, architectural design, resource allocation and testing can usually be designated as systems that should be built by engineers. Engineers, however, have the tendency to overreach when deciding when a task should be designed as a system or developed as a one-off solution. I call this engineering overreach “inventing problems”.

Inventing problems is a product of the brave new world of the technology start-up, where many tasks – not just systems building – are completed programmatically. Data / business analysis requires some scripting knowledge, be it R, Python, Ruby, etc. Marketing requires coding. Product development, especially on mobile, requires coding. This wasn’t the case five years ago when I entered the technology vertical, but it’s a reality of the industry as it exists today. Engineers can sometimes mistake problems that require coding to be potential systems when in reality they’re just discrete tasks – inflection points on a product’s trajectory, not that product’s means of locomotion.

A tool – a system for completing tasks – has the potential to provide business value over an extended timeline. In other words, it’s re-usable, and thus must be designed with flexibility and longevity in mind. The same can’t be said of a discrete task, which, even when accomplished programmatically, doesn’t need a lifetime beyond its initial use. These two extremes are fairly easy to identify immediately and appropriately categorize. Engineering overreach occurs between these two end points: in cases where a certain task might be repeated a number of times but won’t necessarily have to live on for years. A good litmus test for identifying the necessity of system development in this ambiguous range on the requirements spectrum is the “intern test” – could an intern complete this task, reliably and accurately, for this problem’s entire lifetime? If so, then it’s not system worthy.

In the end, this decision point – building a tool vs. inventing a problem – should be objective and based on business value. Building systems because that’s “the right way to do things” isn’t ROI-friendly, and it’s not agile. A system should be built when automation delivers a higher return than continued manual execution, based on 1) the estimated lifetime of the problem, 2) the estimated business value (return) of solving that problem each time, 3) the number of times that problem is expected to require solving. In other words, the decision is a sober, objective calculation, not an ideological test of faith.

The post Building tools vs. inventing problems appeared first on ufert.se | Eric Seufert.