Konpu Gacha in Social Gaming - A New Drug or a New Face on an Old Villain?

GREE and Mobage, operated by GREE and DeNA are Japan's leaders in mobile social gaming.

DeNA's turnover for FY2011, period ending March 2012, was JPY145,729 million yen or US$1.83 billion.

GREE's FY2011 turnover was JPY64,178 million yen or US$807 million.

And in this day and age of sluggish or negative growth in the economy itself, they are enjoying double-digit year-on-year growth.

Their secret?

Game add-ons. One former employee of a social gaming giant told me five years ago that their daily take on add-ons, averaging US$2.00 to US$3.50 a piece, can be as high as US$2 million in revenue IN A DAY when.

They call it "small change business" whereby consumers don't realize they are making large purchases at all, and thus, become immune to the spending.

And in recent years, one of their biggest cash cows was "gacha" and "konpu gacha" (complete gacha) - a card collection system built into games whereby players can pay to buy cards that will help them get to the next stage of the game. The catch is that (a) players cannot pick the cards they are buying as it is a blind, lucky-draw type sale (i.e. one will definitely get a card but there is no guarantee on what card they will get), and (b) some cards have lower odds than others to appear, and (c) even rarer or more valuable cards are only attainable once the player has a complete set of cards (for konpu gacha).

The market rate per card is JPY300, or US$3.77, but there have been reports that minors have racked up bills in the thousands of dollars while grownups have been set back in the TENS of thousands of dollars. And this is PER MONTH, not year!

On May 7, the Consumer Affairs Agency (CAA) announced that they will investigate the legality of such games and gaming companies stocks lost 20% to 25% of their value by the close of trade.

The companies quickly announced self-regulation matters and according to the Japan Times, one CEO even publicly announced that he was not aware of the 1977 law the CAA was referring to upon questioning the legality of the konpu gacha system.

The said law was introduced in response to card collecting children spending extravagantly to complete their collections - be it baseball cards or super hero cards.

The buzz word in the media related to this subject since has been "speculative spirit" - which is what the gaming system appeals to and what the law the CAA is trying to apply specifies as the poison that traps consumers.

Some PR specialists have noted that perhaps "speculative spirit" will become one of the buzz words of the year.

What is interesting about the application or the attempt to apply this law to social gaming is how the word "speculative spirit" has been applied to prohibit gambling and how it is the focal key in the ongoing debate about whether pachinko palours are legal or not.

Pachinko is a "pin ball game" operated in pachinko parlours. Players buy a box of balls and play to win more balls. As it is technically illegal to win cash, as that violates our laws that prohibit gambling, players are able to exchange their balls upon leaving the parlours for prizes.

There is a legal cap on the unit price of the top prize, but there is no legal cap on how many prizes one can take away.

When I was a sales rep for the now infamous Olympus Optical Co., Ltd. in the camera division, my first full time job after university more than 20 years ago, my claim to fame was that I secured an account that purchased the entry-level camera, priced at under JPY10,000, or the legal prize cap at the time, as a top prize for the pachinko parlours.

Many of my esteemed colleagues initially taunted me by saying,
"We thought you were someone who walked only under the sun. We now see that you move in the shadows, too"
But as I always say about sales people - history is made by the victors = those who sell the most - once the first order of 2,000 units came in, they decided to wait and see.

Then, when another 2,000 units went out the door the following week, and the week after as well for the remainder of the year, I was recognized with the equivalent of the "Sales Rep of the Year" Award. I was only the third "million-dollar player" in the Tokyo Office, or a sales rep that sells more than $1 million per half year, at the time, and the only one who did not have a wholesale or electronics shop chain as an account. That _was_ a breakthrough in lead generation and account management at the time.

As much as I was thrilled that my hard work paid off, it was almost scary to see the pace with which the cameras were taken up.

Even on weekdays, one often sees a queue outside of the pachinko parlous before they open their doors for the day. I used to have classmates who would spend their entire days in pachinko parlous when I was in Uni.

I have personally never set foot in such a place (despite selling to them!), but whenever I read about children left in cars to suffocate in pachinko parlour parking lots thanks to their mothers or parents being addicted to the game, or neglected children getting hit by cars outside of such parlous, my heart sinks.

A while back, I believe there were articles written about how Online gaming has become recognized as an addiction and how marriages and lives have been destroyed by gaming addicts who could no longer function socially thanks to their addiction and loss of touch with time, social commitments, and family.

Perhaps gambling is only preceded by prostitution as an old vice. Or are they contemporaries?

And konpu gacha definitely looks like a new exterior for an old villain.

GREE and DeNA as actively pursuing their overseas business expansion plans. You may be hooked before you know it, too. Watch out!